Tuesday, February 23, 2010

Free Agency Coming to the Australian Football League in 2012 

The Australian Football League (AFL) and the Australian Football League Players’ Association (AFLPA) today announced agreement on the introduction of free agency to the AFL labour market, to commence in 2012, after the competition expands from 16 to 18 clubs.

For readers not familiar with Australian football and the AFL; the labour market has been governed by a combination of a reverse-order player draft, a hard total player payments cap (per club, the 2010 TPPC is AUD $8.21m for player payments + $537k for additional marketing agreements), and player list restrictions giving each club a maximum primary list of 40 players. This system has been in place since the mid 1980s and has come to be one of the most restrictive system of labour market regulation in any professional team sport in the world. The only way players could move between clubs was to enter the draft system again or to be traded for other players and/or draft picks. Following the precedent in the High Court of Australia case, Buckley v Tutty, such a system was highly likely to fall as an unreasonable common law restraint of trade; but it is worth noting this model of free agency has been negotiated without recourse to the courts or industrial disputation. The system of free agency is summarised as follows:

1. Delisted players:

- All players who are delisted by a club are unrestricted free agents.

2. Listed players with at least 8 seasons at one AFL club, who are out of contract for the first time since reaching 8 seasons of service:

· Restricted free agency for such players who are in the Top 25% of player salaries at that club. Restricted free agents have the right to negotiate with any new club, but their current club has a right of first refusal, which allows current club to match an employment offer lodged by a new club. If the current club chooses not to match the offer, the current club will receive compensation in the form of an additional draft selection if the current club has a net loss of free agents. If the current club does choose to match the offer, but the restricted free agent does wish to leave his current club, the player can only do so by being traded, or by re-entering the pool of players eligible to be drafted.

· Unrestricted free agency for such players who are in the Bottom 75% of player salaries at that club.

3. Listed players with 10 or more seasons at one AFL club, who are out of contract, and have already come out of contract once before in the period of 8+ seasons at one AFL club.

- All such players are unrestricted free agents.


The AFL website is the best place for news on the specifics of the deal:

The sports pages of the Melbourne-based newspapers, the Herald Sun and The Age, have interesting coverage of the full spectrum of opinions; ranging from applause for a well-balanced deal, to claims this is a portent of impending doom for the competition; in particular, see the colourful report by Patrick Smith inThe Australian newspaper.

Specifics of how the Top 25% of players at each club will be determined, along with the value of compensation for a net loss of free agents are yet to be determined.

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Friday, January 15, 2010

Capital-Labor Substitution in Production: Sports Writing Edition 

Newspapers are in deep trouble. That has been clear for some time. It looks like things just got worse for sports writers. The Intelligent Information Laboratory at Northwestern University has developed a program called Stats Monkey that takes the box score from a game and some play-by-play data as inputs and produces a newspaper story about the game, complete with headline. The program uses statistical modeling to figure out what the important events were in the game and to pick out key plays along with a "library of narrative arcs that describe the main dynamics of baseball games." Here's a link to a New York Times blog post with a sample of the output from the program based on a recent MLB playoff game.

This is a classic example of substituting capital for labor in production. Just last month, the Washington Times announced a 40% cut in staff, including the entire sports desk. I wonder if they are using Stats Monkey to generate sports page content? I interact with a lot of print reporters, primarily in interviews about my research on the economic impact of professional sports, and have found that the ones working the sports desk generally have the most trouble understanding my research (unlike business desk reporters who seem to quickly grasp the importance of substitution in local entertainment spending for explaining the results in the literature).

The Stats Monkey web site doesn't appear to list a price for the program, but it has to be a fraction of the cost of a staff of sports writers. I doubt that this sort of capital-labor substitution can save the print newspaper industry, since much of the industry's problems are on the revenue side of the business.

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Tuesday, September 29, 2009

NBA Locks Out Referees 

Labor relations in professional sports are notoriously contentious. Nobody gets along. Players strike, owners lock out players, referees strike, owners lock out referees; it happens all the time. Labor disputes in professional sports almost always revolve around the periodic renewal of collective bargaining agreements (CBAs) - contracts between leagues and unionized employees that specify all the details of the employer-employee relationship - that usually last five years or so.

The latest chapter in this sad saga pits the NBA against referees. Negotiations between the NBA and the National Basketball Referees association (NBRA), the union that represents NBA referees, broke down last week and appear to be stalled. The points of contention are the usual suspects: wages, travel benefits, and retirement benefits. The NBA wants to scale back pension benefits and keep wages flat over the life of the CBA, citing the effects of the recession on revenues. The refs want this CBA to run only two years, instead of the usual five, so that they can re-negotiate in an improved future economic climate, and, of course, want wage increases.

One unusual feature of this labor dispute is that the NBA has released information about their offer to the press, probably in an attempt to force the NBRA to settle. These details are seldom made public, an the NBRA is crying foul (sorry, I couldn't resist). The NBA claimed that entry level referees make $150,000 and experienced referees make upward of $550,000. The union claims that entry level salaries are $91,000 and experienced referees make less than $400,000. The severance package paid to retiring referees, reported to be $575,000 by the NBA, is also under negotiation and a matter of dispute.

The NBA will open the season with non-union referees, drawn from the WNBA, the NBA development league, and other places. The same thing happened in 1995, the last time the NBA and the NBRA couldn't agree on a new CBA. Because reasonable substitutes for NBA referees exist (it doesn't take a highly trained expert to let NBA stars get away with walking and palming the ball), it seems unlikely that the NBRA can hold out for too long. Referees don't have as much bargaining power as players in labor negotiations.

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Thursday, June 04, 2009

Judge Sotomayor & Sports Labor Relations 

Joel Maxcy, Coordinator of the University of Georgia's Sport Management Programs, has started a blog, Sports Labor Relations. In this post, Joel examines Judge Sotomayor's decision in the Clarett case in light of the precedents set in the well known Mackey vs. NFL case. His careful analysis strengthens my belief that Sotomayor's decision steamrolled useful and efficient legal precedent in favor of a union-friendly finding.

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Wednesday, May 27, 2009

From the Archives: Judge Sotomayor's Decision in the Clarett Case 

In addition to her injunction which brought an end to the baseball strike of 1994 (on this, see Richard Sandomir's piece in the NYT today), Supreme Court nominee Sotomayor played a significant role in the recent Maurice Clarett case. Clarett, of course, was a college football star who was running out of chances in the NCAA, and sued the NFL to overturn the eligibility rules which precluded a sophomore from entering the draft.

Here's my commentary on Sotomayor's ruling at the time, along with a renewed link to the decision itself. TSE's old posts have lost their formatting over the years (nice one, blogger!) so I've copied the content in it's entirety below.

Tuesday, May 25, 2004
3-0 to the NFL

The NFL won its appeal in the Clarett case. Greg Skidmore at the Sports Law Blog finds the decision satisfactory. I find it both illuminating and evasive.

Judge Sotomayor's decision references a number of cases upholding the exemption of restrictions in collective bargaining agreements from antitrust, both in sports and elsewhere. The discussion is authoritative and informative. It notes that the exemption does not apply when the restriction imposes harm on business competitors who are not party to the contract. This is not the case here: the harm is imposed on an prospective employee who is not party to the contract.

The court points out that CBAs encompass numerous issues, and that selecting one clause for antitrust scrutiny may upset the balance of compromises among employers and employees. It is not obvious to me that this concern should protect an anticompetitive restriction - simply address the issues without violating the law! Nevertheless the sanctity and primacy of collective bargaining to this court is readily apparent in the decision, making it clear that an antitrust challenge faces heavy going. The decision clearly implies - and the 2nd circuit has said this before in reference to the NBA draft - that if the NFL wants to cap salaries, the union can offset the negative effect on their wages by limiting the wages paid to future players in subsequent drafts. Prospective players are clearly harmed by this, but the restriction passes muster under the 2nd court's interpretation of the law.

The decision is evasive on two major counts. First, apart from mentioning the NFL's claim that the rule protects young players from physical harm, the decision wastes nary a sentence on the issue. The reason is clear - since labor law trumps antitrust, there is no need to judge the reasonableness of the restraint. Second, in announcing this in unabashed terms, the court tiptoes around the real issue here:
In the context of this collective bargaining relationship, the NFL and its players union can agree that an employee will not be hired or considered for employment for nearly any reason whatsoever [emphasis added] so long as they do not violate federal laws such as those prohibiting unfair labor practices ... or discrimination.
That the restriction is discriminatory is obvious. But youth is apparently not a protected class, unlike minorities or the elderly. I find this odd.

Not all courts allow collective bargaining as much latitude as the 2nd circuit. In the Mackey case, the "Rozelle rule" on free agent compensation was struck down by the eighth circuit. Following Supreme Court precedent, one of the tests applied was whether the restriction "primarily affects only the parties to the collective bargaining relationship." This test clearly conflicts with the approach of the 2nd circuit to labor problems. The decision simply notes that the approaches disagree, and not surprisingly, the decision in Clarett sticks to the precedent adhered to in prior cases in their circuit. An appeal to the Supreme Court might establish which approach they prefer, and thus clarify matters.

I'm not as enamored with labor law as Judge Sotomayor, and I'm not as pleased with the decision as Skidmore. By resting so completely on its "labor law trumps antitrust" basis, the appeals court ducked the most interesting questions in the case. Nevertheless, the decision is clearly exposited and informative, so it will go on the reading list for my sports economics class.

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Tuesday, April 28, 2009

NFL Draft Trifecta 

If Phil Miller's Saturday post on the NFL draft is Day 1, and Brian Goff's Monday post on the NFL draft is Day 2, let's finish this off the trifecta with a third post.

It is certainly the case that the non-statutory labor exemption to the antitrust laws places rookies and draft picks at a huge disadvantage when it comes to salary negotiations. While we are fond of talking about how the reserve clause in the major sports leagues died with the advent of free agency, in fact the reserve clause is alive and well today. It's just that it is only applied to players in the first few years of their career. Of course, given the relatively short careers of most professional athletes, the current reserve clause rules may cover a typical athlete's entire career.

That being said, let's not be too hard on the non-statutory labor exemption. Without this judicial understanding of the labor laws, most of the league rules put in place to promote competitive balance would be under constant threat of antitrust litigation. Without a union's consent, the reverse order draft, salary caps, luxury tax, roster limits, etc., all of which are the result of individual teams coming together and conspiring to limit player compensation, would clearly be, if not per se violations of the antitrust laws, at least subject to significant scrutiny under the rule of reason.

Without the ability to negotiate in good faith without the threat of impending antitrust action, it is unclear how modern sports leagues would be able to function efficiently, at least in terms of promoting competitive balance.

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Sunday, June 01, 2008

US & EU labor rules drifting further apart 

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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Wednesday, December 05, 2007

MLB's Hall of Fame Shame 

Marvin Miller did more to reshape the economics of labor in American Sport than any man in history. He is currently 90 years old, and based on this account from ESPN's John Helyar, as sharp and pugnacious as ever. Yet Miller's nomination to baseball's Hall of Fame failed once again to obtain the required number of votes. I have wondered how this could be.

As executive director the players union, Marvin Miller single-handedly (in the sense of being a uniquely strategic and effective leader) won freedom of contract for major league baseball players by obliterating the odious "for life" interpretation of baseball's monopsonistic reserve clause. In doing so he erased much of the damage from one of the most bizarre and inexplicable Supreme Court Decisions in our country's history (The Federal League Case of 1922), breaking a logjam that subsequent courts and congresses could not breach.

More than any person I can think of, Miller merits a place in the Hall of Fame. Why is he not there? Pettiness, it seems. Helyar provides the background to this year's tally, along with commentary from Miller himself.

When I called Miller at his Upper West Side apartment in New York on Monday night, he wasn't seething about the Hall of Fame vote. He was listening to the soundtrack of "Guys and Dolls" and letting his wife, Terry, handle the seething. But he, too, had a sense of deja vu.

"They seem to be the same kind of small-minded, vicious people as the owners were when I came in," he told me, though, ever the cool, rational man, he wasn't taking it personally.

"I'm only mad at myself," he said. "After the first time on the ballot, I should have just withdrawn my name from consideration. My judgment of my chances was, 'Never.'"

But Terry Miller and others talked him out of it. That first time, he drew 44 percent of the votes. And, indeed, he climbed to 63 percent the next time around, just 10 votes shy of what he needed for the 75 percent that would get him in.

Kuhn [MLB's commissioner and Miller's foil in the 1970s] made it onto only 17 percent of the ballots in the last round of voting conducted under the old process earlier this year.

Then the Hall of Fame changed the format. Instead of allowing all Hall of Famers to vote for "veterans" nominees, it created three new panels. Nominees in the "executive/pioneer" category were no longer being considered by 81 voters, but by 12, and that group is comprised primarily of former MLB executives.

Voila!Kuhn, a longtime Hall of Fame board member, got 10 votes. Miller got three.

Vladimir Putin couldn't have done it better; Cooperstown couldn't look worse.
Miller's leadership reformed the reserve clause system. This led to a significant transfer of income to players from owners, who were ultimately forced to pay market prices. The owners responded with a twenty year long, Sisyphus-like ordeal of lockouts and strong-arm tactics in an attempt to turn back the clock in the labor market. Miller and the players were unfairly tarred by the media's brush throughout this period. Yet the game did not suffer from free agency, as economics implies. Indeed, the commissioner himself now proclaims the financial state of the game to be better than ever.

If there were ever a time to make peace between MLB, former commissioner Kuhn, and Marvin Miller, the Hall of Fame vote is a fit and proper place to do it. But MLB's executives have indeed succeeded in turning back the clock, once again cloaking their legacy in shame.

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Sunday, March 11, 2007

NCAA sued (again) 

As a football player at UCLA, Ramogi Huma found there was always more month than money when it came to the reality of daily living.

His scholarship paid for tuition, books, food and housing, but didn't cover toothpaste, travel expenses or phone bills. When "people came peddling credit cards in front of the athletic department," Huma applied and accepted a sports water bottle as a free gift.

He charged what he needed to survive.

"I thought I could get a job in the summers to pay it off, but when I was playing, I wasn't allowed to work because the NCAA didn't allow it," said Huma, who owed $6,000 at 19 percent interest upon his 1998 graduation.

That experience -- and the National Collegiate Athletic Association's suspension of a teammate who accepted groceries when his scholarship money ran out -- led Huma in 2001 to found the Collegiate Athletes Coalition to improve conditions for student athletes.

Now, as the NCAA prepares for its annual "March Madness'' basketball championships, it is locked in a legal battle with the CAC that could change the future of college sports.
That's the opener from Robin Acton and Richard Gazarik's article. It's an important story that will slowly unfold over the next couple of years, so file it for future reference. Rod Fort and Steve Ross are quoted, among others.

The headline reads "NCAA: USW (United Steel Workers) trying to make athletes "paid employees." Well, that's certainly preferred to "unpaid employees."

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Thursday, March 08, 2007

Are Stadiums and Players Complements in Production? 

Teams seeking public subsidies commonly claim that building a new stadium will improve the team's revenue flow, allowing it to acquire more talent and improve the quality of the team. No doubt building a new stadium improves team cash flow, but the important question is "what is this cash being spent on?"

If fans are spending the extra cash on amenities at new stadiums, then there is no reason for teams to invest more in team quality. In other words, players have no claims to these revenues. The critical question is whether capital augments labor: do new stadiums improve the marginal product of players and, thus, improve their contribution to team revenue? If so, then teams have an incentive to increase spending on players.

Quinn, Bursik, Borick, and Raethz (2003) find that a new stadium may be complementary to on-field production, but only for baseball. But a recent Wall Street Journal article (reproduced here) provides an example how capital augments labor in sports in general:

In a separate study published this past summer, a Ph.D. candidate in Canada took saliva samples from 14 players on a minor-league hockey team before and after games. The key finding: Levels of testosterone, which have been found to facilitate assertive and aggressive behavior, were 25% to 30% higher before home games, suggesting the home arena triggered players' elemental instinct to protect their territory. "It has the potential to go a long way in developing techniques to create the ideal physiological profile prior to playing," says Justin Carre, the doctoral candidate at Brock University in St. Catharines, Ontario, who co-authored the study.

...Mr. Poulson made his name in the 1990s, overseeing construction of the Portland Trail Blazers' arena for owner and Microsoft co-founder Paul Allen. Mr. Allen, an avid fan of both music and sports, wanted the new venue to draw top bands for concerts but not if that meant using materials that would deaden crowd noise during basketball games. Ellerbe Becket came up with a novel although expensive solution: rotating ceiling panels with a soft, absorptive side for concerts and a hard side that reflects crowd noise back to the court during games.

...At other schools, it's more than just musical chairs that's going on. When Oklahoma State University expanded its Gallagher-Iba Arena -- already one of the loudest venues around -- it went overboard to make sure that those deafening noise levels didn't drop. After taking sound readings and measuring reverberation times throughout the building, architect Gary Sparks came up with a strategy: Instead of building the extra 7,300 seats outward, he stacked them on top of the existing seats on a steep slope. He also added a flat ceiling stripped of almost all absorptive materials. The goal was to give every sound wave a direct path to a hard surface that would send it ping-ponging around for as long as four seconds.

The author of the article also notes that visiting teams and referees are adversely affected by home team crowd noise. He also notes that in the interest of fairness, some leagues are looking at ways to control noise.

The push for fan power is ratcheting up a cat-and-mouse game between teams looking for an edge and league officials charged with keeping things fair. A number of college-basketball conferences, including the ACC and the Big East, are cracking down on the practice of seating pep bands directly behind visitors' benches to make it harder for coaches to talk to their teams during timeouts. Last year, Major League Baseball instituted new rules governing stadiums with retractable roofs, which can be closed to keep out the elements -- but also to keep in the noise. Teams now have to tell the league by May their criteria for deciding when to open or close their roofs during the season, and in the postseason the final decision is up to MLB.

Seemingly this is another way that leagues standardize the effect of capital across teams. Leagues do this with standardization of playing field dimensions and equipment. While they may try to legislate against some ways to distract players, let's hope they don't go too far. We wouldn't want to be deprived of wonderful scenes like this.

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