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KrautmannVonAllmenBerriIJSF - International Journal of...

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International Journal of Sport Finance , 2009, 4 , 75-93, © 2009 West Virginia University Introduction One of the most widely held notions in sports economics is that owners of profession- al sports teams exercise monopsony power whenever and wherever they can. To cre- ate countervailing power, players have responded by forming labor unions to bargain with owners on a more level plane. But most collective bargaining agreements favor veteran players, leaving younger players to the mercy of owners. In Major League Baseball (MLB), for example, most players with three or less years of experience are subject to the reserve clause which allows owners to unilaterally determine their salaries. Only with experience comes eligibility for arbitration, free agency, and a more equal bargaining relationship. While the particular rules pertaining to eligibility dif- The Underpayment of Restricted Players In North American Sports Leagues Anthony C. Krautmann 1 , Peter von Allmen 2 , and David Berri 3 1 DePaul University 2 Moravian College 3 Southern Utah University Anthony C. Krautmann is a professor of economics at DePaul University. His primary research interest is in the field of sport economics, where the range of topics studied include the Rottenberg Invariance Principle, shirking and long-term contracts, com- petitive balance, and the wage determination process in professional sports. Peter von Allmen is a professor of economics at Moravian College. His research focuses on labor-related issues in the professional sports industry. David J. Berri is an associate professor of economics in the Department of Economics and Finance at Southern Utah University. His current research focuses on the economics of sport, specifically the topics of consumer demand, competitive balance, and worker productivity. Abstract In this paper, we consider whether underpaying players restricted by the reserve clause is a common practice in the three largest sports leagues in North America—the NFL, NBA, and MLB. Our results are consistent with the hypothesis that owners of profes- sional sports teams do exercise monopsony power whenever and wherever they can. Although differences exist across the three sports, our results indicate that in general: restricted players are underpaid; when the negotiating power of players rises, owners are less able to extract a surplus; and, the greatest surplus tends to be extracted from those who create the greatest amount of value. Keywords: xxxxxxxx
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Krautmann, von Allmen, Berri fer, similar bargaining rights exist in the National Football League (NFL) and the National Basketball Association (NBA). In this paper, we survey the three largest sports leagues in North America to see the extent to which the underpayment of restricted players is common across these leagues. While a similar study was conducted on MLB (Krautmann et al., 2000), the other sports leagues have been largely ignored. As such, we hope to provide sports economists with evidence of how common such a practice is and to provide a compar- ison of the size of such underpayments across leagues.
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