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