Relegation schemes are rare in US sports, but could it eventually take hold for economic reasons?
All the major European football leagues, like the English Premier League and Germany's Bundesliga, as well as all domestic leagues in South America, utilize promotion and relegation. In that system, teams move up and down in the tier of leagues based on their performance. If the MLB had such a system, for example, the Scranton Railriders would be promoted to the Majors next season, while the Colorado Rockies would be relegated to AAA. In March of this year, the United Soccer League (USL) adopted a promotion and relegation system. While a foreign concept in more than one way to US fans, it would unlock economic gains and other benefits for those leagues willing to consider it.
Economic
A promotion/relegation scheme would boost the economic value of the entire league system in two ways:
Increased capital investment: Until now, incremental capital investment in the leagues has been driven by two factors: steeply rising valuations and the expansion of teams. As with all assets, the climb in valuations will level off at some point. Team expansion is also getting tougher for the Big Four in the US, and they’ve been looking to markets outside the US for new franchise possibilities. But a promotion/relegation system would immediately attract additional capital to hundreds of 2nd and 3rd tier teams that would now have the theoretical potential to advance to the highest league level. That higher growth potential would widen both the number of investors and the total investment in the league. While current teams would likely see a drop in value (see below), the total capital invested in the league would grow.
Sustained fan engagement: There is always a decline in attendance in the back half of the season for teams that are out of the playoff race. This depresses media audiences, ticket sales, concession revenues, and merchandise sales. Leagues have tried to address this simply by expanding playoffs to make more teams eligible for postseason play. But it’s hard to expand that any further due to timing logistics (e.g., baseball is already ending its season in November) and the fan perception of diluted playoff quality. But relegation creates a type of mini-playoffs for the lowest teams. Instead of playing out meaningless games to limp out the season, they’d have to fight to stay out of relegation, offering higher fan engagement, viewing, and attendance for the bottom teams.
Competitive
Relegation would also address the spoken and unspoken problems the leagues currently have with team management. The spoken problem is tanking. Teams that are out of the hunt have employed various methods to race to the bottom to increase their chances of landing a higher draft choice. Leagues have tried to regulate against it, and teams always deny they’re doing it, but it’s clear that teams regularly tank. This subjects fans to games in which coaches and players are disincentivized to make their best effort. Just this past week, the NBA and Adam Silver proposed additional draft limitations on teams to avoid the dreaded late-season push for better draft position. The threat of relegation would effectively eliminate tanking.
The unspoken problem is that many teams aren’t attempting to develop championship-level teams. Many owners are content to collect their piece of the shared revenue pie and only keep teams competitive enough to avoid accusations of gross neglect. Relegation would also lessen this form of mediocre coasting that characterizes many professional franchises.
Roadblocks
If a relegation system would bring all these benefits, why won’t other leagues follow the USL’s lead? There are several significant obstacles.
Owner Resistance: This is the biggest single reason it’s not likely to happen. US leagues are designed to give monopoly powers to current owners. To varying degrees, the leagues are legally protected from antitrust actions. The number and location of the top-tier teams are under their strict control. They collect their revenue share regardless of their teams’ performance. Relegation would penalize teams financially for finishing at the bottom. While you might be able to build in some protections, a demoted team would still suffer a significant fall in revenue. Current owners would naturally resist higher economic risk for poor on-field performance, as it would undercut their rising valuations.
Facilities: The monopoly power of current ownership has been a major driver of new stadium construction. It’s easier to make long-term investments in state-of-the-art facilities with a guaranteed income stream. Teams that had to give up the revenue share and the attendance associated with a top-tier team would be less likely to upgrade facilities as richly and eagerly as they do now.
Division Alignment Logistics: Leagues have a fixed conference/divisional structure for the most part. Realignment happens occasionally, but it's a big deal when teams switch divisions. A relegation system would effectively require an annual realignment to adjust for which teams were moving up or down.
Talent/Contracts - Except for the NFL, all the Big Five US sports have developmental leagues. Those developmental teams are not independent, but tied to a top-tier team parent. Their players have contracts with their parent team, not with the developmental team. The draft and contracting systems would have to be changed to make these teams independent.
In essence, it boils down to an economic argument of free enterprise vs monopoly. While a free enterprise system generally brings more economic benefits to more people, it reduces the benefits of the monopoly holders. In this case, the monopoly holders are the owners, and their votes control the leagues. Monopolies don’t give up their market power absent a strong external force.