The Market for Talent
Professional Sports as Markets for Talent
•
If
you hit the way back machine to Adam Smith’s political economy, the ideal of a
market is one that is “free of inference”, where “the invisible hand” is able
to operate
–
For
Smith, this meant both labor and capital were free to pursue their own
interest
•
Most
team sports leagues do not operate in this matter
–
The
closest are “tours”, where every year new players/teams can qualify to join,
either through an lower-division tour or an event
• The Professional Golf
Association works like this – there are regional tours/events that can be used
to work your way up to a “Tour Card”. There is no geographic restriction to
who can do this.
– You can lose your card,
but it is mostly for not playing in enough events. So it does protect
existing touring pros over new ones a bit. But pros who don’t automatically
retain card get a last chance four tournament playoff to keep it.
Market for Talent (cont.)
•
NFL
is the least free market
–
There
are no serious competitors anymore for talent
• When the league had
fewer teams, the Canadian Football League (and even Arena Football League)
managed to get some very good players.
–
There
is a hard salary cap (ie each team can only spend so much money)
• Salary caps allow teams
from smaller markets to compete, but also saves owners from their own stupidity
– They also limit player
salaries, meaning they make less than they would in a competitive pricing
environment
• Smaller markets benefit
greatly from NFL having only national TV contracts, with that revenue shared
roughly equally amongst teams
–
Contracts
with players are not fully guaranteed, (ie guaranteed = team pays them no
matter what) unlike other leagues .
• This is despite the
fact that NFL players are at greater health risk and tend to have shorter
careers.
• The NFL also put in
place rookie salary caps; with longer rookie contracts for early round players
– so some players never make it to their big payday
– It also makes rookies
cheaper than veterans, thus only really good veterans get contracts
•
In
essence, the NFL is a monopoly of private owners (and one fan owned team, the
Green Bay Packers) who constantly figure out just how little their unionized
players will accept to do something dangerous while also attempting to get
every penny from broadcasters, advertisers and fans.
–
They
pay their commissioner (who has probably added zero value to the league, and
most likely subtracted from it) more than any player
Market for Talent (cont).
•
Baseball
(MLB), Hockey (NHL) and basketball (NBA) have similar structures and corporate
orientation as the NFL (although baseball is more committed to cheap seats than
other leagues), but at least have some foreign leagues (Euro basketball; Japan
in baseball; Euro hockey) that offer a bit of competition for good talent.
–
Baseball
and basketball also do not have “hard” salary caps, just “luxury tax
thresholds” (which means player salaries can get bigger quicker)
• NHL has a hard cap,
mostly to save its mostly ineffective owners from themselves and their league
leadership
• However, baseball
structures free agency so that unless you reach the majors by 23, your free
agent years come when you are likely on the down slope of your career (ie
around 30)
– While a major league
career is lucrative, players make very little in the minors (unless they had
huge signing bonus) – more on this in a minute.
–
But
like the NFL, the NBA, NHL and MLB are closed leagues – no new teams can enter
without consent of other owners; no team loses its right to be in the league.
Market for Talent (cont.)
•
The
truest “market” for sports talent among league sports is international football
(for now).
–
This
is because the leagues in England, Germany, Spain and Italy (and a few other
high spending clubs scattered across Europe) can all spend max dollars to get
an elite player
–
Also,
outside of the US’s Major League Soccer and a few other smaller leagues, low
performing teams are kicked out of the league in favor of high performing teams
from lower divisions every year
• Thus there are no teams
that just rake money from their monopoly position (Marlins, cough, Marlins) –
they actually have to win to continue to get the benefits of TV dollars
– It is also harder to
extort money from cities to build stadiums with the threat of moving, because
everywhere already has a team somewhere in the lower divisions.
–
However,
there are rumblings that Europe’s top clubs might form a “closed” super league,
making it more like the US.
•
But
it also shows the limits of markets in producing fairness (at least for fans of
many peripheral local teams which just get continually stomped on)
–
The
biggest clubs (usually in the biggest cities, or richest owners) are often good
year after year after year
• Barcelona, Real Madrid,
and Bayern Munich have been great for basically an eternity.
• They often are able to
stack their teams with extremely good players, some of whom rarely get to
actually play
– In the US, only college
football and women’s basketball sees this type of talent stacking at the top
•
That
is the thing with markets : it is rare to produce universal fairness for
owners, distributors, workers, and consumers, especially in the long term –
choices are made in who the structure favors
Dependency Theory
•
Klein’s
article on baseball as underdevelopment in the Dominican Republic utilizes
Dependency Theory
–
First
developed by Andre Gunder Frank, it holds that the rich places get rich by
extracting wealth from poor places
• This occurs between
rich countries and poor countries; and between large cities and the countryside
– Frank held that the
economies of poor places tended to do better the less attention they received
from rich places.
–
Klein
argues that major league baseball does not plan to destroy professional
baseball in other markets, but ends up doing it anyway as a side of effect of
superior resources and attempts to win.
Dependency Theory (cont)
•
Dominican
baseball initially got organized in early 20th century by sugar
producers, who formed teams to keep their cane cutters busy in the off season
–
A
very similar system developed in Cuba; prior to the Revolution American players
would play Winter Ball down there; and once Jackie Robinson played for the
Dodgers, it was possible for Caribbean players to be signed by major league
teams.
• Some rookies and minor
leaguers still do play winter ball in DR and Puerto Rico; as well as a few
Caribbean players already in the major leagues (and some retirees).
–
After
1955, Dominican baseball began a professional winter league with ties to major
league baseball and its national summer league began to suffer as players went
to MLB
• DR became extremely
important after Cuban Revolution once Cuban pipeline of players was cut off
– Plus, it used cost
around 5% of what it cost to sign an American kid to sign a Dominican kid with
similar “tools”
• They would pay American
players in US Dollars, Dominicans in DR Pesos
Dependency Theory (cont.)
•
While
the occasional player is still signed off a Winter Ball team, most now come through
a Baseball Academy for young players, which are called “colonial outposts” by
Kline.
–
Blue
Jays built the first one in 1977. The Pirates soon after.
• By the 1980s, Dodgers
built a full professional training facility called Campo Las Palmas; meanwhile,
other teams had cots under the grandstands and no non-field training facilities
– Pirates and Padres
currently have multimillion dollar facilities that are fully up to date; others
have cinder block bunk houses
• In 1984, Dominican
government stepped in to make sure worst abuses were stemmed (like kidnapping
players for months without signing them)
– However, can still sign
players at 16, often for fractions of what American college players sign for.
» Before the signing,
they are trained/wrangled/represented by buscones, who run their own
camps (without the mandated facilities of MLB camps) and take a 30% cut
whatever signing bonus kids get
•
However,
the buscones are almost all Dominican, and they have successfully put
some of the signing bonuses of the best players on par with those of the best
US prospects.
•
Thus,
teams looking for cheap players are heading out to smaller less-well-informed
countries.
– Although all MLB
facilities have English classes, not all have trained medical staff.
Minor League Baseball
•
Unlike
NFL, MLB, NBA, and NHL, minor league baseball players have no union.
–
Since
the 1970s, minor league salaries have not kept close to pace with inflation,
and stand at around $1100 a month currently, vs. at least $84,000 a month for
major leaguers
• They also only get paid
when the season is going
–
Many
cannot afford their own housing – they either stay in team owned apartments
(sometimes 4 families to an apartment) or in spare bedrooms of families
• American kids rely on
parents to pay bills; give private lessons in the offseason to make ends meet.
– Foreign players not
proficient in English cannot give lessons; the poorest ones cannot expect money
from parents.
–
Baseball
argues minor leagues are an “internship” – but not paying is hard to argue when
the overall enterprise is so lucrative.
• We are talking 60
million dollars annually to double the minimum minor league salary for all 5400
minor league players (or about 2 million per Major league team)
– But even doubling it
will still mean it has shrunk vs. inflation.
Value Chains and Production Networks
•
The
article by Darby (as well as Klein’s more recent work), rethinks the old core
periphery model to think about resistance, as well as power, in more complex
ways.
–
They
propose value chains – where value is negotiated at every step (not just by
those at the top); and production networks, in which value creation moves in
non-linear ways.
–
In
International Football, there are multiple professional leagues of roughly
equal power, as well as dozens of other slightly less powerful/lucrative
leagues, and the leagues/national teams few think about.
• In baseball, American
football, and (for the most part) basketball, there is one truly dominant
league.
–
This
means that there is much more competition, and academies in developing
countries could be teams in the local league, branches of foreign teams, owned
by private individuals, or non-profits.
• But even the foreign
teams are not just looking for talent: the Dutch league, for example, is mostly
a feeder league to the big European leagues. They are looking for assets to
sell on to richer clubs.
Value Chains (cont…)
•
Because
football is so dispersed in power, there is more local opportunity to create
something non-profit
–
The
market can also be saturated, so that it is possible foreign firms can fail at
running academies due to inferior local knowledge
• For example, one
European team pulled out of Ghana (which was over-scouted) and looked to
Nigeria, which was comparatively much less scouted.
•
The
other thing that happens is that when these European clubs let more and more
African and Asian players into their leagues, those players improve, and pretty
sooner countries like Ghana are not “soccer colonies” but World Cup competitors.
Free Agency
•
The
idea that a player could negotiate with other teams at the end of their
contract was not established in the US until after the case of Flood vs.
Kuhn in 1972(Curtis Flood was a long time baseball player; Kuhn was the
commissioner of baseball)
–
Even
though the court in that case upheld baseball’s anti-trust exemption (that
allows it a monopoly on baseball), it drew attention to the issue of players
basically being trapped by team owners.
• As a result, the
National Labor Relations Board took up the issue a few years later, arguing
that baseball’s union meant baseball fell under its purview. It allowed free
agency.
–
This
began the big money era for athletes, since successful players could get teams
to bid against each other.
• This is of course why
baseball owners had not allowed the practice to happen until that time
– However, the best
owners took advantage: George Steinbenner’s free spending Yankees dominated the
1990s and early 2000s.
–
As
is often the case, in sports markets, capital tends to be freer than labor,
until regulation or a union-negotiated contract says otherwise
Free Agency (cont.)
•
In
club football, it was the EU’s Bosman Ruling (1995) that opened up a path to
free agency
–
In
the past, when a player’s contract was up, a new club had to pay a transfer fee
to the old club to sign the player. By asking for ridiculous transfer fees, a
club could basically hold a player for ransom until they re-signed or a year
passed.
• This fee is still used
when the player is transferred under contract, or when a player moves within
(as opposed to between) countries.
– But unlike in US
sports, once the player is transferred, the old player contract is terminated
and a new player contract must be negotiated with the new club.
–
Due
to EU open labor markets, this practice of end of contract transfer fees was
struck down: now if a contract is up (or within six months of being up), the
player is free to go to any other EU club without transfer fee.
• It also banned quotas
on EU players in other EU countries
–
To
help manage the movement of players, UEFA (the institution that runs European
football) created two “transfer windows” – one in January, one in the summer
off-season.
So you want to get recruited to play college
basketball?
•
According
this video, start early (when maybe you are not able to make the best
decisions about your life course)…
–
Again,
playing in club leagues and getting to high profile high schools (which
requires going to “summer camps”) is key to getting recruited.
Some observations on geography
•
Louisiana
is hugely over-represented in the NFL, has the most NBA players per capita,
while being a bit under-represented in baseball
–
The
Deep South states (particularly strongly African American parts of the deep
south) are the NFL hotbed in general; whites in the South do particularly well
in baseball
• In both outdoor sports,
there is a clear warm weather advantage (or at least the perception of one)
–
As
mentioned in class, Hawaii also has a very high per capita number of football
players (mostly from the Native Hawaiian/Polynesian population)
•
Southern
California is particularly strong in both football and baseball; all of
California in basketball
–
New
York is only strong in basketball (holds it own hockey); it is way
under-represented in football and baseball
• Although nearby (less
dense) Connecticut is very strong in baseball.
•
Hockey
players are concentrated along US – Canada Border, US NE Coast, Baltic Sea, and
Czech Republic.
•
Miami-Dade
and Broward are strong recruiting grounds in all US team sports but hockey, but
especially football and baseball.
Hope
•
As
you can see by the previous slides, only a small percentage of players ever
make it to the top level (even among those who play NCAA sports or enter the
minor leagues) . Even a smaller % of high school athletes make it to the NCAA.
–
For
Dominicans who make it to minor league baseball, the figure is 6%. who make it
to the majors.
•
But
in the DR, college education does not increase chances of the employment (and
thus is different in the US, where poor kids who get a college degree are much
more likely to find work than peers who do not get one), and a $50,000 signing
bonus is life changing for poor families
–
Huge
pressure on kids, not just from themselves, but sometimes from entire extended
kin to get signed.
•
This
hope – that you (or your kid) will be the lucky one who makes it is the one
that fuels these sports leagues and allows substandard camps and shady
middlemen to thrive
–
Indeed,
this is a similar hope that drives urbanization throughout the world; people
leave the countryside and move into informal urban settlements for the mere
chance they might make it.
•
And
in the US, for all sports but football, me’ns and women’s basketball, parents
(not the professional or upper echelons of the sport) pay for the training of
youth.
–
This
is partially why the US comparatively stinks at men’s soccer; in every other
country, once a good young player is identified, they never pay for training
again. In the US, parents pay basically up until college.
• Basketball and football
find the very best players and cover their travel league play.
–
The
USSR, China and Austalia, put all school age children through a battery of p