Social media, increased free agency, and sport globalization have made player-based fandom increasingly relevant ( Wu, Tsai, & Hung, 2012 ). The National Basketball Association (NBA), in particular, has used free agency and the creation of “superteams” to garner sporting attention year-round. As a
Sitong Guo, Andrew C. Billings and James C. Abdallah
Parbudyal Singh, Allen Sack and Ronald Dick
Over the last three decades, Major League Baseball has often served as a natural setting for the study of discrimination in the workforce. Much of this research has found that salary discrimination has all but disappeared in Major League Baseball. However, an issue that remains unresolved is whether salary discrimination can be found among players who are not eligible for free agency. The important theoretical question raised here is whether market constraints on competition for labor encourage wage discrimination. The purpose of this study was to examine this issue by using recent data. Our results suggest that race is not a significant predictor of compensation, even among players who are not eligible for free agency. Two interpretations of these findings are presented, as well as implications for social policy.
Lawrence Hadley and Elizabeth Gustafson
Earnings equations are estimated for major league baseball hitters and pitchers using salary data for the 1989 season. The results indicate that final-offer salary arbitration and long-term contracts have a large positive impact on salaries. The impact of free-agency eligibility is also positive, but smaller man arbitration eligibility. This implies that some players have used the arbitration process to extract above-market salaries. Therefore it is concluded that it would be in the interest of the owners to replace arbitration with earlier eligibility for free agency.
Joel Maxcy and Michael Mondello
Free agency was reintroduced to professional team sport leagues in the 1970s. Sport enthusiasts expressed concern that competitive balance would diminish as star players congregated to large market cities. However, the economic invariance principle rejects this notion, indicating that balance should remain unchanged. This article empirically examines the effects of changes in free agent rules on competitive balance over time in the National Basketball Association (NBA), National Football League (NFL), and National Hockey League (NHL). Regression analysis using within-season and between-season measures of competitive balance as dependent variables provides mixed results. The NFL and NHL provide evidence that an aspect of competitive balance has improved, but results from the NBA indicate that balance has worsened since the introduction of free agency. We conclude that the ambiguous results suggest that the effects are not independent, but instead depend on the interaction of free agent rights with other labor market and league rules.
Wilbert M. Leonard II
This study replicated Christiano’s inquiry on race and salaries in major league baseball in 1987. However, instead of merely dichotomizing the independent variable into black and white, the data were trichotomized into white, black, and Hispanic categories. Unstandardized regression coefficients (after disaggregating the observations by race / ethnicity, position, and free agency status) revealed several instances of salary inequities but no systematic patterning. The conclusion: The salaries of baseball players varying in race / ethnicity were not consistently different even while holding other theoretically relevant variables constant.
David Ahlstrom, Steven Si and James Kennelly
Under certain conditions, equity and expectancy theories yield opposite predictions. This study examines one such situation. Performance statistics from a sample of 172 Major League Baseball free agents were collected for the 2 years before and 1 year after each player's free agency filing. Equity theory suggests that performance decrements will occur when players perceive they are undercompensated in their free-agent year. In contrast, expectancy theory suggests that players' performance will be superior when they are up for new contracts. During the 1st year of a free-agent player's new contract, equity theory predicts that his performance will be superior, whereas expectancy theory predicts that it will be lower. Free agents' performance tended to decline after they signed contracts with new teams. This study suggests that if Major League Baseball teams pay free agents based on free-agent-year performance, they might not be satisfied with the results.
Morris B. Holbrook and Clifford J. Shultz II
The spectacular salaries paid to various baseball stars—and the ongoing player-management acrimony over those salaries—leads one to question the relationship between performance and compensation during what may someday be referred to as the “golden era” of free agency. After reading the available work on the determinants of ballplayer compensation, one may still wonder what effect today's hit, strikeout, assist, or error exerts on tomorrow's salary—or, more colloquially, “How much is a home run worth?” The present study addresses these questions from the vantage point of a salary-updating model. This model assumes no salary cap and posits that, according to an updating or ratcheting process, future salary depends on current salary and current performance.
Kevin J. Christiano
A series of multiple regression analyses using the most recent publicly available data on the salaries of veteran hitters in major league baseball uncovers little evidence of economic discrimination by race. Comparisons of unstandardized regression coefficients for player variables, by race and position, reveal a number of instances of inequality. However, these inequalities do not occur consistently with respect to the same type of performance, nor do they always place blacks at a disadvantage. Furthermore, blacks who do not enjoy the market power granted to players by the advent of free agency are not uniformly victimized by discrimination in salaries. Instead, the newest evidence suggests that signs of salary discrimination that were found in data on hitters from the 1977 season are not manifest 10 years later.
This paper derives equivalent gross salary for Major League Baseball free agents weighing offers from teams based in states with different income tax rates. After discussing tax law applicable to professional sports teams’ players, including “jock taxes” and the interrelationship of state and federal taxes, this paper builds several models to determine equivalent salary. A base-case derivation, oversimplified by ignoring nonsalary income and Medicare tax, demonstrates that salary adjustment from a more tax expensive state’s team requires solely a state (but not federal) tax gross-up. Subsequent derivations, introducing nonsalary income and Medicare tax, demonstrate full Medicare but small federal tax gross-ups are also required. This paper applies the model to equalize salary offers from two teams in different states in a highly stylized example approximating the 2010 free agency of pitcher Cliff Lee. Aspects of the models may also be used to inform other sports’ players of their after-tax income if salary caps limit the ability to receive adequately grossed-up salaries.
and within individual organizations. Six of those critical inflection points evaluated in this book are the creation of general-manager roles, the establishment of farm systems, the integration of racial diversity, the advent of first-year-player drafts, the beginning of free agency, and the rise of