IDEAS home Printed from https://ideas.repec.org/a/sae/jospec/v21y2020i7p705-722.html
   My bibliography  Save this article

Do You Get What You Pay for? Salary and Ex Ante Player Value in Major League Baseball

Author

Listed:
  • John L. Solow
  • Anthony C. Krautmann

Abstract

The last few years have seen a resurgence of very long, very expensive guaranteed contracts in Major League Baseball. Commentators who examine the outcomes of earlier long-term contracts generally conclude that teams greatly overpay in these situations. These assessments suffer from the use of perfect hindsight, however. In this article, we estimate the economic gain that could be anticipated at the time of signing of a contract. We forecast the player’s expected future productivity in terms of winning based on recent performance at the time of the contract signing and adjusted for player aging. We translate this expected performance into a stream of expected marginal revenues using estimates of the team-specific value of a marginal win and discount these to present value at the time of signing. The economic cost of the contract to the team is measured by the discounted stream of guaranteed future salaries across the contract horizon. Comparing these benefits and costs indicates that teams overpay on average and more so for longer contracts. Some part of this is likely explained by benefits beyond the effect of games won.

Suggested Citation

  • John L. Solow & Anthony C. Krautmann, 2020. "Do You Get What You Pay for? Salary and Ex Ante Player Value in Major League Baseball," Journal of Sports Economics, , vol. 21(7), pages 705-722, October.
  • Handle: RePEc:sae:jospec:v:21:y:2020:i:7:p:705-722
    DOI: 10.1177/1527002520930259
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/1527002520930259
    Download Restriction: no

    File URL: https://libkey.io/10.1177/1527002520930259?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Wladimir Andreff & Stefan Szymanski (ed.), 2006. "Handbook on the Economics of Sport," Books, Edward Elgar Publishing, number 3274.
    2. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-930, December.
    3. Wladimir Andreff & Stefan Szymanski, 2006. "Handbook on the Economics of Sport," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270122, HAL.
    4. William Witnauer & Richard Rogers & Jarron Saint Onge, 2007. "Major league baseball career length in the 20th century," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 26(4), pages 371-386, August.
    5. Stephen J. K. Walters & Peter Allmen & Anthony Krautmann, 2017. "Risk Aversion and Wages: Evidence from the Baseball Labor Market," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(3), pages 385-397, September.
    6. Fair Ray C, 2008. "Estimated Age Effects in Baseball," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 4(1), pages 1-41, January.
    7. Anthony C. Krautmann & John L. Solow, 2015. "“(Ma)Lingering On The Disabled List”," Contemporary Economic Policy, Western Economic Association International, vol. 33(4), pages 689-697, October.
    8. Anthony C. Krautmann & John L. Solow, 2009. "The Dynamics of Performance Over the Duration of Major League Baseball Long-Term Contracts," Journal of Sports Economics, , vol. 10(1), pages 6-22, February.
    9. John L. Solow & Anthony C. Krautmann, 2011. "A Nash Bargaining Model of the Salaries of Elite Free Agents," Journal of Sports Economics, , vol. 12(3), pages 309-316, June.
    10. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-146, June.
    11. Charles R. Link & Martin Yosifov, 2012. "Contract Length and Salaries Compensating Wage Differentials in Major League Baseball," Journal of Sports Economics, , vol. 13(1), pages 3-19, February.
    12. Babatunde Buraimo & Bernd Frick & Michael Hickfang & Rob Simmons, 2015. "The Economics of Long-term Contracts in the Footballers' Labour Market," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(1), pages 8-24, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rachel Scarfe & Carl Singleton & Adesola Sunmoni & Paul Telemo, 2024. "The age‐wage‐productivity puzzle: Evidence from the careers of top earners," Economic Inquiry, Western Economic Association International, vol. 62(2), pages 584-606, April.
    2. Riguang Wen & Qun Cao & Huijuan Wang, 2023. "Are Pay Decisions Based on Pre-Contract Efficiency Necessarily Correct? Evidence From Players Contracts of National Basketball Association," SAGE Open, , vol. 13(4), pages 21582440231, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rachel Scarfe & Carl Singleton & Adesola Sunmoni & Paul Telemo, 2024. "The age‐wage‐productivity puzzle: Evidence from the careers of top earners," Economic Inquiry, Western Economic Association International, vol. 62(2), pages 584-606, April.
    2. Ian Gregory‐Smith, 2021. "Wages And Labor Productivity: Evidence From Injuries In The National Football League," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 829-847, April.
    3. Geoffrey N Tuck & Athol R Whitten, 2013. "Lead Us Not into Tanktation: A Simulation Modelling Approach to Gain Insights into Incentives for Sporting Teams to Tank," PLOS ONE, Public Library of Science, vol. 8(11), pages 1-10, November.
    4. Dorian Owen, 2014. "Measurement of competitive balance and uncertainty of outcome," Chapters, in: John Goddard & Peter Sloane (ed.), Handbook on the Economics of Professional Football, chapter 3, pages 41-59, Edward Elgar Publishing.
    5. James Alm & William H. Kaempfer & Edward Batte Sennoga, 2012. "Baseball Salaries and Income Taxes," Journal of Sports Economics, , vol. 13(6), pages 619-634, December.
    6. G. Pantuso & L. M. Hvattum, 2021. "Maximizing performance with an eye on the finances: a chance-constrained model for football transfer market decisions," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 29(2), pages 583-611, July.
    7. Wladimir Andreff, 2014. "Building Blocks for a Disequilibrium Model of a European Team Sports League," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00971782, HAL.
    8. Jardin, Mathieu, 2009. "Efficiency of French football clubs and its dynamics," MPRA Paper 19828, University Library of Munich, Germany.
    9. Wladimir Andreff, 2011. "Some comparative economics of the organization of sports: Competition and regulation in north American vs. European professional team sports leagues," Post-Print halshs-00677436, HAL.
    10. Paul Downward, 2014. "English professional football," Chapters, in: John Goddard & Peter Sloane (ed.), Handbook on the Economics of Professional Football, chapter 17, pages 277-297, Edward Elgar Publishing.
    11. Roger G. Noll, 2013. "Endogeneity in attendance demand models," Chapters, in: Plácido Rodríguez & Stefan Késenne & Jaume García (ed.), The Econometrics of Sport, chapter 7, pages 117-134, Edward Elgar Publishing.
    12. Dietl Helmut M & Duschl Tobias & Lang Markus, 2011. "Executive Pay Regulation: What Regulators, Shareholders, and Managers Can Learn from Major Sports Leagues," Business and Politics, De Gruyter, vol. 13(2), pages 1-32, August.
    13. Helmut Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2008. "Revenue Sharing, Reserve Clause and Salary Caps in Professional Team Sports Leagues," Working Papers 0026, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2009.
    14. Raffaele Trequattrini & Alessandra Lardo & Benedetta Cuozzo & Myriam Cano Rubio, 2017. "Intellectual Capital as driver for controlling managers? performance. An innovative approach," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2017(3), pages 123-142.
    15. Helmut Dietl & Tobias Duschl & Markus Lang, 2010. "Gehaltsobergrenzen und Luxussteuern: Erkenntnisse aus dem professionellen Mannschaftssport," Working Papers 0136, University of Zurich, Institute for Strategy and Business Economics (ISU).
    16. Wladimir Andreff, 2014. "Building Blocks for a Disequilibrium Model of a European Team Sports League," Post-Print halshs-00971782, HAL.
    17. David J. Berri & Rob Simmons, 2009. "Race and the Evaluation of Signal Callers in the National Football League," Journal of Sports Economics, , vol. 10(1), pages 23-43, February.
    18. R Simmons & D Berri, 2007. "Does it pay to specialize? The story from the Gridiron," Working Papers 591134, Lancaster University Management School, Economics Department.
    19. Wladimir Andreff, 2006. "New Perspectives in Sports Economics: The European View," IASE Conference Papers 0601, International Association of Sports Economists.
    20. Kostas Kounetas, 2014. "Greek football clubs’ efficiency before and after Euro 2004 Victory: a bootstrap approach," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 22(4), pages 623-645, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:jospec:v:21:y:2020:i:7:p:705-722. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.