Should NFL Blackouts be Banned?

In 2000, William Putsis and Subrata Sen asked in Applied Economics whether the 72 hour local TV blackout ban should be abolished. While much has changed in the NFL television broadcasting market over the last few years – NFL Sunday Ticket and the new NFL Network – the need for the local blackout rule is still an interesting economic question.

As the authors relate in the paper, in 1961 Congress allowed pro sports leagues to pool broadcasting rights in order to negotiate – as a cartel – with television networks. One of the results of these negotiations was that the league could blackout home games in the local geographic market if the game is not sold out 72 hours prior to game time.

There are two major themes of the paper: the statistical estimation of game day attendance, and the policy implications of rescinding the local television blackout rule. I will provide a brief overview of each section.

The authors make a clear review of the pro sports demand literature and provide insights to a number of methodological shortcomings: failure to distinguish between different types of game day attendance demand and the endogenous problem (which means that some independent variables and the dependent variables are determined simultaneously). And since teams play in a stadium that has a maximum capacity the estimation of game day attendance should take into account that the number of spectators is constrained.

Putsis & Sen collected data on economic, demographic, team and game specific variables for the 1996-1997 NFL season. They also sent surveys to all 30 NFL teams requesting information on season ticket sales, season ticket prices and individual game day ticket sales, and the games that were blacked out.

With data in hand the authors estimated game day attendance (demand) for season ticket holders, individual game tickets sold, and game day no-shows. Not surprising teams that win more have greater ticket demand (we mentioned that winning is also drive NBA ticket revenue in The Wages of Wins). Putsis & Sen also find that demand for both season and individual game tickets are highly inelastic (i.e. unresponsive to changes in ticket prices). This is a common result in the literature, a topic I will talk about in a later posting.

Beyond the impact of wins and prices, though, is the impact blackouts have on attendance. The authors find that NFL blackouts have an estimated negative impact on game day ticket sales equation. Putsis & Sen admit this counter-intuitive result reflects the fact that blacked out games are not very attractive contests in the local market. One of the key insights of the paper is that a single variable cannot distinguish between the lower level of interest of blacked out games and the marginal impact of a blackout.

To overcome this, the authors examined all the home games of the eight teams that had at least one game blacked out during the season. They then estimated NFL attendance with both the previous blackout variable and a dummy variable. The blackout dummy variable provides an estimate of the impact of the blackout holding overall interest constant. The authors estimate that because of the blackout over 11,000 more game day tickets would be sold and that the number of no-shows per game decreases by almost 5,000. These numbers translate into a maximum average increase in total game day revenue for NFL games of over $400,000. So the practice of blacking out games results in, on average, with more fans attending the game and more revenue going to NFL teams.

The authors ask, can we find a Pareto superior outcome – which is a fancy way of asking if there is another solution that would make the local team and the local fans better off?

The authors list four: first, make it illegal to locally blackout a game – which would require Congress to change the current law and could undermine the legal standing that pro sports teams have in negotiating with television networks. Second, allow additional advertising during NFL broadcasts – which would make NFL games and television broadcast running time longer and could affect other scheduled programming. Third, use tax revenues to compensate NFL teams – which sounds like a Walter Mondale 1984 Presidential platform of “let me raise your taxes”, which I don’t think would even work in Minnesota. Fourth, implement a pay-per-view system for blacked out games – which would be hard to fully capture given the public goods characteristic of NFL fans flocking to other friend’s homes or public viewing areas.

Admittedly, I like the last of these ideas, but I have an alternative solution. Suppose a NFL game does not have the required number of fans, and so the game is going to be blacked out. The local television station that would have televised the game now will have to televise something else, either an out of town game or some old movie – which was usually a western when I was growing up near Philadelphia. Let’s assume that ratings will be less with the old Western (otherwise why televise the NFL game?).

So why not let the local television station pay the home NFL team to televise the game? Since demand is greater for the NFL game, the local TV station can re-coup the costs by charging higher advertising rates during the NFL game. Now the local NFL team is compensated for lost revenue from low ticket (and concession) sales, the fans can watch their local team, and the local television station can increase its ratings by televising the local NFL game.

And that is what economists call a Pareto-superior outcome.

– Stacey

For those interested in reading the article:

Putsis, William & Subrata Sen. 2000. “Should NFL Blackouts be Banned?”, Applied Economics, 32: 1495-1507.

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