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Market power and media revenue allocation in professonal sports: The case of formula one

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  • Budzinski, Oliver
  • Müller-Kock, Anika

Abstract

Recent allegations from participants of the FIA Formula One World Championship (F1) suggest that the promoter of F1 (possibly together with the sports association) violates European competition law in two ways. First, it alleged-ly abuses its market power by deducting an inappropriate high share from the rev-enues of the collective sale of media rights in order to boost the profits of its pri-vate equity parent company (vertical allocation of media revenue). Second, it alleg-edly forms a cartel with selected top teams at the detriment of smaller teams by providing both unjustified extra payments to these teams and enforcing a heavily biased horizontal allocation of media revenues, benefitting the cartel teams. Pro-fessional sports championships typically receive common revenue, for instance, from trademark rights and marketing, but often also from the sale of broadcasting and other media rights. This common revenue needs to be allocated in two ways: (i) vertical allocation between the sports authority and the participants, and (ii) hor-izontal allocation among the participants. Different professional sports champion-ships employ vastly differing schemes for both types of allocation. In this paper, we present an empirical assessment whether the current antitrust allegations against F1 may be valid. We employ concentration measures from empirical economics, like the Hirshman-Herfindahl-Index (HHI), the concentration ratio and the standard de-viation in order to assess different allocation schemes from different commercial sports. With the help of these indices we show that the allocation scheme em-ployed in F1 considerably differs from such used in other professional sports championships. We find the empirical picture to be consistent with an anticompetitive interpretation of F1 media revenue structures and policies. We conclude that there is merit in starting an in-depth antitrust investigation of Formula One motor racing, which would also represent an opportunity for the European Commission to cor-rect earlier mistakes.

Suggested Citation

  • Budzinski, Oliver & Müller-Kock, Anika, 2016. "Market power and media revenue allocation in professonal sports: The case of formula one," Ilmenau Economics Discussion Papers 102, Ilmenau University of Technology, Institute of Economics.
    • Handle: RePEc:zbw:tuiedp:102
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    References listed on IDEAS

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    Cited by:

    1. Budzinski, Oliver, 2017. "Sind Wettbewerbe im Profisport Rattenrennen?," Ilmenau Economics Discussion Papers 104, Ilmenau University of Technology, Institute of Economics.

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    More about this item

    Keywords

    competition; antitrust; abuse of market power; sports economics; formula one motor racing; sports business; media revenue; football;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • Z20 - Other Special Topics - - Sports Economics - - - General

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