Baseball Economics: Current Research

By John Fizel; Elizabeth Gustafson et al. | Go to book overview

Baseball Agreement. 9

Taken as a whole, our results implies that MLB players are not victims of monopsony exploitation as it is typically interpreted. By incorporating training expenses into the analysis, we see that teams with low graduation rates have such high overhead that they need to extract a higher surplus from their players in order to pay for their inefficient minor league system. Seen this way, players on such teams become victims not of the reserve clause, but of the professional agreement which impedes their ability to chose a team with an efficient training system. Furthermore, previous discussions dealing with the minor leagues have tended to center on the professional agreement which spells out major league baseball's financial commitment to the minor leagues. What we also showed in this chapter is that changes in the basic agreement in MLB would have spillover effects on the minor leagues. Reducing the number of years a team can indenture a major league player (as was discussed during the most recent baseball impasse) will indirectly affect the owner's return on general training, hence on the minors. Whether the present configuration of the minors is, in any sense, socially optimal can only be speculated upon. What is certain, however, is that changes in the economics of major league baseball will have consequences on the minor leagues.


NOTES
1.
Until 1990, minor leaguers contributed little to their major league teams other than insurance against injuries or failure by players on the major league roster. The most recent agreement between the majors and minors, however, stipulates that highly profitable minor league clubs return some percentage of their gate receipts to their major league affiliate. This implies that MRP0 is positive in these cases.
2.
This point was soundly taken by Stan Brand, the Vice President of the National Association of Professional Baseball Leagues (i.e., the minor leagues), during the recent congressional hearings on the antitrust exemption of major league baseball.
3.
Critics of this method argue that calculating the per-player costs in this manner overstates the true costs of developing a player because it ignores recent changes in the Professional Baseball Agreement which now requires minor league clubs to share their gate revenues with their major league affiliates [ Zimbalist ( 1992a)]. This shortcoming can be overcome by deducting the amount of the revenue transfer from the team's player development expenses to arrive at training costs net of this revenue sharing. This adjustment was not appropriate in this case, however, since our analysis is based on financial data in 1989 and this new sharing arrangement did not take effect until 1991.
4.
In fact, Zimbalist's results suggest that the average free agent is actually overpaid relative to his MRP.
5.
This is calculated by simply solving for the number of graduates which equates the per-player development costs to the present value of the surplus, or (player development costs/# grads) = $1,477,785.
6.
At the higher estimate, only 7 of 26 MLB teams would break even.
7.
The major drawback of inferring exploitation from these rates of return is that monopsony rents themselves would be expected to be capitalized into the franchise value, hence reducing the imputed rates of return.

-94-

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