Progressive Revenue Sharing in MLB: The Effect on Player Transfers
AbstractThe 1997 collective bargaining agreement between the Major League Baseball owners and players’ union altered MLB’s system of sharing revenue sharing between clubs. The new system, a convoluted cross-subsidization scheme, by design progressively redistributed income from the highest revenue generating clubs toward the lowest revenue-producing clubs. The 2003 agreement extended this method of revenue redistribution, but with an increased the tax rate and modified process. The purpose of the revenue sharing system was to alleviate a growing disparity in revenue generation, which MLB claimed caused competitive imbalance. We examine progressive revenue sharing theoretically, within the principal-agent framework, and shows that the incentive to divest in talent is increased for lower revenue producing clubs. Empirical results are supportive. Payroll disparity and competitive imbalance increased modestly from the period immediately preceding implementation. Most striking however is the alteration in transfer rates of players, in particular the increased flow of productive talent away from the lowest revenue clubs. We show conclusively that low revenue producing clubs acted on the increased incentives to divest in talent.
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Bibliographic InfoPaper provided by International Association of Sports Economists & North American Association of Sports Economists in its series Working Papers with number 0728.
Length: 34 pages
Date of creation: Oct 2007
Date of revision:
Sport; revenue redistribution; collective bargaining;
Find related papers by JEL classification:
- J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
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