UNION ECONOMICS Unions Strikes and Lockouts Bargaining Reserve Clause Salary Caps EARLY UNION FAILURES Early unions failed Player s League MLBPA formed in 1954 NFLPA 1956 NBPA 1954 NHLPA 1958 initial objective pensions NHLPA in 1970s and 80s Larry Eagleson headed of NHLPA mismanaged pension fund served time Canadian jail for fraud in 1990s betrayed hockey players even more mistrustful STRIKES AND LOCKOUTS Strikes are irrational PLAYERS VS OWNERS Early on players had little power Reserve Clause until 1970s Bobby Hull age 11 on NHL negotiation list property of Chicago Blackhawks Players League 1890 Boston Reds Brooklyn Ward s Wonders Buffalo Bisons Chicago Pirates Cleveland Infants New York Giants Philadelphia Athletics Pittsburgh Burghers ATHLETE UNIONS EVERYWHERE Unionism on the decline nationwide Theory of Countervailing Power John Kenneth Galbraith Union power arises in the face of owner power owners lockouts reserve clause draft salary caps players strikes union solidarity NEGOTIATION SPECTRUM Union willing to accept imply costs to both parties why not settle before strike like war why not skip right to treaty Economics presumes rational behavior How to explain strikes NHL s ritual suicide League willing to accept issue spectrum contract zone Both union and league willing to settle within contract zone UNCERTAINTY AND MISTRUST ILLUSTRATING MISTAKES Union willing to accept Again like war true in 1861 and 1914 War a mistake so are strikes misperception of League s willingness League willing to accept Union s perceived Contract Zone Everyone thought war would end soon both sides expected quick victory few want conflict wage share Union might overestimate League s willingness offers outside the true zone possible applications to NHL NBA but fear conceding too much WAGE SETTING POWER Suppose the union sets wage MR supply wage on demand w3 Suppose the league sets wage ME demand wage on supply w1 MARVIN MILLER Economist for United Steelworkers Lost position in mid 1960s too conciliatory MLBPA s first full time director 1964 died in 2012 Not in the league s pocket like previous leaders Built MLBPA into the most powerful union in sports First successful strike takes league by surprise 1972 owners capitulated after 13 days PERFECT WAGE DISCRIMINIATION Owners know each player s reservation wage All of the player surplus becomes consumer surplus profit Similar to 1st degree price discrimination 2nd COLLECTIVE BARGAINING AGREEMENT 1st CBA 1965 of little note except for existence 2nd 1970 raised minimum salary from 6 000 to 10 000 Before 2nd Bowie Kuhn was the sole judge of grievances Kuhn saw self as guardian of game s integrity league lawyer for before becoming commissioner wanted to be the final judge Miller wins arbitration panel to judge trivial financial matters Kuhn retains authority for big decisions 3 member panel 1 chosen by players 1 by owners 1 by mutual consent Bowie Kuhn THE CASE OF THE CATFISH Catfish Hunter s 1974 contract star pitcher for Oakland s championship team signed one of few 2 year contracts A s supposed to create annuity in 1st year but fails to do so Hunter claims contract valid Financial matter goes to the arbitration panel 2 votes predictable the 3rd Peter Seitz votes for Hunter panel declares Hunter the first free agent CONSEQUENCES Monopsony grip broken competitive market for players Owners overbid for players multi year contracts become the norm average salary rose more than 700 winner s curse strikes again Leagues counter with salary caps and limits on free agency SAVED BY THE SALARY CAP Owners fear bankruptcy League grants free agency players drop objection to merger Players grant salary cap assures of percentage of defined revenue initially 53 Deal saved the day also Larry Bird Magic Johnson Michael Jordan adroit marketing by David Stern greater revenues allow caps to rise END OF THE RESERVE CLAUSE Catfish signs a 3 million contract with Yankees ruling applied only to Hunter Andy Messersmith and Dave McNally refuse to sign contracts in 1975 Dodgers allow Messersmith to play argued that the Reserve Clause is void applies only to one year Arbitration Panel rules in favor of both HARD TIMES IN THE NBA Bloody war with ABA ended with merger Players challenge merger in court High salaries due to bidding wears Low fan interest 1980 championship not televised live in Philadelphia Teams unstable Kings From Cincinnati to KC to Omaha to Sacramento Braves From Buffalo to San Diego to LA Clippers TENSION RETURNS Virtually all NBA teams over cap by mid 1990s Owners sought hardening maximum 7 year contract tightening of Bird Rule Players worry about slow cap growth Star players object to 1996 CBA stars take over leadership role threaten to decertify union NBPA rhetoric becomes radical Kevin Garnett 6 year 126M contract a last straw owners exercise option to re open contract 1998 NBA LOCKOUT WHO WON 1997 98 salary cap 27M by team Lorenz curves 1 00 Lockout cancels half the season 65 0 80 equality NBA97 NBA01 0 70 0 60 Owners win player share 70 Chicago Bulls 60M 0 90 60 55 0 50 team caps hardened individual salaries caps too 50 0 40 45 0 30 40 0 20 0 10 Under 1999 CBA Garnett could not have gotten even one half of his 1997 contract 0 00 0 00 0 20 0 40 0 60 Utah Jazz 27M 35 0 80 30 1990 1992 1994 1996 1998 2000 2002 2004 2006 1 00 share 44 2 15 4 after 1 R 2 0 89 43 3 10 3 2004 HOCKEY LOCKOUT WHO WON 1 00 0 90 NHL loses 2004 5 season 0 80 0 60 player share 65 NHL08 NHL02 equality 0 70 League wanted a harder salary cap 70 by team Lorenz curves 60 55 0 50 50 0 40 45 0 30 Bob Goodenow NHLPA director rejects 40 0 20 35 0 10 0 00 0 00 League won 0 20 0 40 0 60 0 80 30 1990 1 00 1995 2000 2005 share 32 2 2 56 1990 1 23 4 after 1 R 2 0 92 Goodenow fired 18 3 12 6 8 7 COMPARING LEAGUES Very different from curves for individual player salaries Hard vs soft MLB salary caps BARGAINING GAME 1 00 0 90 0 80 0 70 0 60 NHL08 MLB08 NFL08 NBA08 equality reject and proposes new offer 0 50 0 40 owners offer union accept 0 10 0 00 0 00 Donald Fehr MLBPA NHLPA 0 20 0 40 0 60 0 80 1 00 owner accept 0 30 0 20 reject and proposes new offer 2010 UNION MAKES LAST OFFER owners offer reject and proposes new offer reject 0 0 owner union accept 0 1 accept x 2 x WAGE SHARE Sport Player share Basketball 57 Baseball 52 Football 60 Hockey 56 Size of pie shrinks with each rejection Soccer 25 Payoff notation owners union Mixed Martial Arts 17 Owners best offer 1 1 FOOTBALL SALARIES FALL BEHIND At first