The Sports Economist

Labels: labor markets, NFL; salaries

Labels: bowden, college football, labor markets

Labels: english football, labor markets, soccer

"Real Madrid is effectively injecting inflation into the transfer market," Simon Chadwick, a professor at England’s Coventry University, said in an interview. "What we’re going to see is transfer-fee inflation over the next few months up to the start of the season. That’s a serious issue, because it’s something that (soccer) really can’t afford when many clubs have major financial concerns."

Labels: labor markets, soccer, transfer fees

Labels: labor markets, soccer, transfer fees

The only problem was that Lewis's explanation for the A s success was the same as Commissioner Selig's: the team was an aberration. Since most every other team looks at the market pretty much the same way, as Lewis explained, if every team tried to exploit these same inefficiencies, then no team could. The market would correct, and the most valuable players i.e. the players with the attributes most likely to produce wins would be bought by the wealthiest teams. The championship would be for sale again.

But it isn t. Moneyball missed something. That something is known as the reserve clause.

1) "Well-run teams" are exploiting the "reserve clause inefficiency."

2) This will create a "smoothing of salary distribution throughout players careers." (as in the Longoria contract, which supposedly locks him and the DRays together). Young players will not be as inexpensive and older players will not be as overpaid. Top free agents will become scarcer over time; their hometown teams have found a way to keep them.

3) "Payroll will matter less and less, management will matter more and more, and the game will stay competitive."

Labels: baseball, labor markets

Since Nov. 14, when teams were permitted to discuss contract terms with free agents, only 2 of the 171 players who filed for free agency have signed: Jeremy Affeldt, who went to San Francisco, and Ryan Dempster, whose decision to re-sign with the Chicago Cubs hardly came as a surprise.

...A review of baseball’s transaction history since 2001 showed that the only period featuring fewer signings in the first 12 days of open bidding than this year came in the 2002-3 off-season, when Jesse Orosco was the only free agent who had signed. Each of the last five free-agent off-seasons included at least six signings by this stage, led by the 2006 bonanza when Alfonso Soriano, Juan Pierre, Nomar Garciaparra, Gary Matthews Jr., Aramis Ramírez and Frank Thomas signed before Thanksgiving.

There is a similarly attractive group of free agents available this year — C. C. Sabathia, Mark Teixeira, Manny Ramírez and Francisco Rodríguez, for starters — but teams seem to be proceeding cautiously and dispensing fewer offers than in years past.

Some baseball executives have suggested that many teams, unsure of how long it will take for the economy to rebound, are reluctant to offer expensive multiyear deals.

Labels: labor markets, MLB

Many Japanese baseball officials are outraged that United States teams are courting Tazawa, a hard-throwing right-handed pitcher, because they insist it is long-established practice for amateurs like him to be strictly off limits to major league clubs. Even some American general managers, including the Yankees’ Brian Cashman, agree.

Major League Baseball officials maintain that the letter of their protocol agreement with their Japanese counterparts, Nippon Professional Baseball, does not forbid either league from courting amateur talent from the other’s nation. When one Japanese representative characterized the rule as a gentlemen’s agreement during a meeting in New York, he was angrily rebutted by a Major League Baseball official, according to two attendees.

The Tazawa dispute extends beyond one pitching phenom and an interpretation of honor. The Japanese major leagues have already seen established stars leave for American clubs, and amateurs following Tazawa’s path away from those leagues could further hurt the leagues’ long-term viability.

But sports talent is an increasingly free-flowing market — notably demonstrated this summer when Brandon Jennings, one of the United States’ top high school basketball players, signed to play professionally in Italy for $1.2 million rather than play at a college in the United States.

Labels: baseball, cartels, collusion, international trade, labor markets

Obama's proposal would increase federal income tax on families earning more than $250,000 annually, money that would help finance a decrease for workers and families earning less than $200,000. It's also possible more income might be subject to the Social Security tax.

Next year's major league minimum is $400,000. Agent Scott Boras, negotiating eight- and possibly nine-figure deals for free agents Manny Ramirez and Mark Teixeira, already has thought about the possibility of asking for larger signing bonuses payable this year in some of his contracts.

"There's some consideration to be had with the impact of the election," he said.

Free agents can't start negotiating money with all teams until Nov. 14. Only a relatively small percentage of contracts are finalized before Jan. 1.

Still, for a big-money free agent earning $10 million in 2009, Obama's plan could increase his federal tax by more than $400,000.

Labels: labor markets, taxes

Michael Beasley made Kansas State basketball relevant for the first time in more than a decade last season, and his presence put a few extra dollars in the pocket of the man responsible for luring him to Manhattan, Kan.

Labels: college basketball, labor markets, marginal revenue product

"I get paid double, my role increases, I have no expenses and I move to a nice city?" Childress said. "How many guys wouldn’t do that, regardless if you’re a lawyer or a doctor?"

Labels: labor markets, NBA

IN SPORTS, FREE agency has allowed players, especially star players, to earn dramatically higher salaries. This has been good for players, but it also means that team owners have to be smarter in their hiring practices. But are they? An economist examined performance and salary data for all hitters in Major League Baseball who signed free-agent contracts between 1985 and 2004. He found that many teams systematically over-estimated the predictive value of a player's performance in the most recent season, relative to earlier seasons, in setting salary levels. This kind of error was especially acute for older players, and it was generally committed by teams who underperformed relative to their payroll (e.g., Tampa Bay vis-a-vis overperformers like Oakland).

Healy, A., "Do Firms Have Short Memories? Evidence from Major League Baseball," Journal of Sports Economics (August 2008).

Labels: labor markets, MLB

Many years ago I was taught about the invisible hand and free markets and how, by definition, something was worth whatever someone was willing to pay for it. Of course, I've since learned that it's all a crock of bull. Some markets may work that way, but, in fact, most of them don't.

Labels: labor markets, soccer

Using survey data that followed the lives of thousands of Germans from 1984 to 2006, the German Socio-Economic Panel study, Mr. Lechner found that sports-playing adults saw a boost in income of about 1,200 euros per year over 16 years when compared to their less active peers. That translates into a 5-10% rate of return on sports activities, roughly equal to the benefit of an extra year’s worth of education.

It turns out, according to Mr. Lechner’s calculations, that only about one-fifth of that increase comes as a result of better health. “Although health and other subjective variables contribute substantially to the effects of sports activity, there remains a large unobserved and unexplained component,” Mr. Lechner writes.

Some of that unexplained component could be chalked up to social networking benefits. In fact, the sports-playing men in Mr. Lechner’s study reported a significantly higher level of “social functioning” than did the less active men.

Labels: labor markets, stadiums

Brandon Jennings smiled Sunday afternoon when someone suggested that he might be considered a trendsetter.

If he makes good on a threat to go from high school to professional basketball in Europe, Jennings will become the first high school player to spurn college to go overseas and play professionally.

Trendsetting.

This is the latest — and most brilliant — plan yet to combat the three-tiered maneuver by the N.C.A.A., the N.B.A. and the players union to prevent talented high school players from going directly to the N.B.A.

The N.B.A. instituted an age limit of 19, and required that a player be at least a year removed from high school, as part of its collective bargaining agreement with the union. The N.C.A.A. didn’t protest, and why would it?

Under this arrangement, the great high school players have little choice but to do time in college for a season at a high-profile college. Kevin Love wound up at U.C.L.A., Michael Beasley at Kansas State, Derrick Rose at Memphis and O. J. Mayo at Southern California. All entered this week’s N.B.A. draft after one season in college.

Jennings, an 18-year-old from Los Angeles who played the last two seasons at Oak Hill Academy in Virginia, signed a letter of intent to play at Arizona.

Jennings was pushed into action by the N.C.A.A. After doing poorly on his first standardized test, he did well on the second, but because of the difference in the scores, the testing service asked him to take the test a third time. He relented, but at that point Jennings decided that he was through with the N.C.A.A. Why jump through hoops to go to Arizona, endure the charade of an academic regimen, then switch into N.B.A. mode the instant the season is over?

Labels: labor markets, NBA, NCAA

Labels: labor markets, MLB, NASCAR, NBA

It's getting to be arbitration time in baseball. Each year a set of players and teams negotiate under the threat that a third party (a panel of three arbitrators) will render a decision on the player's salary if a negotiated settlement cannot be reached. Even though a given case is not likely to make it all the way to the arbitration panel, the threat of arbitration drives a given player and his team, when they negotiate, to consider what the panel may decide.

Arbitration, first offered to the players by the teams back in the early 1970's as a way of appeasing the union in its calls for free agency, has never been popular with teams. This article by Fred Claire at MLB.com partly explains why.

One reason it is unpopular is because of the nature of the hearing process. For the players, they try to maximize their value to their team in the eyes of the arbitration panel: a sort of "how great I art" argument. For the teams, they try to minimize the player's value: basically arguing "how great thou aren't." This is contentious.

Another reason is that simply by becoming eligible for arbitration, players see a jump in their salaries and teams are bound to accept these salaries.

Here's what Bud Selig (in 1992 PM) had to say when asked by the New York Times about the economics of baseball: "In the last 15 to 18 months, talking to every club, asking 'What do you hate most about the system?' The bottom line is if they had their choice, without a doubt, it's salary arbitration. Free agency at least you can elect to do, but in salary arbitration you're somewhat of a prisoner of what other people have done."

Claire points to the tie between the arbitration system and free agency as one of the problems.

Baseball's labor market consists of three tiers of players: 1. reserved players who have less than three years of service* are, basically, the property of their teams; 2. arbitration-eligibles - players who have at least three years of service are also the property of their teams. But they can have their salaries determined through arbitration; 3. free agents, players who are not the property of their teams and are free to sign with whoever wants to sign them.

The collective bargaining agreement (CBA) restricts what arbitration panels can consider when rendering decisions (Article VI, Section F). Among those considerations are what comparable baseball players have earned as salaries. Because some free agents are comparable to arbitration-eligibles, their salaries, somewhat filtered down and averaged out, become part of the consideration (Dan Marburger's 2004 Economic Inquiry paper on arbitrator compromise provides econometric evidence of this). That's one reason why players see a jump in their salaries when they first become eligible.

But reading the article, the rhetoric and one-sidedness reminded me that this article comes from MLB.com, the official site of MLB and, therefore, a mouthpiece of the teams. So Claire doesn't discuss another reason for why the average player sees a nice raise just for becoming eligible: reserved players are in a monopsonistic labor market and, thus, earn salaries below their marginal values to their respective teams.

You can argue that part of the difference between salaries and marginal value can be considered a return on investment in minor league training. You can also argue that part of the difference goes to pure monopsony rent. The point is that reserved players are paid less than their marginal value and arbitrated players are paid closer to their marginal value because arbitration mimics, albeit imperfectly, a competitive labor market. Thus the jump in salaries by becoming eligible.

Labels: arbitration, baseball, labor markets, monopsony