Wednesday, October 17, 2007

Play Ball!

The Canadian press tells of a decision by a U.S. federal appeals court in St. Louis that has made the world safe for fantasy baseball:

ST. LOUIS - A federal appeals court upheld a lower court ruling Tuesday that lets a fantasy baseball company use players' names and statistics without paying a licensing fee.

In a 2-1 decision, the 8th U.S. Circuit Court of Appeals panel ruled that CBC Distribution and Marketing Inc. doesn't have to pay the players, even though it profits by using their names and statistics.

The Major League Baseball Players Association had argued that companies like CBC are essentially stealing money from players, who charge big fees to endorse things like tennis shoes and soft drinks. The ruling could have a broad impact on the fantasy league industry, which generates more than US$1.5 billion annually from millions of participants.

It is the right decision. Intellectual property rights are useful, but only up to a point. They grant monopoly rights – to patents, to likenesses, trademarks, books, etc. This raises prices to consumers, but sometimes can perform other useful functions. Since a written work or a physical invention is costly to create but cheap to copy, absent such incentives the rate of innovation would fall precipitously. The longer the term of protection, the greater the monopoly costs and the lower the marginal incentive to innovate. Trademarks and “likenesses” are protected eternally, but the justification is to avoid confusion by consumers – if any hamburger stand can use the McDonald’s logo, consumers will not know which ones are the real deal. If they can’t, then consumers will know anywhere in the world where they find themselves looking for a meal that the golden arches convey reliable information on the food. (Whether the information is that the food is good or bad depends on the consumer.)

None of this is at issue here. I have asked about this issue as an exam question from time to time, and the best answer I ever got was that the generation of baseball statistics is nothing more than the solving of an arithmetic problem. There is no need to provide players extra incentive to produce statistics, which are just a nearly free by-product of playing the game. Allowing the players to charge for statistics would deter the creation of fantasy baseball leagues, which provide value to consumers, without giving the players any incentives to do anything that they aren’t already doing anyway. Indeed, fantasy leagues themselves have more incentive to innovate without having to face these extra costs. The maximization of total social product – consumer and producer surplus – requires that the fantasy leagues not pay royalties for using these free statistical by-products of the action on the field.



Post a Comment

<< Home