In lieu of an abstract, here is a brief excerpt of the content:

5 Reflections on Salary Shares and Salary Caps W RITING FOR Yahoo! Sports, on November 12, 2007, Jeff Passan asserted that the players’ salary share of Major League Baseball (MLB) revenue in 2007 was only 41.3 percent.1 Passan’s number was then picked up by Pete Toms, writing for Baseball Digest, and other journalists.2 If Passan were correct, or even nearly so, then it would be big news indeed. Because the salary shares in total revenue in the National Basketball Association (NBA), the National Football League (NFL), and the National Hockey League (NHL) are all in the mid- to high fifties, and MLB is the only one of the four major professional sports leagues in the United States without a salary cap, it might suggest to some that Don Fehr and the Major League Baseball Players Association have been fighting the wrong fight all these years. Passan’s assertion, then, is another reminder that, whether we are theorizing about optimal labor-market structures or doing empirical testing, it makes sense to get the numbers right before plowing ahead. This essay is based on “Reflections on Salary Shares and Salary Caps,” Journal of Sports Economics 11, no. 1 (2010): 17–28. Sage Publications Ltd./Sage Publications , Inc. All rights reserved. Copyright 2010, http://online.sagepub.com. Reflections on Salary Shares and Salary Caps ▪ 87 Accordingly, in this essay, I discuss many of the empirical issues involved in properly measuring the players’ shares in MLB, along with the NBA, the NFL, and the NHL. I then suggest a preliminary set of conclusions on these shares and conclude with some reflections on what these shares imply about the underlying collectivebargaining institutions. Getting the Numbers Right Team payrolls can be measured in a variety of ways. First, they can include only the active roster; the active roster plus the disabled list players; or the active roster, disabled list, plus the reserves. The league with the largest “reserves” list is MLB, where there are fifteen players under major league contracts who are not on the twenty-five-man active roster. Second, they can include or exclude player benefits, usually amounting to between 4 and 7 percent of salaries. Third, they can include or exclude deferred salaries. If they include them, there is a question about what discount rate to use. Fourth, they can be based on opening-day, mid-season, or end-season rosters.3 Fifth, player contracts have varying lengths. In MLB, there is no limit on the length of a contract, and some players receive guaranteed deals for as long as ten years. In the NBA, player contracts are limited to five years for non-Bird free agents and to six years for Bird free agents. In the NFL, contract length is not limited, but, with few exceptions, players sign nonguaranteed contracts.4 The contracts may be multiyear, but, because they are not guaranteed, the team can terminate the contract after any year. In lieu of guaranteed contracts, a large share of players’ compensation is paid via substantial signing bonuses. These bonuses account for roughly 50 percent of total NFL player compensation in any given year. Normally , these bonuses are amortized over the nominal length of the contract in computing annual team payrolls. Here, too, the discount rate employed will affect valuation, and the nominal contract length is a rather artificial standard to apply, because it is rarely realized. 88 ▪ Chapter 5 Sixth, in MLB, teams spend over $20 million annually on average on player development; of this, approximately 60 percent goes to minor league player compensation.5 In the NHL, teams typically spend $1 to $2 million annually on their minor league team salaries, but they also frequently own these teams and therefore own the revenues the teams generate; this is true for only a minority of major league baseball teams. In the NBA, a very modest outlay goes for its fledgling development league, the NBDL, and here, too, revenues go to the NBA owners. In the NFL, there is no payment for minor league players. Thus, when comparing player shares at the top level, it is relevant to consider the substantial additional expenditure on player compensation in MLB due to the structure of its extensive minor league system. To a lesser extent, this is true for the NHL. To be sure, it is important to employ a uniform accounting system across the leagues for all these issues in measuring player compensation. Revenue data, like payroll data, come in...

Share