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Major League Baseball Player Contracts: An Investigation of the Empirical Properties of Real Options

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Author Info
Matthew Clayton
David Yermack

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Abstract

We study contracts negotiated between professional baseball players and teams to investigate the use of real options in a commercial setting. Baseball contracts feature options in diverse forms, and we find that these options have significant effects on player compensation. As predicted by theory, players receive higher guaranteed compensation when they allow teams to take options on their future services, and lower salaries when they bargain for options to extend their own contracts. The apparent

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File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99051.pdf
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Publisher Info
Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 99-051.

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Date of creation: Nov 1999
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Handle: RePEc:fth:nystfi:99-051

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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Web page: http://w4.stern.nyu.edu/finance/
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  1. Berger, Philip G. & Ofek, Eli & Swary, Itzhak, 1996. "Investor valuation of the abandonment option," Journal of Financial Economics, Elsevier, vol. 42(2), pages 257-287, October. [Downloadable!] (restricted)
  2. Blass, Asher A, 1992. "Does the Baseball Labor Market Contradict the Human Capital Model of Investment?," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 261-68, May. [Downloadable!] (restricted)
  3. Morck, Randall & Schwartz, Eduardo & Stangeland, David, 1989. "The Valuation of Forestry Resources under Stochastic Prices and Inventories," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 473-487, December. [Downloadable!]
  4. McConnell, John J. & Schallheim, James S., 1983. "Valuation of asset leasing contracts," Journal of Financial Economics, Elsevier, vol. 12(2), pages 237-261, August. [Downloadable!] (restricted)
  5. Paddock, James L & Siegel, Daniel R & Smith, James L, 1988. "Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 479-508, August. [Downloadable!] (restricted)
  6. Lenos Trigeorgis, 1993. "Real Options and Interactions With Financial Flexibility," Financial Management, Financial Management Association, vol. 22(3), Fall.
  7. Kahn, Lawrence M, 1993. "Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 157-64, February. [Downloadable!] (restricted)
  8. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November. [Downloadable!] (restricted)
  9. Capozza, Dennis R & Sick, Gordon A, 1991. "Valuing Long-Term Leases: The Option to Redevelop," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 209-23, June.
  10. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April. [Downloadable!] (restricted)
  11. Majd, Saman & Pindyck, Robert S., 1987. "Time to build, option value, and investment decisions," Journal of Financial Economics, Elsevier, vol. 18(1), pages 7-27, March. [Downloadable!] (restricted)
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  12. Quigg, Laura, 1993. " Empirical Testing of Real Option-Pricing Models," Journal of Finance, American Finance Association, vol. 48(2), pages 621-40, June. [Downloadable!] (restricted)
  13. Paul L. Burgess & Daniel R. Marburger, 1993. "Do negotiated and arbitrated salaries differ under final-offer arbitration?," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(3), pages 548-559, April.
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