Owners incentives during the 2004–05 National Hockey League lockout

Abstract

This study shows that firm owners can indirectly benefit from work stoppages if they own other firms in substitute industries and gain market power for those other firms. The incentives of the owners are examined with a model of cross-ownership cartels and data from professional sports. Assuming that various professional sport events are substitutes, owners may increase profits by eliminating competition, even if they own the competition. This study shows that the recent National Hockey League (NHL) lockout caused a statistically significant increase in attendance for the National Basketball Association and junior hockey leagues. Given that many NHL owners own teams in these substitutable leagues, this could be construed as anti-competitive behaviour and may have prolonged the NHL lockout and helped NHL owners in collective bargaining. Given the public investment in sports facilities and market power in professional sports, this analysis calls for cross-ownership across professional sports to be questioned.

Acknowledgements

The author wishes to thank without implicating Stephen Salant, Charles Brown, Bob Schoeni, John Dinardo and Rod Fort for helpful suggestions.

Notes

¹ Average yearly ticket revenues are equal to the product of yearly attendance and average ticket price, available at www.teammarketing.com

² Incumbent players in minor league hockey complained about the increase in labour supply during the NHL lockout. In fact, at least one incumbent player was known to have a ‘bounty’ because of his opinion of the influx of NHL players in the minor leagues.

³ The degree of substitution between minor/junior league hockey and the NHL is also estimated in Winfree and Fort using a slightly different specification. However, that study does not examine owners’ incentives and cross-ownership.

⁴ Data are available for all teams in the NHL minor league system as well as junior hockey leagues for selected years from www.kenn.com. Only teams that were playing in the same league the year before were used because of lagged variables.

⁵ Points in this case does not represent goals, but the point system that is analogous to winning percentage. Hockey teams receive two points for a win, one point for a tie and no points for a loss. However, typically a team receives one point if the team loses in overtime.

⁶ This data can be found at www.rodneyfort.com. All of the data in this sample were originally obtained from USA today.