Baseball Economics: Current Research

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

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.


NOTES
1.
Past works [ Neale ( 1964); El Hodiri and Quirk ( 1971); Demmert ( 1973); Canes ( 1974); Quirk and El Hodiri ( 1974); Scully ( 1974); Hunt and 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 exploitation are Vrooman ( 1995) and Fort and Quirk ( 1995).
2.
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), Sommers and Quinton ( 1982), Hill and Spellman ( 1983), Raimondo ( 1983), Hill ( 1985), Scully ( 1989), Bruggink and Rose ( 1990), and Oorlog ( 1995).
3.
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.
4.
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.
5.
Ours is most typical of how revenue sharing is treated in the literature. For a different approach, Atkinson, Stanley, and 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

-174-

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