FCC Monday Morning Quarterbacks the Sports Blackout Rule

On September 30, the Federal Communications Commission will vote on whether to repeal its sports blackout rules. The outcome is a forgone conclusion - the FCC will repeal the rules.

The immediate impact of repeal will be minimal, since the practical effect would only be felt a few times a year in a handful of TV markets where professional football games do not sell out all the time. (While the rule technically affects professional baseball, hockey and basketball as well, only football has aggressive blackout policies.) Even so, the proposal to end the blackout rule generated widespread popular support as well as an intense pushback from the National Football League (NFL), which generated a last minute lobbying campaign that recruited a number of large institutional supporters, including several major civil rights organizations.

Today, local blackout policies are largely determined by private contractual relationships between sports leagues or individual teams and the networks, local TV stations and pay-TV operators which carry the games. The sports blackout rules effectively extend, and protect, these contracts. However, the legal underpinnings of the blackout rule are rooted in historic regulation of television, and show how the impact of television has changed sports over the decades.

Once upon a time, television royalties were a secondary revenue source for sports teams, as ticket sales were the principal source of revenue. To insure that fans would buy tickets, the NFL imposed several blackout restrictions, most notably one which prohibited televising home games in the local market. (It was common in those days for New York Giants fans to drive to bars and restaurants in Connecticut, where the Hartford TV station carried the games.) After the NFL lost several antitrust rulings against elements of its blackout policies, it successfully lobbied Congress to enact the Sports Broadcasting Act of 1961, which exempts professional football, baseball, hockey and basketball leagues from certain antitrust restrictions. That law expressly permits blackouts of home games within a team’s home territory. (The law also attempted to restrict professional football games from being played on Friday nights, which is reserved for high school football.)

As football became more popular, and sellouts were increasingly common, complaints against blackouts grew into a major consumer issue. Thus, in 1973, Congress amended the law to prohibit home game blackouts only if the game was not sold out 72 hours in advance of game time. Although the statute was effective only for two years, the NFL has voluntarily continued the 72 hour policy ever since.

[An interesting sidelight to the 1973 law is how it came about. Politicians were increasingly upset about blackouts, and efforts to limit them were gathering steam. In December 1972, President Nixon, who was a fan of the Washington football team (which shall go nameless here), offered a deal to the NFL under which he would veto broader legislation if the NFL immediately allowed playoff games, including the forthcoming Washington/Green Bay game, to be broadcast. The NFL rejected the deal, and a few months later Nixon signed the law imposing the new 72 hour rule.]

Meanwhile, cable television was evolving from a small, largely rural, service into a major industry which was planning to build in major suburban and, ultimately, urban centers. In 1975, the FCC, which in those days regarded cable as a threat to the viability of over-the-air TV, adopted the cable sports blackout rule which is now at issue. Because cable systems could “import” distant stations’ signals the FCC regarded this as a threat to the widespread availability of sports. It reasoned that, for example, if New York area cable companies could import the Hartford TV station’s signal, the league would extend the New York Giants blackout to the Hartford station. This would therefore deprive Hartford viewers of the opportunity to see the game. As the explained:

[g]ate receipts are the primary source of revenue for sports clubs, and teams have a reasonable interest in protecting their home gate receipts from the potentially harmful financial effects of invading telecasts of their games from distant television stations. If cable television carriage of the same game that is being played locally is allowed to take place, the local team’s need to protect its gate receipts might require that it prohibit the telecasting of its games on [distant] television stations which might be carried on local cable systems. If this were to result, the overall availability of sports telecasts would be significantly reduced.

In the early 1990s DirecTV and Dish began to offer competitive satellite-delivered pay-TV (DBS) services. Congress sought to place satellite and cable on an equal footing by enacting the Satellite Home Viewer Improvement Act of 1999. Among other things, it directed the FCC to apply the cable blackout rule to DBS. (In 1996, Congress had similarly applied the cable blackout rule to cable-like “Open Video Systems,” but there are few such systems in operation.)

The sports blackout rules benefit the professional sports industry and local TV stations. Pay-TV operators which might benefit from lifting them have their own deals with the sports leagues and thus have little incentive to challenge the rules. There is one other group of interested parties - the public, but, until recently, sports fans did little but complain a few times a year when games were blacked out. That changed when a new group called the Sports Fan Coalition (SFC) was created to give voice to those concerns. In November 2011 SFC filed a petition calling for repeal of the rules. (Media Access Project, with which the author was affiliated, was among the other groups which joined with SFC to file the petition.)

SFC’s main argument is that the rules are based on the now-obsolete premise that ticket sales are the main source of revenue for professional sports teams, and that the rules operate as an unneeded “regulatory subsidy.” The rules, it maintains, allow the leagues to

charge exorbitant prices for tickets, which in turn results in lower attendance. The leagues then punish fans by blacking out games from television because a few seats remain unsold. The Commission should not be propping up this anti-consumer behavior through the Sports Blackout Rule, particularly in such difficult economic times.

Earlier this year, the FCC formally proposed to repeal the rules. Thousands of fans vented their displeasure at the NFL by supporting the proposal. Not unsurprisingly, the major sports leagues supported the rules. The centerpiece of the NFL’s argument is summarized in this letter describing a meeting with the FCC Chairman’s legal advisor:

[T]he League's stadium policy benefits the fans, because, in concert with the FCC's sports blackout rule and other elements of the current system, the policy helps to keep NFL games on free broadcast television. Professional football is the only sport for which fans have access to all of the sold-out games of their home team without having to pay an expensive monthly fee for cable or satellite service. NFL representatives said that the current system clearly serves the public interest by making professional football games available to the estimated 60 million Americans who rely on free TV for their access to broadcast programming. They emphasized that, if the current system were changed and NFL games were to move to pay-TV, fans who wanted to watch their home team would have to pay a $60-80 fee per month, and a significant number of fans likely would not be able to afford that premium. That result would represent a substantial loss of consumer welfare.

Aside from the wisdom of the blackout rules, there is also some question as to the FCC’s legal authority to repeal them. While the original cable blackout rule was adopted by the FCC using its generic authority to regulate in the public interest, the satellite and OVS blackout rules were adopted at the specific direction of Congress. In proposing to repeal the rules, the FCC took the view that the goal of Congress in requiring the OVS and DBS blackout rules was to achieve parity with cable. Thus, if the FCC were to repeal the cable rule, it would fulfill the Congressional goal of parity by repealing the other two rules as well.

In its comments to the FCC, the NFL argued that because Congress required promulgation of the DBS and OVD rules, the FCC lacks authority to repeal them. Implicit in that argument is the idea that if the FCC cannot repeal the DBS and OVS rules, it would create an imbalance if the FCC were to repeal the cable rule. Interestingly, the Commissioner of Baseball went further, arguing that the effect of the statutes mandating the DBS and OVS rules was to codify the cable rule as well, so that Congressional action would be needed to repeal any of the three rules.

As recent events demonstrate, a very large proportion of the American public closely scrutinizes the activities of the NFL. There is broad, if not universal, support for lifting the sports blackout rule, and the FCC appears ready to accommodate that wish.

By Andrew Jay Schwartzman.