America’s more capitalist sports fans commonly acknowledge that their country’s most popular sports, like the National Football League and the National Basketball Association, have several rules that would please a Scandinavian social democrat. Salary caps and luxury taxes limit how much each team can spend on players, punish those that over-spend, and close the gap between rich and poor teams. In both sports, the top draft picks typically go to the worst-performing squads from the previous year. Revenue sharing redistributes wealth among the rich and poor teams. Overall, success is punished by design, misfortune is rewarded by design, and the power of wealth is circumscribed with spending caps.
It’s a different story across the Atlantic, where many European soccer leagues have practices that would please an American conservative. There are few salary-cap rules, so a handful of rich teams tend to dominate annually. When a soccer team performs poorly, it’s not rewarded with a high draft pick. Instead the club is relegated to a less competitive league, a mighty blow to their revenue. Meanwhile the most successful teams from lower divisions are promoted to more competitive leagues where they can earn even more money.
For years, economists have wondered why America doesn’t share Europe’s socialist approach to government. But maybe it’s worth flipping the question: Why don’t European sports share U.S.-style socialism? Why do European soccer leagues punish the downtrodden, while American sports are so soft on losers?
In their famous 2001 paper, “Why Doesn’t The U.S. Have A European-Style Welfare State?” the economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote pointed out that public policies are an echo of national history. For example, in the U.S., the legacy of the 19th century’s “open frontier” made Americans skeptical of government intrusion, while the absence of an influential socialist party after World War II made it difficult for leftist policies to take root.
By analogy, perhaps, one could look to history to see the origin of Europe’s surprisingly free-market approach to sports. The rules of today’s English Premier League can be traced to the late 19th century, when English soccer was in a period of rapid growth, with hundreds of English and Welsh clubs forming in several decades. Owners, players, and fans all recognized that the helter-skelter scheduling made it harder for people to plan their lives around soccer. In 1888, 12 teams banded together to form England’s first Football League. This provided a modicum of structure to the beautiful game, such as set schedules and guaranteed home games. In its original rules, the worst teams in the league had to apply for “reelection” to remain. Otherwise, one of England’s hundreds of other soccer teams could take their place. As the League grew in size and number of divisions, reelection evolved into a system of promotion and relegation—a model that has taken hold in soccer leagues in Europe and around the world.
Promotions and relegations were a tailored solution to a specific problem in English soccer: the problem of chaotic abundance. There are thousands of soccer clubs in England and Wales. Without any churn among the most elite divisions, like the Premier League, hundreds of teams would be denied the chance to ever improve their lot. The divisions would ossify, and fans, denied all hope of moving into higher levels of competition, could lose interest or revolt.
Today’s American sports leagues don’t have the same problem of abundance. For example, there are only 32 teams in the NFL and 30 teams in Major League Baseball. There is no 33rd football team that can compete with the Tennessee Titans for a spot in the league. If a baseball team is bad for an extended period of time, they might lose fans or move to a new city (which is a form of relegation), but nobody talks seriously about sending the Minnesota Twins to AAA.
In fact, there have been several periods in U.S. history when multiple leagues existed within the same sport. There used to be an American Football League and a National Football League, but they merged in 1970, in part to prevent each from outbidding the other for the most talented players. There used to be a Basketball Association of America and National Basketball League, but they merged in the 1940s. As a result, for decades, there has been one dominant monopolistic organization (or a cartel) for each of America’s most popular sports: football, basketball, baseball, and hockey.
With a small, and relatively fixed, number of clubs in each league, America’s professional sports organizations have a different challenge to keep individual teams from falling helplessly behind. If the Philadelphia 76ers are historically bad every year for a decade, it risks destroying the city’s fan base and hurting television revenues.
The EPL and the NFL may appear to have very different concerns, but on both sides of the Atlantic, sports leagues are trying to answer the same questions: How does a sports league account for its worst performers? How does it retain the fans of the league’s least successful teams?
In English football, where there are hundreds of similarly talented squads, the promise of churn keeps those fans interested: Late-season games between bad teams take on enormous significance when a loss might lead to relegation. In American football, where there are exactly 32 similarly talented teams, the promise of parity keeps those fans interested: If an NFL team stinks this year, all the more hope for next year. Promotion and relegation increases in-season drama, while the American system increases post-season hopes.
Finally, American professional sports leagues do promote and relegate, but at the player level. Baseball teams often demote bad players to AAA or call up AAA players into the big leagues. NFL teams do the same by moving an athlete from the practice squad to the roster. Here again, promotion and relegation solves the same problem of abundant competition. The best AAA player really is probably better than some MLB players, and the best practice-squad wide receiver is probably fit to play on Sunday.
As Alesina, Glaeser and Sacerdote observed, policies aren’t destiny, but rather the offspring of history. The modern history of American professional sports has been the story of single organizations monopolizing the best talent in each game. While there are thousands of teams in the English soccer universe, there is only one NFL, one MLB, one NBA, and one NHL. To ensure the widespread popularity of their entertainment monopolies, they made parity their cardinal virtue. To enforce parity, they embraced varieties of socialism that most American institutions have steadfastly rejected. Judging by their record profits, it would seem that sometimes being nice to losers is a winning strategy.