Do Major League Baseball Hitters Engage in Opportunistic Behavior?

Article excerpt

Abstract This study focuses on 256 Major League Baseball free agent hitters playing under the 2006-2011 collective bargaining agreement to determine whether players engage in opportunistic behavior in their contract year, i.e., the last year of their current guaranteed contracts. Past studies of professional baseball yield conflicting results depending on the econometric technique applied and choice of performance measure. When testing whether players' offensive performances increase during their contract year, the omitted variable bias associated with OLS and pooled OLS estimation leads to contrary results compared to fixed effects modeling. Fixed effects regression results suggest players increase their offensive performance subject to controlling for the intention to retire.

Keywords Sports economics * Free agency * Opportunistic behavior * Contract year * Guaranteed contracts

JEL J31 * J44

Introduction

In professional sports, especially major league baseball (MLB), there is a lot of talk about contract year performance. Beginning in spring training and continuing throughout the season, sports journalists and fans speculate how players in the last year of their contract will perform that season. Many believe that contract year players will have break-out seasons in order to secure a better contract in upcoming contract negotiations. Others contend that the anxiety over the need to procure a contract for the following season distracts players, causing them to underperform in their contract yean Baseball-Reference.com (2012) shows Jason Werth playing for the Phillies for $7.5 million in 2010. Being the last year of his contract, Werth sported a .921 on base plus slugging percentage (OPS) compared to .879 in the previous year. Following his stellar 2010 contract year season, Werth signed a 7-year contract with the Washington Nationals worth $122 million, or more than $17 million per season. By contrast, the Phillies' Pat Burrell, with a .902 OPS in 2007, saw his OPS fall to .875 during his contract year in 2008. Rather than speculate the contract year phenomenon with anecdotes, sufficient sample sizes and appropriate econometric analysis provide robust evidence.

If players increase their effort and performance during their contract year, it implies potential opportunistic behavior by players, a topic studied by labor economists examining performance and incentives in contracts. Utility-maximizing players face profit-maximizing team owners when negotiating contracts. Both sides understand incentives affect performance, and performance impacts pay. Understanding opportunistic behavior and whether players engage in it aids team owners in crafting contracts. The labor market for sports teams offers empirically robust economic data to investigate opportunistic behavior since publicly available player performance indicators, contract clauses, and salary compensation are available. Not surprisingly, using different theories, variables, data, or time periods lead to a variety of results by previous researchers.

This paper focuses on position players (non-pitchers) in baseball in order to isolate individual performance as opposed to performance dependent upon teammates. Pitching performance is more greatly affected by team defensive capabilities, thus excluded in the analysis. For hitters, the type of pitch a hitter faces may depend in part on the hitters adjacent to him in the line-up, but this is dismissed as a reason for changes in batting performance from 1 year to the next because players tend to bat in similar slots in the line-up across seasons. Among the various offensive performance measures used in other contract year studies, the statistics on-base percentage plus slugging percentage (OPS) and OPS adjusted by ballpark (OPS100) are chosen for this study as they measure a hitter's output independently from his teammates' contributions.

The salary structure in MLB derives from the collective bargaining agreement (CBA) between the 30 MLB teams and the Major League Baseball Players Association (MLBPA). …