The Sports Economist

Former Nebraska quarterback Sam Keller is suing EA Sports and the NCAA, saying the video-game maker wrongly uses the names and likenesses of athletes and the NCAA sanctions the practice.

Keller's lawsuit was filed Tuesday in federal court in San Francisco as a class-action, suing on behalf of all college athletes depicted in the NCAA Football and NCAA Basketball video games made by EA Sports.

Rob Carey of Phoenix, Keller's attorney, contends EA Sports profits from using the names and likenesses of players. The lawsuit would bar EA Sports from using the names and likenesses and seeks undetermined compensation for athletes who have been portrayed in the video games.

...NCAA bylaws prohibit the use of the names and likenesses of athletes for commercial purposes. NCAA spokesman Bob Williams said in a statement Thursday that the NCAA is confident it will be dismissed from the case.

"Our agreement with EA Sports clearly prohibits the use of names and pictures of current student-athletes in their electronic games," he said. "We are confident that no such use has occurred."

Though names are not visible on player jerseys in the video games, the lawsuit contends EA Sports "intentionally circumvents the prohibitions on utilizing student-athletes' names by allowing gamers to upload entire rosters, which include players' names and other information, directly into the game in a matter of seconds."

Labels: monopsony, NCAA; college sports

Although it took the Wagner Act to get the ball rolling, American sports unions have thrived for two reasons. First, they serve a group of people with very specialized skills that work for a cooperative body: the league. Leagues are little more than the collection of team owners. They are cooperative bodies in two senses: 1. in terms of setting schedules, the season play-off format, etc.; 2 the cooperate in the labor market in a cartel sense. The unions fight this monopsonistic cartelization

Second, sports teams and, by extension, leagues, enjoy a mlot of market power in their markets, which leads to higher profits and more rents that can be extracted by a union. Unions don't thrive very often in competitive markets because the competition restrains profits which thus restrains the rents that can be obtained through collective bargaining. Despite the "peculiar economics" of sports leagues, the leagues themselves are not operating in a competitive output market.

John Palmer (Eclectecon) sends this fascinating Slate piece by Eriq Gardner about the history of NFL draft along.

In 1968, the Washington Redskins used their first-round pick (12^th overall) on Smith, an All-American defensive back from the University of Oregon. The rookie signed with the team for $50,000, and his unremarkable first season culminated in a career-ending neck injury during Week 14. Smith seemed destined for quick obscurity. Then he sued the NFL.

Two years after his retirement, Smith went before a judge and asserted that the draft constituted an unreasonable restraint of trade in violation of the Sherman Antitrust Act. Had it not been for the draft, he argued, he would have been able to negotiate a more lucrative contract for his one year as a professional. And he demanded that the NFL make up the difference.

The case succeeded at the district court, securing $276,000 in treble damages for Smith, and he won again when the league appealed. In 1977, the U.S. Court of Appeals for the District of Columbia Circuit ruled the "draft inescapably forces each seller of football services to deal with one, and only one buyer, robbing the seller, as in any monopsonistic market, of any real bargaining power."

Gardner notes that it looked like the Smith had the case won. But the NFL knew that it could effectively get an exemption from the Sherman Act if the players' union would agree to it. How did it get the union to agree to it?

Keep in mind that any collective bargaining relationship is composed of three groups: the employer, the unionized workers, and the union leadership. One of the interesting things about the NFLPA is that the leadership is largely composed of senior union workers, and Gardner argues that it is this arrangement that has led to the draft being kept.

The union's leadership is determined by seniority, with the upper echelon composed of veterans whose financial stakes conflict with those of the rookies. For example, take the way that draftees are paid by their assigned teams. According to the current collective-bargaining agreement, each club is allotted a set amount of "rookie pool money" to sign its draft picks. (Here's last year's breakdown of pool money.) It benefits the veteran players who run the union to keep that pool small: Since the NFL maintains a hard cap on the total amount of money distributed to players throughout the league, less money for rookies means more for the old-timers.

Lawyers for the professional sports leagues argue that is a perfectly acceptable arrangement, as wages and benefits go up with seniority in many other industries. But pro football is not like other industries. According to the players association, the average NFL career lasts about three and a half seasons. That just about covers the term of service that a player must devote to the team that drafts him before he's eligible for unrestricted free agency.

These days, draft reform is a very low priority for the union, especially since any serious demands for change would probably require other sacrifices during the collective-bargaining process—such as lowering player salaries or allowing more restrictions on free agency. In fact, there's buzz that in the next agreement, the union will accept an even tighter wage scale for rookies.

...In other words, those who wish to challenge the NFL draft in the post-Yazoo Smith era should think hard about their target. It's not the league. It's the union.

There's little that young players can do but hope they don't get hurt so they can stick around long enough to get the seniority that allows them to get the really valuable stuff out of the union contract.

Cross-posted at Market Power

Labels: monopsony, NFL, union

It's getting to be arbitration time in baseball. Each year a set of players and teams negotiate under the threat that a third party (a panel of three arbitrators) will render a decision on the player's salary if a negotiated settlement cannot be reached. Even though a given case is not likely to make it all the way to the arbitration panel, the threat of arbitration drives a given player and his team, when they negotiate, to consider what the panel may decide.

Arbitration, first offered to the players by the teams back in the early 1970's as a way of appeasing the union in its calls for free agency, has never been popular with teams. This article by Fred Claire at MLB.com partly explains why.

One reason it is unpopular is because of the nature of the hearing process. For the players, they try to maximize their value to their team in the eyes of the arbitration panel: a sort of "how great I art" argument. For the teams, they try to minimize the player's value: basically arguing "how great thou aren't." This is contentious.

Another reason is that simply by becoming eligible for arbitration, players see a jump in their salaries and teams are bound to accept these salaries.

Here's what Bud Selig (in 1992 PM) had to say when asked by the New York Times about the economics of baseball: "In the last 15 to 18 months, talking to every club, asking 'What do you hate most about the system?' The bottom line is if they had their choice, without a doubt, it's salary arbitration. Free agency at least you can elect to do, but in salary arbitration you're somewhat of a prisoner of what other people have done."

Claire points to the tie between the arbitration system and free agency as one of the problems.

Baseball's labor market consists of three tiers of players: 1. reserved players who have less than three years of service* are, basically, the property of their teams; 2. arbitration-eligibles - players who have at least three years of service are also the property of their teams. But they can have their salaries determined through arbitration; 3. free agents, players who are not the property of their teams and are free to sign with whoever wants to sign them.

The collective bargaining agreement (CBA) restricts what arbitration panels can consider when rendering decisions (Article VI, Section F). Among those considerations are what comparable baseball players have earned as salaries. Because some free agents are comparable to arbitration-eligibles, their salaries, somewhat filtered down and averaged out, become part of the consideration (Dan Marburger's 2004 Economic Inquiry paper on arbitrator compromise provides econometric evidence of this). That's one reason why players see a jump in their salaries when they first become eligible.

But reading the article, the rhetoric and one-sidedness reminded me that this article comes from MLB.com, the official site of MLB and, therefore, a mouthpiece of the teams. So Claire doesn't discuss another reason for why the average player sees a nice raise just for becoming eligible: reserved players are in a monopsonistic labor market and, thus, earn salaries below their marginal values to their respective teams.

You can argue that part of the difference between salaries and marginal value can be considered a return on investment in minor league training. You can also argue that part of the difference goes to pure monopsony rent. The point is that reserved players are paid less than their marginal value and arbitrated players are paid closer to their marginal value because arbitration mimics, albeit imperfectly, a competitive labor market. Thus the jump in salaries by becoming eligible.

Labels: arbitration, baseball, labor markets, monopsony

Labels: gambling, monopsony, point shaving