Although it took the Wagner Act to get the ball rolling, American sports unions have thrived for two reasons. First, they serve a group of people with very specialized skills that work for a cooperative body: the league. Leagues are little more than the collection of team owners. They are cooperative bodies in two senses: 1. in terms of setting schedules, the season play-off format, etc.; 2 the cooperate in the labor market in a cartel sense. The unions fight this monopsonistic cartelization
Second, sports teams and, by extension, leagues, enjoy a mlot of market power in their markets, which leads to higher profits and more rents that can be extracted by a union. Unions don’t thrive very often in competitive markets because the competition restrains profits which thus restrains the rents that can be obtained through collective bargaining. Despite the “peculiar economics” of sports leagues, the leagues themselves are not operating in a competitive output market.
John Palmer (Eclectecon) sends this fascinating Slate piece by Eriq Gardner about the history of NFL draft along.
In 1968, the Washington Redskins used their first-round pick (12th overall) on Smith, an All-American defensive back from the University of Oregon. The rookie signed with the team for $50,000, and his unremarkable first season culminated in a career-ending neck injury during Week 14. Smith seemed destined for quick obscurity. Then he sued the NFL.
Two years after his retirement, Smith went before a judge and asserted that the draft constituted an unreasonable restraint of trade in violation of the Sherman Antitrust Act. Had it not been for the draft, he argued, he would have been able to negotiate a more lucrative contract for his one year as a professional. And he demanded that the NFL make up the difference.
The case succeeded at the district court, securing $276,000 in treble damages for Smith, and he won again when the league appealed. In 1977, the U.S. Court of Appeals for the District of Columbia Circuit ruled the “draft inescapably forces each seller of football services to deal with one, and only one buyer, robbing the seller, as in any monopsonistic market, of any real bargaining power.”
Gardner notes that it looked like the Smith had the case won. But the NFL knew that it could effectively get an exemption from the Sherman Act if the players’ union would agree to it. How did it get the union to agree to it?
Keep in mind that any collective bargaining relationship is composed of three groups: the employer, the unionized workers, and the union leadership. One of the interesting things about the NFLPA is that the leadership is largely composed of senior union workers, and Gardner argues that it is this arrangement that has led to the draft being kept.
The union’s leadership is determined by seniority, with the upper echelon composed of veterans whose financial stakes conflict with those of the rookies. For example, take the way that draftees are paid by their assigned teams. According to the current collective-bargaining agreement, each club is allotted a set amount of “rookie pool money” to sign its draft picks. (Here’s last year’s breakdown of pool money.) It benefits the veteran players who run the union to keep that pool small: Since the NFL maintains a hard cap on the total amount of money distributed to players throughout the league, less money for rookies means more for the old-timers.
Lawyers for the professional sports leagues argue that is a perfectly acceptable arrangement, as wages and benefits go up with seniority in many other industries. But pro football is not like other industries. According to the players association, the average NFL career lasts about three and a half seasons. That just about covers the term of service that a player must devote to the team that drafts him before he’s eligible for unrestricted free agency.
These days, draft reform is a very low priority for the union, especially since any serious demands for change would probably require other sacrifices during the collective-bargaining process—such as lowering player salaries or allowing more restrictions on free agency. In fact, there’s buzz that in the next agreement, the union will accept an even tighter wage scale for rookies.
…In other words, those who wish to challenge the NFL draft in the post-Yazoo Smith era should think hard about their target. It’s not the league. It’s the union.
There’s little that young players can do but hope they don’t get hurt so they can stick around long enough to get the seniority that allows them to get the really valuable stuff out of the union contract.
Cross-posted at Market Power