Pass the Super Bowl, Please

In 2011, CBS, NBC, and FOX all signed an extension to their contract with the NFL over the broadcasting rights for football games. Under the current deal, regular season matchups are divyed up between the networks, and the Super Bowl rotates around the three networks each year. The Super Bowl itself is a big prize: it’s consistently the most watched television program of the year, and is therefore quite lucrative for the network that airs it. This contract essentially grants the three networks a “rotating monopoly” that has each network taking turns with monopoly rights and the associated profits.

From the perspective of the networks, this sharing mechanism is a form of collective action, one that likely makes them millions of dollars. There’s reason to suspect that if the NFL put the Super Bowl broadcast rights up for auction they would be significantly more expensive for the networks. There's likely an equilibrium in which each network tries to outbid the others in an attempt to win the broadcasting rights, bidding up the final price. Instead of competing each year they have agreed to take turns, leaving them all better off. By cooperating as a group, they have secured monopoly rights for the Super Bowl from the NFL at a steep discount.

What’s more complicated is the question of why the NFL continues to grant the monopoly under this system. If it’s true they could get a higher price by auctioning the rights, why don’t they? I suspect part of the reason for this system is bundling. Under the current system, each of the three networks are locked into at least another five years of broadcasting regular season games in addition to one-third of Super Bowls at a fixed price, despite declining viewership for practically every game that isn’t the Super Bowl. So while the collusion between the networks likely has them underpaying for the Super Bowl (and therefore receiving increased rents), they’re also likely overpaying for all the other games they’re locked into broadcasting over the next few years.