Should Players Trust Their Agents? Portfolio Size and Agency Behavior in Major League Baseball

in Journal of Sport Management

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Anthony Krautmann DePaul University

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Peter von Allmen Skidmore College

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Stephen J.K. Walters Loyola University Maryland

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DOI:
https://doi.org/10.1123/jsm.2017-0148
Keywords:
agency theory; athlete management; portfolio theory
In Print:
Volume 32: Issue 3
Page Range:
199–210
Restricted access

We examine bargaining for long-term contracts in baseball, which usually involves agents negotiating on behalf of players. We show that when an agent represents a large portfolio of clients, the agent’s interests may diverge from those of the client. Such agents face less risk than their clients and therefore may calculate a minimum-acceptable contract offer that exceeds that of their clients. Using a sample of nearly 500 eligible players, we test for the presence of this principal–agent problem and find evidence that the size of an agent’s client portfolio negatively affects the probability of successfully negotiating a long-term contract. The results have important implications for both players and team management as they shed light on the circumstances under which incentive compatibility may be compromised.

Krautmann is with the Department of Economics, DePaul University, Chicago, IL. von Allmen is with the Department of Economics, Skidmore College, Saratoga Springs, NY. Walters is with the Department of Economics, Loyola University Maryland, Baltimore, MD.

Address author correspondence to Peter von Allmen at pvonallm@skidmore.edu.
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