Blackout Blues

At the advent of commercial television in the early 1950s, the NFL was spooked by the possibility of fans watching the games from their homes instead of paying to attend them live. The league’s owner-operators promptly adopted a blackout rule that prevented the telecast of all of a team’s home games to “protect” live attendance. By the 1960s, however, the league started to see value in television as a medium for expanding the game’s popularity. The NFL signed its first single-network contract, providing all of its games would be available for telecast on CBS. The owners still maintained a home blackout rule. By the 1970s, this was watered down: Home games would not be blacked out if they sold out at least 72 hours prior to the scheduled kickoff.

The networks — today the NFL has four broadcast partners — agreed to honour home blackouts for non-sold-out games in their contracts with the league. The Federal Communications Commission, at the league’s behest, adopted further rules that prohibited cable and satellite operators from making blacked-out games available in the affected markets. The FCC is now reconsidering this rule and has asked for public comment.

The FCC’s original justification for the cable and satellite ban was that it would “protect” the general availability of games on free network television. This is just as silly as the NFL’s longheld view that blackouts are necessary to “protect” live attendance. The blackout rule may have been an understandable, if premature, reaction to the unknown impact of television in the early 50s. But we now know that television, far from decimating the NFL, has made it the most popular professional sport in the U.S. by a substantial margin.

The NFL became a multi-billion-dollar entity by giving away its product for free. It wasn’t brilliant ownership or an authoritarian commissioner, but entrepreneurial television networks that figured out how to turn a second-rate sport — remember, in the 1950s baseball, college football and even boxing were more prominent sports than pro football — into must-see entertainment. Other entrepreneurs built secondary markets around gambling on the NFL (fantasy football), talking about the NFL (24-hour sports talk radio) and even talking about the mundane administrative aspects of the game (NFL draft “experts”). All of this happened in spite of the 30-plus guys who actually owned the teams.

The problem is, those owners still believe in an outdated stadium model. The owners don’t compete for television revenue, the majority of the league’s income, because that’s divided equally regardless of performance. Most of the secondary revenue remains outside the league’s grasp. That leaves the live attendance. A team keeps 60% of its own gate, so every owner wants to maximise not just the number of bodies in the stadium but the price paid per body.

The stadium market is horribly distorted. Local governments often provide hundreds of millions of dollars in subsidies to construct stadiums. Decades of Fed-induced cheap debt allowed owners to borrow hundreds of millions more. Stadium location, capacity and pricing are no longer driven by the marketplace but by a host of political factors. Too many stadiums were built with too many seats for too much money. The continued enforcement of the blackout rule is simply a pathetic attempt to try and “force” consumers to subsidise this poor decision-making.

It’s also woefully counter-productive. If nothing else, a televised game advertises a team’s presence on local television for three hours. The NFL is saying it’s better not to advertise the game at all, because somehow that will induce demand to rise. It’s a good thing the companies that will pay upwards of $4 million per half-minute to advertise during next month’s Super Bowl telecast don’t think that way. Otherwise the television networks would stop writing multi-billion-dollar checks to pay for the NFL’s broadcast rights.

Actually, the networks are really at fault here. They are the league’s primary customers. Yet they’ve passively enforced the blackout rules for decades out of some misplaced fear of offending the league’s owners. It shouldn’t be up to the FCC to end the blackout policy. The customers have every right to say, “We’re paying for these games, and we’ll televise them where and when we want.” Sure, the NFL can walk away, but there’s not exactly an unlimited supply of television networks willing and able to pay the premium prices the league is accustomed to receiving. If push comes to shove, the NFL will end the blackout rule out of pure self-interest.