The Auctioning of TV-Sports Rights

This article examines the effectiveness of auctions as sale procedures of sports rights. Although recent history contains several examples of auctions that have generated substantial revenues to owners of sports rights, staging an auction is no guarantee of success. The amount that bidders are willing to pay is influenced by a number of factors. Television companies or networks do not control all of the factors that influence their income from sports broadcasting. As a result, risk-aversive companies may choose not to submit bids. Sellers should stage open-bid procedures (preferably English auction) in order to neutralize this effect. Open-bid procedures provide information that can encourage risk aversive companies to bid more aggressively. However, sellers who fear collusion among buyers should stage secret bid auctions. The production and transmission of TV programs is characterized by economies of scale advantages. High entrance costs reduce the number of companies that can afford to enter the market. On the other hand, those few that have the financial resources will strengthen their market power, at the cost of the sellers. This can reduce the level of competition and make it more difficult to uphold values on sports rights. Introducing minimum fees and royalty fees can reduce the problem, but not fully outbalance the negative effect from reduced competition. Thus, sellers of sports rights may have to accept a reversal effect on rights fees if the number of bidders is reduced.