When the Rams left Los Angeles after 1994, most people felt the city would get another NFL team fairly quickly. After all, Los Angeles is the country’s second largest media market, so why wouldn’t the NFL want a team there? Well, it’s been 20 years and the city is still lacking an NFL team.

The league is quite aware of the problem and every year they talk about having a team in Los Angeles. As posted on the NFL.com website, the NFL Commissioner wants to expand the league with a team in London within 5-10 years, and he thinks that having a team in Los Angeles would be a great opportunity as well. Patriots owner Roger Kraft echoed the sentiment, saying it’s a big concern the league is not capitalizing on this large fan base. Other owners appear on board too, as the Miami Dolphins owner Stephen Ross predicted Los Angeles will have an NFL within 5 years.

Nevertheless, every year it seems there are plans to move a team to Los Angeles, and every year something manages to block development.

One factor is that while NFL owners are publicly in favor of a team in Los Angeles, they might privately be against it. In fact, from a game theory perspective, NFL owners benefit tremendously from the absence of a team in Los Angeles. I offer many examples of how restricting supply is beneficial in my book The Joy of Game Theory. In this post, we explain the economics using a twist on the game of musical chairs.



image by Rick. CC BY 2.0

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"All will be well if you use your mind for your decisions, and mind only your decisions." Since 2007, I have devoted my life to sharing the joy of game theory and mathematics. MindYourDecisions now has over 1,000 free articles with no ads thanks to community support! Help out and get early access to posts with a pledge on Patreon. .

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Game of Musical Chairs, The Economics Version

The traditional game has people circling around a set number of chairs. Once the music stops, everyone has to sit down, except there are too few chairs. People left out are eliminated, and the number of chairs is reduced round by round until there is a single winner.

Consider a variation that could be used as a classroom group activity. Give each of 10 students “property rights” of a chair. The remaining students, “business owners,” have a few minutes to decide whether to sit in any of the chairs. Once the music stops, there is a pot of money to be distributed. If a chair has someone sitting in it, then the person with its property rights gets $10. Otherwise, that person gets nothing. If the players can bargain, how would you expect this game to play out?

Not surprisingly, the answer would depend on how many students are playing the game. Suppose there are 10 business owners to exactly match the 10 chairs. Each person with property rights wants his chair to be filled to get $10. However, each business owner can negotiate to get a share of that money. And if the deal is not suitable, the business owner can bargain with another person, or simply sit out. As there are an equal number of business owners and property rights players, one might imagine the power is roughly even between both sides. It would be entirely reasonable if business owners got paid half the money, or $5 each, leaving the remaining $5 to each player with property rights of a chair.

But what would happen if there were only 9 business owners? Now the game is more interesting. As there are an excess number of chairs, that means 1 person with property rights is always left out. No matter what amount the other chairs are offering, this person will want to offer a better offer. For instance, if all the other 9 chairs offered $5, then this person who is left out might offer $6 to entice a business owner to move. And if the business owner moves, then that means some other chair will be empty–and that person will want to make a better offer so as not to be left out. The excess number of chairs means one person is always left out, and that will drive up the offers given to business owners. In theory, business owners can capture nearly the entire $10 for their role in picking a seat.

The lesson of the economic version of musical chairs is that the group with an excess supply has much weaker bargaining power and ends up with less of the profits.

And that brings us to the NFL, where teams have benefited from this kind of asymmetrical situation.

The NFL Musical Chairs

In the real-life version, cities in America are the property rights owners of possible stadium locations, the “chairs” of the game. The NFL owners are the business owners that choose where they will locate their franchise. A city that has an NFL franchise profits from the pairing while a city left out gets nothing.

But like in the economics version of musical chairs, the cities and owners bargain over the share of profits. If the number of cities that wanted an NFL team were evenly matched with the number of franchises, then cities and business owners would have roughly the same amount of power. Cities would offer a share of the profits when selling off their rights to host a team.

In reality, there are an excess number of cities that want teams, and so some cities are always left out. How that does affect the game? Just like in musical chairs, the business owners end up with the stronger bargaining power. They benefit by receiving public funds to build the stadium, they get tax breaks on their loans, and they receive all sorts of other incentives to keep the team in the city.

Gregg Easterbrook has long written about the way the NFL fleeces the taxpayer. For example, taxpayers provided about $1 billion to build and renovate the Superdome in New Orleans, and the city pays an extra $6 million a year to the Saints’ owner as an “inducement payment” so the franchise stays put.

You can take a look at recent NFL stadium funding to see most NFL teams receiving hundreds of millions of dollars of public money. Know why you’re paying an extra 5% on car rental tax in parts of Texas? It’s to help pay for the Houston Texans or Dallas Cowboys stadiums.

The question is, if cities give up lots of money to keep teams, why don’t they ever call the bluff of NFL teams to re-locate?

Los Angeles as Bargaining Power

And this brings us to the city of Los Angeles. NFL owners can get better deals only if they can credibly threaten to move to a viable option. The fact that a big market and attractive city does not have a team is a golden bargaining chip. The owners can demand they get a new stadium or they will relocate to Los Angeles.

In 1999, the NFL received bids for a new expansion team. The Houston offer of $700 million ultimately outbid the group from Los Angeles. But one should ask: why didn’t the NFL just accept bids from both cities and increase the league by 2 teams? I mean, why leave $600 million on the table?

The game theory explanation is the NFL did not want to expand too quickly. Los Angeles may be worth more as a bargaining chip when left out than it would be as a city with a team.