Volume CXXXIII, Number 17 February 22, 2002 f

Monopolizing the Olympics
KERRY PANNELL
FACULTY CONTRIBUTOR

After all the media hype leading up to the Olympics, I awoke the first morning of competition ready for some dramatic Olympic TV viewing. What amazing feats of speed, agility, and precision would be performed on the snow and ice in Utah? Since the games are in Salt Lake City, rather than in Sydney (where the 14-hour time difference hampered timely viewing of the 2000 Olympics), I figured the 2002 Olympic action would be shown live.

I was wrong. At the very beginning of Olympic competition on Saturday, February 9, NBC decided to broadcast NASCAR's "Bud Shootout." Not the actual race, mind you, just the practice rounds. For those not familiar with the "Bud Shootout," it is an event where cars go around in circles: 70 laps around the 2.5 mile oval at Daytona Speedway. The feat displayed in this race is not an athletic one, but one of engineering and careful automotive maintenance. Keeping an engine running at 185 miles per hour for 175 miles is not as easy as it looks on TV.

Economically speaking, how much do Americans value NASCAR? Adding up all the revenues to NASCAR from various sources provides some measure of the value people place on NASCAR. According to news accounts, NASCAR's six-year TV contract is worth about $2.8 billion, or roughly $450 million for this season. Nearly seven million people go to see the premier NASCAR race series, the Winston Cup, in person. At an average of $50 per ticket, this adds up to nearly $350 million in revenue. Include $400 million in corporate sponsorships and over $1 billion in NASCAR merchandise, and the total for one year exceeds $2 billion per year, a rough guess of how much Americans value one season of NASCAR.

That's more than the value of everything produced in Armenia in one year, or alternatively, about the same size as the Nicaraguan economy.

Compare auto racing to another form of TV entertainment: the next season of Friends will cost about $150 million, now that each actor will receive $1 million per episode. Based on this calculation, a season of NASCAR is worth fifteen times the value of a season of Friends.

Or think about it another way: The three major NASCAR race series use about 650,000 gallons of gasoline in a season; that's enough to supply gasoline to all Brunswick residents for one month.

While NASCAR drivers burned up gasoline (these cars typically get four miles per gallon) and polluted the air, ongoing Olympic action was full of surprises. The first American to win a medal, Shannon Bahrke (silver in moguls), surprised people when she made the U.S. Olympic team and she stunned people again by winning a medal. Cross-country ski events also finished before NBC began broadcasting. In a gutsy performance, Italy's Stefania Belmondo beat out her Russian rival in the 15,000 meters by less than two seconds to win the first gold medal of the games. What makes her win so compelling is the fact that she made up time lost when her ski pole broke during an uphill climb. On the men's side, Spaniard Johann Muehleg dominated the field in the 30,000-meter cross-country ski race.

NBC's disappointing TV coverage indicates how detrimental monopoly rights can be. A monopoly is the only seller of a particular good or service, hurting consumers by restricting the quantity provided of that good or service in order to increase the price. The NBC network (which includes NBC affiliates, CNBC and MSNBC) paid $555 million for the exclusive rights to broadcast the 2002 Winter Olympics in the US and so they have a monopoly over Olympic TV coverage in the US.

How do I know that NBC was maximizing its monopoly returns, rather than simply giving people what they wanted? On CNBC, where some Olympic hockey games have been shown lately, they broadcast infomercials on that first morning of Olympic competition. That means they were trying to gain revenue at the expense of viewers like me. Furthermore, the more NBC limits the hours they broadcast Olympic events, the more they can charge for advertising during prime time Olympic coverage.

NBC's Olympic coverage proves what we already knew: monopoly is bad. How to deal with monopoly? (1) If technology permits, deregulate industry that has previously been granted a monopoly by the government-economists argue this applies to electrical utilities. (2) Break up the company-as should be done in the case of Microsoft. (3) Find good substitutes-I started watching the Canadian cable TV station to see Olympic events. Although I don't speak French, vive la télé Canadienne!