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Long-Term Contracts in Major League Baseball

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Author Info

  • Jahn K. Hakes

    ()
    (Department of Economics & Management, Albion College)

  • Chad Turner

    ()
    (Department of Finance & Economics, Nicholls State University)

Abstract

Long-term deals are one tool that both players and franchises use to manage risk. That tool has been much discussed and empirically tested with respect to player shirking, and has more briefly, and only theoretically, discussed with respect to reducing variance in future payrolls. Our work looks at how patterns of use of long-term contracts are affected by changes in contracting rules established through collective bargaining and by expected changes in franchise revenue streams. To accomplish this, we have assembled the most complete dataset of MLB player contracts to date. We analyze changes in contract length and dollar value across players of different ability levels, at different points in their careers (contract status), by position, across CBA agreements, and further examine if new stadiums and new television deals impact contract terms. We confirm the earlier finding that player performance is systematically higher during contract years than during the early portion of a long-term contract. We also find that inclusion of contract length information significantly reduces the unexplained variation in player salaries.

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File URL: http://college.holycross.edu/RePEc/spe/HakesTurner_MLBContracts.pdf
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Bibliographic Info

Paper provided by International Association of Sports Economists & North American Association of Sports Economists in its series Working Papers with number 0831.

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Length: 45 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:spe:wpaper:0831

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Related research

Keywords: Major League Baseball (MLB); long-term contracts; player salaries and performance; collective bargaining agreements (CBA);

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References

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  1. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-30, December.
  2. Turner, Chad & Hakes, Jahn, 2007. "Pay, productivity and aging in Major League Baseball," MPRA Paper 4326, University Library of Munich, Germany.
  3. Daniel R. Marburger, 2003. "Does the Assignment of Property Rights Encourage or Discourage Shirking?: Evidence From Major League Baseball," Journal of Sports Economics, , vol. 4(1), pages 19-34, February.
  4. 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.
  5. Paul M. Sommers & Noel Quinton, 1982. "Pay and Performance in Major League Baseball: The Case of the First Family of Free Agents," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 426-436.
  6. Lawrence M. Kahn, 2000. "The Sports Business as a Labor Market Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 75-94, Summer.
  7. Lehn, Kenneth, 1982. "Property Rights, Risk Sharing, and Player Disability in Major League Baseball," Journal of Law and Economics, University of Chicago Press, vol. 25(2), pages 343-66, October.
  8. Anthony C. Krautman & Margaret Oppenheimer, 2002. "Contract Length and the Return to Performance in Major League Baseball," Journal of Sports Economics, , vol. 3(1), pages 6-17, February.
  9. Joel G. Maxcy & Rodney D. Fort & Anthony C. Krautmann, 2002. "The Effectiveness of Incentive Mechanisms in Major League Baseball," Journal of Sports Economics, , vol. 3(3), pages 246-255, August.
  10. Joel Maxcy, 2004. "Motivating long-term employment contracts: risk management in major league baseball," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(2), pages 109-120.
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