reductions in talent payment to input market power that actually are the result
of revenue sharing arrangements. Empirical analysis reveals that actual league
outcomes conform to the theory and that the usual measure of exploitation
overstates the effects of input market power by as much as 16%. While the
theory dictates that the over-statements of exploitation should be lower in the
NL, and they are, an interesting remaining puzzle is just why the absolute level
of overstatement is so low in the NL.
It is lamentable that the burden of the monopsony exploitation and revenue
sharing over the arbitration-ineligible, free-agent-ineligible, and free agent
players is not possible due to data limitations. If ticket data were available, the
model could be applied to the reserve clause period to get a feel for how
revenue sharing incentives differentially impact players, since all players were
restricted in that earlier period.
Perhaps the most interesting unanswered question here is, since revenue
sharing percentages are endogenous, with large impacts on the distribution of the
value of the league between owners and talent, why are percentages at their
current levels? For example, what explains the variation in revenue sharing
between leagues in the same sport (the NL and AL in our analysis) and across
different sports? We have gone far enough here but we encourage the analysis
of these questions.
Past works [
Neale ( 1964);
El Hodiri and
Quirk ( 1971);
Demmert ( 1973);
El Hodiri ( 1974);
Scully ( 1974);
Lewis ( 1976);
Atkinson, Stanley, and
Tschirhart ( 1988)) either ignore the impacts of revenue sharing or examine
only revenue sharing impacts on input choices and/or the distribution of talent
(competitive balance). Exceptions that note the relationship between revenue sharing and
Vrooman ( 1995) and
Quirk ( 1995).
There is an extensive empirical literature documenting exploitation (salaries less
than marginal revenue product) of players by owners in baseball, beginning with the
pathbreaking work by
Scully ( 1974a). Later works are
Medoff ( 1976),
Cassing and Douglas ( 1980),
Quinton ( 1982),
Spellman ( 1983),
Hill ( 1985),
Scully ( 1989),
Rose ( 1990), and
Oorlog ( 1995).
Our approach is somewhat limited in terms of suggestions about the actual salary
process. The theory pertains to how a team will exploit talent, rather than individual
players. Thus, extensions to how the burden of this exploitation falls on different players
are not possible. This is lamentable, since common sense dictates that more mobile
players (free agents) ought to be exploited less than less mobile ones.
The theory here borrows liberally from, and extends, our earlier work [
Fort and Quirk ( 1995)], where we also discuss alternative models to profit maximization. See also Quirk and
Fort ( 1992) and
Vrooman ( 1995) for two-team graphical treatments.
Ours is most typical of how revenue sharing is treated in the literature. For a
Tschirhart ( 1988) allow team i to retain a
share of its own gate and television revenue, with the remainder going into a pool shared
equally among all n teams. While containing aspects of the revenue sharing under a
salary cap in the National Basketball Association, this sounds like no revenue sharing
Questia, a part of Gale, Cengage Learning. www.questia.com
Book title: Baseball Economics:Current Research.
Contributors: John Fizel - Editor, Elizabeth Gustafson - Editor, Lawrence Hadley - Editor.
Publisher: Praeger Publishers.
Place of publication: Westport, CT.
Publication year: 1996.
Page number: 174.
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