(2020-01-30) Stoller This Is Not A Democracy Its A Cheerocracy The Cheerleading Monopoly Varsity Brands

Matt Stoller: This is Not a Democracy, It's a Cheerocracy: The Cheerleading Monopoly Varsity Brands. Today I’m going to write about Varsity Brands, the Bain Capital-owned corporation which controls the sport of cheerleading.

Today most cheerleaders are girls and young women, with one estimate of 400,000 in public high schools alone. But cheer goes way beyond high schools... 1.3 million cheerleaders across American who cheer for more than 60 days a year

The key player in the cheerleading world is Varsity Brands, which makes its money from cheerleading apparel, camps and competitions

In 2004, Varsity bought the National Cheerleaders Association, and has rolled up a dozen more, including its main competitor in 2015, Jam Brands

Charlesbank Capital Partners bought the company in 2014. Charlesbank organized a roll-up of the industry, in its public case study noting that it helped orchestrate the Jam Brands purchase, as well as a series of “highly strategic acquisitions.” These new private equity owners had Varsity buy up sports equipment distributors and enter the marching band space. Charlesbank sold it to fellow private equity firm Bain Capital in 2018.

Participating in cheerleading competitions is expensive. If you want to see a bunch of cynical cheerleaders and cheerleading families angry about monopoly power, check out the discussion on Fierceboard about the acquisition and what it meant for what they would have to pay.

“Teams appearing in Varsity competitions can wear whatever uniforms they want. But rival apparel makers can't show their wares at those events, which are important showrooms for cheer merchandise.” That is in antitrust parlance a form of ‘vertical foreclosure,’

Webb admitted that in at least one contest, cheerleaders got more points if they used more Varsity equipment as props

Webb has testified in court that the competitions exist solely for the “promotion of his cheerleading supply business.”

Varsity signs multi-year supply contracts with gyms, giving them a cash rebate if gyms send their cheerleaders to Varsity competitions and buy Varsity equipment. It’s not a surprise to see rebates used in this space. Rebates are a standard tool of monopolists; they are how Standard Oil controlled railroads, and how Microsoft orchestrated its power over computer makers.

Varsity finances nonprofit associations associated with cheerleading, including the governing body that handles safety, the nonprofit American Association of Cheerleading Coaches & Administrators. And it aggressively lobbied to prevent cheerleading from being considered a sport so that it could remain unregulated. (It’s ‘more than a sport’ says Varsity.)

There is one looming problem for Varsity. Last year, the NCAA, which controls college athletics, established a cheerleading-like sport called “Acrobatics and Tumbling,” and placed control of the sport not under Varsity but under scandal-ridden USA Gymnastics. In other words, the only thing that has stopped Varsity was another more powerful monopoly.

Oh, and there’s one more thing. Cheerleading monopolist Jeff Webb, after selling his business to private equity, has entered politics. He now runs a pro-Trump anti-immigrant political advocacy group called the New American Populist, one of whose goals is to “advance our use of existing anti-trust laws.”

What a Cheerleading Monopoly Says About the American Economy

I think the story on cheerleading is important, because it says something about our larger political economy.

Every corporate monopoly, in every sector and across history, uses similar power arrangements: coercive contracts, secret rebates, retaliation, buying up competitors, political corruption, etc. All of these are present in the Varsity brands story.

There is an alternative to the existing Varsity model of cheerleading. Roughly ten years ago, some college coaches basically took competitive cheerleading and turned it into a safer and regulated sport. After a series of bitter fights over branding, they eventually had to name it Acrobatics and Tumbling instead of Competitive Cheer.

Right now, there’s a bipartisan investigation by the House Antitrust Subcommittee into large technology corporations, and it’s led by Democrat David Cicilline and Republican Doug Collins. They are wrestling with whether concentration is a function of power, not efficiency. How we resolve this debate is likely to have significant impacts on how we organize our markets and our corporations going forward.

As Harvard Law professor Einer Elhauge put it, “If something as naturally decentralized as cheerleading can be monopolized so easily, it really demolishes so many Chicago School premises.”

Last week, I wrote about the point of economics. One of my arguments was that the discipline has an implicit bias towards those who have control of data, because economists like to measure things. That means economists are going to be controlled, at least partially, by corporations that have large stores of data to share with them.

I got an email response from someone who used to work for the Commodities Futures Trading Commission, which regulates derivatives trading. His point of view is worth sharing...

the Federal Reserve is beholden to small cartel of banks hell-bent on protecting their oligopoly status and keeping their moats intact.