Allen R. Sanderson

Labour Markets in Professional Sports

Many interesting elements of supply and demand are starkly observable in professional athletics. Understanding institutional arrangements, competitive balance and labor-management relations requires a basic understanding of sports labor markets and the struggle for control of those markets between interest groups. In this paper we treat historical and contemporary labor issues in North America and Europe, from reserve rules and free agency, high levels of player pay and work stoppages, to the distribution of playing talents across teams. We discuss the relationship between personal productivity and pay; relative versus absolute demand; competitive and cooperative interactions across firms (teams); factor substitutions; player mobility and the Coase theorem. We briefly consider how property rights affect supply, athletic talent, arms races and restrictions on competition. The problem of (excess) incentives to compete leading to externalities and inefficiencies are noted throughout the paper. Restrictive agreements such as reverse-order drafts, payroll caps and revenue sharing may constrain these forces, but they also redistribute rents from players to owners. All of these schemes, in one way or another, punish success. The European approach -- promotion of better-performing teams and relegation of those with the poorest records -- punishes failure. It remains an interesting economic question as to which system is better.

Thinking about Competitive Balance

Simon Rottenberg long ago noted that the nature of sports is such that competitors must be of approximately equal ability if any are to be financially successful. In recent years, sports commentators and fans, Major League Baseball itself, and even some economists have expressed growing concern about the widening disparities between team expenditures and the growing concentrations of postseason contenders and championships. In this article, the authors compare different concepts of competitive balance, review the theoretical and empirical scholarship on competitive balance and the relationship between payrolls and performance, describe the natural forces and institutional rules and regulations that contribute to observed distributions of playing performances, and evaluate the likely effect of several popular proposals—payroll and salary caps, luxury taxes, and increased revenue sharing—on competitive balance. Although the focus is on baseball, frequent comparisons are made to other sports leagues including collegiate athletics and individual sports.

The Many Dimensions of Competitive Balance

Discussions of competitive imbalance use Major League Baseball as a focal point, and proposed remedies center on redistributions of revenues from well-heeled owners to financially strapped franchises. However, there are also many additional aspects in sports that do not involve allocations of economic resources directly but nevertheless affect outcomes and balance among competitors. All leagues and associations have to confront the fundamental issue of relative strengths between adversaries. To create some semblance of balance and ensure the integrity of play, they place constraints on the competitive process and respond to technological changes that threaten to disrupt the current environment, including the use of performance-enhancing inputs. Although we extol the virtues of natural athletes and level playing fields with regard to skill development, ensuring evenly matched contests, and comparing performances over time, there are arguably no consistent, objective standards we can employ. Imbalance is an inherent, intractable part of all competitions.

Simon Rottenberg and Baseball, Then and Now: A Fiftieth Anniversary Retrospective

Fifty years ago this Journal published Simon Rottenberg’s “The Baseball Players’ Labor Market,” the first professional journal article in sports economics. In this retrospective we review some of his insights and analyses with regard to competitive balance, constraints on payroll and freedoms to contract, revenue sharing, territorial rights, and the supply of talent. We also note subsequent industry developments Rottenberg could not have anticipated and identify where he was ahead of his time.

The implications of athlete freedom to contract: lessons from North America.

The 1995 Bosman judgement by the European Court of Justice granted professional athletes in Europe inter-country freedom to contract and eased foreign-player restrictions. Based on two decades of free-agency experience in North America, we expect to see salaries of European players rise substantially, top players earn more while marginal players earn less, and players absorb more of their training costs. Ticket prices and competitive balance will be unaffected. Clubs and leagues will be likely to attempt to control player costs by instituting schemes such as payroll caps and increased revenue sharing.

The Economic Impact of Colleges and Universities

This essay describes methodological approaches and pitfalls common to studies of the economic impact of colleges and universities. Such studies often claim local benefits that imply annualized rates of return on local investment exceeding 100 percent. We address problems in these studies pertaining to the specification of the counterfactual, the definition of the local area, the identification of “new” expenditures, the tendency to double-count economic impacts, the role of local taxes, and the omission of local spillover benefits from enhanced human capital created by higher education, and offer several suggestions for improvement. If these economic impact studies were conducted at the level of accuracy most institutions require of faculty research, their claims of local economic benefits would not be so preposterous, and, as a result, trust in and respect for higher education officials would be enhanced.

Sherwin Rosen, 1938-2001

Major League Baseball has rewarded cities that build new baseball stadiums with the chance to host the All-Star Game. Although the league asserts a significant boost to metropolitan economies due to the game, are these economic impact estimates published by the league credible? In two separate economic impact models, the authors find that All-Star Games since 1973 are actually associated with worse than expected economic performance in host cities.