For this final post of 2012, ME&S honors the person who best represented the intersection of sports and economics during the calendar year, in this case for the worse. This blog debuted in September talking about how Austrian business cycle theory explained the repeating cycle of lockouts that have plagued three of the four major professional sports. Shortly thereafter, the NHL commenced its third lockout in the past two decades. ME&S debuted a lockout counter, which you can see in the right column, which now has passed 92 days.
Accordingly, the 2012 ME&S Sports Person of the Year is NHL Commissioner Gary Bettman, the architect and chief beneficiary of the NHL’s lockout-first, lockout-always strategy, which was described in aSeptember ME&S post:
In Bettman’s ideal world, the general managers would be mere bureaucrats executing the perfect central plan reflected in the CBA. Indeed, Walsh and others have suggested Bettman really wants to negotiate all player contracts himself. He doesn’t trust owners or general managers to make the “correct” decisions.
“Like the centrally planned economy,” economist Peter G. Klein wrote in a 1996 paper, “the firm needs market signals to guide its actions; without them the firm cannot survive.” Klein refers here to the problem of economic calculation, the process whereby a firm decides how to allocate resources: “As soon as the firm expands to the point where at least one external market has disappeared, however, the calculation problem exists.” It becomes more and more difficult to allocate resources in a manner that is likely to generate profits, since there is no longer a functioning price system. Consequently, Murray Rothbard explained in Man, Economy & State, “As the area of incalculability increases, the degrees of irrationality, misallocation, loss, impoverishment, etc., become greater.”
This succinctly describes the NHL’s problems. Bettman has used successive lockouts and CBAs to incrementally abolish the external market for player pricing. By eliminating competition among clubs for talent, general managers become increasingly dependent on the bureaucratic mandates of the CBA to ascertain player value, which in turn leads to greater “irrationality, misallocation, loss, impoverishment, etc.”
Bettman has managed to avoid the consequences of his failed central planning strategy by consolidating political power over the league’s franchise operators, the subject of an October ME&S post:
It’s not that the NHL should operate as a perfect democracy. There’s nothing wrong per se with empowering a single commissioner to act in the best interests of the group. The problem is when the commissioner confuses the league’s interests with his interests. Is it in the league’s interest, for example, to prop up a failing franchise in a Phoenix suburb rather than permit it to relocate to a more lucrative Canadian market, even if that offends the “territorial rights” of an existing franchise?
Since the commissioner himself has no equity in the league–a situation unheard of in most publicly traded companies–Bettman’s only incentive is to maximize the political power he exercises over the franchise operators. It doesn’t matter how financially irrational his actions are so long as he maintains favor with a small group of allies who help him maintain power. And since the NHL is privately held, there’s no external indicator–i.e., a stock price–to signal to the market the league is poorly managed and ripe for a takeover.
As of this writing, it’s unknown how Bettman’s third lockout will play out. There’s been serious rumblings of a movement to disband the NHL Players Association, which could prompt a landmark antitrust lawsuit against the league and Bettman. That may still be a pipe dream, but there’s little doubt player (and customer) patience with Bettman has worn out. Hopefully the ME&S 2012 Person of the Year won’t still be in control of the NHL when the time comes to award this honor 12 months from now.