Essay/Term paper: The economics of the n h l

Essay, term paper, research paper:  Business

J.C.H. Jones's article "The Economics of the National Hockey League" (1969) purpose is to
explain through simple micro economics that the prime motive of professional hockey team owners
is profit maximization. The owners argue that their main interest is "for the love of the game," not the
financial benefits of owning a professional sports franchise and to avoid government regulations such
as the Combines Act (note 1).

An article written in 1982 by J.A. Schofield entitled "The Development of First Class Cricket in
England," states the behavior of sport cartels. Three hypothesises are used to explain the behavior
described by Schofield, number two being developed by J.C.H. Jones (1969). (1) The profit
maximization hypothesis. (2)The joint profit maximization hypothesis that the entire cartel (league)
strives for. This hypothesis does not incorporate non profit objectives that influence group behavior.
(3) The utility maximization model that allow for many possibilities usually compromising arguments
such as the success of the team at a given year and paid attendance for the team's venue.

By explaining the frame work of a professional sports league Jones introduces us to factors that
make an organized league function, which seems quite familiar to any other monopolistic markets.
Since no team can create any revenue by themselves they must form a coalition with another club to
produce a profit generating output, namely a hockey game. Other clubs enter this coalition thus
creating a formal league which we call the National Hockey League. Jones then states how revenue
is generated in the N.H.L and how it is affected by certain factors.

A theoretical model of the N.H.L is created by Jones with all things being equal, creating an
equilibrium amongst all clubs. The model is then adjusted to real life variables that turns his
theoretical model into what we know as the N.H.L. Jone's variables includes the incentive for teams
to win (this being the Stanely Cup), different quality of players, the amateur draft (a draft at the end
of the season which amateur players a selected, last place team gets first pick and so forth), and
player redistribution(trades).

By applying microtheory Jones clearly presents his argument which I was able to













understand with my current knowledge of microeconomics. Jones examines the revenue side of an
individual team using the usual variables tastes, prices, incomes, quality and substitutes. On

the supply side Jones stresses that the major element is the human inputs namely the hockey

players. The data that Jones used was team statistics such as their final rank at the end of the season
and the paid attendance as a percentage of maximum seating capacity. By using this data Jones is
able to establish trends that arise from season to season, thus helping him establish his argument on
profit maximization.

Jones article is meaningful at the moment because of the current labor disputes amongst the players
and the owners. "The Economics of the National Hockey League" states what the N.H.L. should be
and also indicates what is wrong with its current status. The current issues pressing the N.H.L. such
as a salary cap, revenue distribution, and league expansion are all measures that the team owners
are striving for. By installing these measures into the N.H.L. the equilibrium achieved in Jones's
theoretical model would be easier to achieve thus maximizing the owner's profits. One variable that
Jones could not foresee in 1969 is the outrageous salaries being paid to the players and the
proposed salary cap from the owners. I believe that Jones's argument that owners motives are
purely geared towards profit maximizing would be stronger if the idea of a salary cap was present
then.

Jones concludes that the National Hockey League is profit driven and clearly posses monopolistic
qualities. Upon proving this through simple micro economics the N.H.L. can fall under certain
government regulations such as The Combines Act. Since this article was written in 1969 many
changes have been made to the governing bodies that control the National Hockey League however
its functions can still be explained through micro economics.









REFERENCES


1.The Combines Act. R.S., C314 s.1, 1966

2. J.C.H. Jones, "The Economics of the National Hockey League", Canadian Journal of Economics,
vol 2 (February 1969), pp. 1-20

3. J.A. Schofield, "The Development of First-Class Cricket in England: An Economic Analysis",
The Journal of Industrial Economics, vol. 30, no.4 (June 1982), pp.337-360