The Sports Business as a Labor Market Laboratory

Abstract

Professional sports offers a unique opportunity for labor market research. There is no research setting other than sports where we know the name, face, and life history of every production worker and supervisor in the industry. Total compensation packages and performance statistics for each individual are widely available, and we have a complete data set of worker-employer matches over the career of each production worker and supervisor in the industry. These statistics are much more detailed and accurate than typical microdata samples such as the Census or the Current Population Survey. Moreover, professional sports leagues have experienced major changes in labor market rules and structure-like the advent of new leagues or rules about free agency-creating interesting natural experiments that offer opportunities for analysis.In this paper, I focus on four areas of research on sports labor markets. First, using data on the rise and fall of rival sports leagues and the granting of free agency rights in professional sports, economists have tested whether employer monopsony lowers worker pay. Second, sports salary and performance data, and the knowledge of the race of each player in a sport, allow us to estimate the extent of discrimination in a much more detailed way than is possible in other industries. Third, changes in rules about the draft and player movement allow us to examine the claim of the Coase theorem that with complete information but no transactions costs or wealth effects, the ownership of a resource has no impact on the allocation of resources; rather, changes in such laws will only affect the distribution of wealth (Posner and Parisi, 1997). Finally, because of the observability of contract provisions, supervisor quality and worker behavior, one can estimate the impacts of supervision and incentives on behavior.

Roles of Performance and Human Capital in College Football Coaches’ Compensation

“…It should be noted that this finding is in conflict with the results of extant studies identifying no relationship between pay and performance of elite sport coaches (Frick & Simmons, 2008;Kahn, 2006;Smart et al, 2008). These studies, however, differ from the current study in that they examined the effect of performance on coaching compensation at professional sport settings, such as the National Basketball Association (NBA; Kahn, 2000), Major League Baseball (MLB; Smart et al, 2000), and Bundesliga (Frick & Simmons, 2008). In contrast, this study as well as Humphreys (2000) and Brook and Foster (2010), the other two studies finding a positive relationship between pay and performance, tested this relationship at college sport settings.…”

“…Along with addressing an important and timely research question, the results of the current research can contribute to the literature by testing the effects of performance and human capital on managerial compensation in an ideal context where (1) individual performance can be clearly defined in terms of wins and (2) detailed data on compensation, performance and human capital characteristics are available to the public (Bloom, 1999;Frick & Simmons, 2008;Kahn, 2000;Smart, Winfree, & Wolfe, 2008;Smart & Wolfe, 2003;Wolfe et al, 2005). Moreover, the results of this study can advance the literature on managerial compensation by providing some of the first empirical evidence regarding the effect of managerial power on the structure of pay.…”

Do People Value Racial Diversity? Evidence from Nielsen Ratings

“…Holzer & Ihlanfeldt (1998) show that firms with white clientele are less likely to hire black workers. Additional research has found evidence of customer discrimination, in the form of attendance, television ratings, or other metrics, in the market for sports entertainment (Kahn & Sherer, 1988;Nardinelli & Simon, 1990;Hanssen & Andersen, 1999;Kanazawa & Funk, 2001; see Kahn, 2000 andKahn, 1991 for literature reviews). Evidence of own-race preferences and firm responses to these preferences has been shown in the markets for radio broadcasts (Waldfogel, 2003a), newspapers (George & Waldfogel, 2003) and television broadcasts (Waldfogel, 2003b).…”

Termination Risk and Agency Problems: Evidence from the NBA

“…2 The rich datasets available for professional sports have been noticed by economists, and a significant number of papers have conducted empirical economic analyses using such datasets. See, e.g., Hausman and Leonard (1997), Kahn (2000), Chiappori et al (2002), Duggan and Levitt (2002), Garicano et al (2005), Romer (2006), Price and Wolfers (2010), Parson et al (2011), Abramitzky et al (2012) and Kahane et al (2013).…”