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US & EU labor rules drifting further apart

2008 June 1
by Skip Sauer

Millions of pounds change hands when promising teenagers move from feeder clubs to the giants of European football. Cristiano Ronaldo (£12m at age 18, to Man Utd) and Theo Walcott (£12m at age 16, to Arsenal) are prime examples. In the U.S., young players enter the league through the draft. In the NFL draft, the monetary terms are limited by the league’s collective bargaining agreement, keeping a lid on signing bonuses and compensation. In MLB, where the players union has been stronger historically, there are no limits. At least not yet.

As the WSJ reports, in last year’s draft, the Detroit Tigers took a risk that the 26 teams choosing before them would not: they paid the $10 million asking price for the most talented pitcher in the draft, Ryan Porcello. Porcello is thriving, which may be a bad thing for the players who follow him in the coming years. All the teams who had a chance to choose before the Tigers wish that the price was lower. MLB will now seek “fundamental change to the compensation system for drafted players — a scale that limits how much drafted players can make depending on where they are picked.” This possibility, of course, exists in North America due to the single entity, closed league system of MLB and the NFL. A compensation scale, let alone a draft, could not get off the ground in European football without agreement between the Premier League, La Liga, Serie A, and the Bundesliga, not to mention the lawyers in Brussels. Ain’t gonna happen.

Under pressure from Brussels, the strength of European player contracts has been significantly weakened in the past year. The philosophy behind the change is the EU’s intent to treat sportsmen like other workers, which in a practical sense means increasing the freedom of players to choose their employer. The first player to “walk out on contract” has now done so, with the court defining the damages of the breach to be the wages previously agreed between the player and the club. Hence, the “Webster rule:” sign for a new club at higher wages, and use a portion of those wages to pay off the club you are leaving. This rule would never fly on the west side of the Atlantic, since in the closed league system, MLB forces the Yankees to honor contracts held by the Red Sox. Arsenal’s Arsene Wenger (trained as an economist) worries that the logic of the Webster ruling will lead to further unraveling of the durability of player contracts, and it is hard to disagree. The implications of Webster on the structure of contracts is worth significant attention.

The economist Edward Gramlich observed many years ago that in contrast to their economic systems, the system of sport in Europe was much more decentralized and capitalist than the monopolized democracies within the closed systems of the US. The gap seems to be increasing.

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