N.F.L. vs. M.L.B. as a Labor Market: A Freakonomics Quorum

It’s a widely held perception that the professional athletes who constitute Major League Baseball and the National Football League have different levels of power — i.e., players have more juice in M.L.B., while it’s a team’s ownership that has more power in the N.F.L., often at the expense of individual players. Is this true?

We put this question to a handful of insiders: Vince Gennaro, Darren Rovell, Stan Kasten, and Andrew Zimbalist. Here are their responses:

Vince Gennaro, sports consultant and author of Diamond Dollars: The Economics of Winning in Baseball:

The radically different business models of the “egalitarian” N.F.L. and the “Darwinian” M.L.B. favor different constituents. With less variability in its revenue streams and a salary cap limiting player compensation, the N.F.L. structure tends to favor the owners. Meanwhile, the M.L.B. model leads to more revenue risk, and allows greater leverage and thus greater compensation for players. Pro football teams engage in a “national” business, with national broadcast rights making up the largest portion of their revenue stream.

As such, about 80 percent of the nearly $7 billion of the N.F.L.’s annual revenues are divided evenly among all 32 teams. Before the New York Giants or Kansas City Chiefs ever play a game, they’re each entitled to about $150 million in annual revenue. According to a Forbes estimate, all but one N.F.L. team brought in between $182 and $255 million in 2006 (only the Redskins exceeded $300 million). With the Jets and Giants in the middle of the pack, earning less revenue than Tampa Bay, Carolina, or Denver, it is clear that market size has little impact on the revenue base of an N.F.L. club.

By contrast, an M.L.B. team is essentially a local business. Less than 25 percent of all revenues are distributed evenly among the 30 teams. More than three-quarters of the $6 billion in annual revenues are earned and kept at the local level, with a disproportionate share going to teams in large markets with strong team brands and greater on-field success. Unlike the stable, “money-in-the-bank” revenues of an N.F.L. team, the primary revenues of a baseball team – attendance, ticket price increases, luxury suite rentals, and local broadcast ratings and subsequent rights fees — can rise and fall with winning and losing seasons. (I discuss these nuances in depth in my book, Diamond Dollars.) I’d estimate the 2007 Yankees generated nearly $400 million in annual revenue, while the Tampa Bay Devil Rays barely generated $100 million.

We need only to look at broadcast ratings of the two leagues’ respective championships to underscore this local-national dichotomy between baseball and football. The Super Bowl’s broadcast ratings have virtually no connection to the participating teams, while World Series ratings rise and fall with the size of the market of the N.L. and A.L. champs. Whereas both leagues have seen solid appreciation in franchise values in recent years, the lower variability associated with N.F.L. revenues and costs yield a more favorable risk adjusted return than the up-and-down fortunes of an M.L.B. owner.

Baseball tends to favor the players, both stars and journeymen alike, with higher compensation, longer careers, and contracts that are guaranteed in the event of an injury. Also, because baseball is without a salary cap and many teams depend on winning to drive the revenue engine, owners tend to award lavish contracts to an impact player in the hopes that he will carry the team deep into October, unlocking future revenues. Baseball’s Alex Rodriguez has agreed to a contract worth nearly $30 million per year, while N.F.L. stars Peyton Manning and Tom Brady each make about $10 million per year. So it may pay to groom your young one to become a big league baseball player, but be sure to tell him to invest his spoils in the ownership of an N.F.L. team.

Darren Rovell, a CNBC sportswriter and commentator:

This perception comes, of course, from the the fact that, over a period of the last three decades, the baseball union has clearly beaten the owners in labor negotiations while championing free agency and avoiding a salary cap, while N.F.L. players play their brutal, most profitable game under the cap system without the guaranteed contracts that exist in the other sports.

Case in point: this offseason, Alex Rodriguez’s 10-year, $275 million contract guarantees him more than nine times more than any N.F.L. player makes in his contract.

Despite some recent power shifts in these player-owner dynamics (more extensive drug testing by the baseball owners; the ability of the N.F.L. union to get higher payouts thanks to tying salaries to a higher percentage of revenues, the definition of which includes more line items than ever before) the perception is the reality.

Perhaps a more intriguing question to consider is, “Why, from an economic perspective, could this be?” After all, we can’t simply credit the fact that the baseball union negotiators and the N.F.L. owner negotiators are just better over so many years. Thus, it’s worth bringing up at least two factors that explain why the upper hand might “naturally” exist in both cases.

1. Scarcity. The baseball union could have greater leverage because professional baseball players are more scarce. Baseball has 25 professional players on each of their 30 rosters. N.F.L. teams carry more than double (53 players per team) that amount of players on their 32 rosters.

2. Turnover. So many are surprised by the fact that the N.F.L. doesn’t have guaranteed contracts. Well, guaranteed contracts make a little bit more sense in M.L.B. than in the N.F.L., where the average player plays about three and half seasons, roughly two seasons shorter than the average Major Leaguer. This could be because of injuries, or perhaps because owners and team personnel think the difference between a veteran and a cheap drafted rookie is minimal.

Both of these factors could lead one to conclude that M.L.B. owners are forced to care more about cultivating a relationship with their players, while N.F.L. owners, on a larger scale, can afford to tell their players why it’s still so good for them in the N.F.L.

Stan Kasten, president of the Washington Nationals:

I can’t say that I would agree with this statement. I think all teams, in all professional sports, are run along similar principles, and these principles are essentially the same as those used by successful companies outside of the sports world. Every team needs a clear leadership structure, with the best possible people in every position, from owner to third-string player. There also needs to be a distinct vision in each organization, clearly communicated throughout the ranks, in order to achieve the desired results — in our case, winning.

Professional baseball may have greater individual player identification than football, but this is largely due to structure — baseball has only twenty five players per team, compared with double that for football. Many football players play positions which, though important, aren’t nearly as readily visible as the positions on the baseball field. (For this reason, basketball players are even more visible.) And let’s not forget the all-encompassing football uniforms, which obscure the faces of all but the most celebrated stars.

Still, I really don’t think the role, effectiveness, or impact of N.F.L. owners is fundamentally different from M.L.B. owners. And let’s face it: the most well-known owners are mostly so well-known because they’re also active as GMs. But have you ever heard of a fellow named George Steinbrenner?

Andrew Zimbalist, professor of economics at Smith College and author of several books on sports economics, including May the Best Man Win: Baseball Economics and Public Policy (co-authored with Bob Costas):

Why would anyone ask this question? Major League Baseball and the N.F.L. are organized by the owners. The owners in each league elect a commissioner who acts in the best interests of the owners, or, at least, endeavors to do so. Each league is a monopoly and exercises significant market power by, inter alia, extracting significant public subsidies for the construction of facilities.

The players in each league share in the monopoly booty. However, since there are 45 active roster players on an N.F.L. team 25 on an M.L.B. team, the average salaries in baseball are roughly twice as high in M.L.B. as they are in the N.F.L. ($2.9 million vs. $1.5 million). Similarly, with only 12 members per team in the N.B.A., roughly half the number in M.L.B., basketball salaries (average at $5.1 million) are almost double those in baseball.

As for labor unrest, wave it goodbye in all leagues, and tip your cap to Marvin Miller.


Laura

Wow. Looks like none of the guests have any idea about the history of the baseball players union. Please look into the back stories of why the players have all the power now - mostly it's because of how much they were abused by the owners earlier on. The owners sure are paying for it now...

Garry

JohnJ: You missed my point.
Baseball's anti-trust exemption doesn't give it an exemption from civil rights laws. I specifically mentioned that the draft appears to be a bizarre form of indentured servitude.
There isn't any way anti-trust trumps the Thirteenth Amendment!
So why hasn't some politically ambitious lawyer or even better, a US Attorney brought charges against the pro leagues?

Brian

The draft is not "indentured servitude" in any way shape or form. No one forces a player to play basketball in the NBA, or football in the NFL. There is not constitutional right to pick the NFL team you want to play for. 13th Amendment doesn't apply - that deals with racial discrimination by the government.

With regard to labor laws or Sherman Act, the courts have decided that because the relevant parties (teams, players) have collectively bargained for the draft to be included as part of the "rules of the game," and the parties are presumed to have effectively bargained, they are exempt from labor and anti-trust laws. I think it was Wood v. NBA case in the 80s that decided that even potential employees were included in that - thus making the draft OK.

Maurice Clarett tried to challenge the draft eligibility rules a couple years back, and he was so successful he's now in prison because he had so much time on his hands after losing his case he up and robbed someone. The Clarett court clarified that the eligibility rules of potential first year players was considered as part of the collective bargaining (even if it was never specifically addressed).

The basic point is that the courts have decided they have better things to do than worry about the "indentured servitude" of guaranteed 7 figure contracts in professional sports drafts.

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Mo Morrissey

The President of the Washington Nationals thinks their focus is on winning? Who is HE kidding...honestly.

T. J. Steenland

It's hard to compare MLB and NFL salaries, since the NFL season is much shorter. On the other hand injuries are much more severe in the NFL, especially among linemen.

Brian

(reply to comment #29)

i'm sure one could argue, however, that the football practices during the week itself (plus preseason) should be counted as appearances.

[of course baseball and basketball practices would be counted, as well, but this new counting scheme would surely drive down the payoff per appearance in the nfl relative to other leagues

Jon

One of the big reasons baseball's union has more power than football's is the minor league system. Since the owners have locked up 95% of potential major leaguers in their own system there is almost no possibility of breaking a strike. Even lower-level minor leaguers see themselves on an elevator to the big money of the majors, so they're very unlikely to become scabs (see the 1994 strike and attempted replacement teams). The indy leaguers and free agents are far, far, lower quality than real major leaguers. Owners realize this and are forced to deal with the MLBPA legitimately.

But in football a player who's 90% of a NFLer becomes a free agent at the end of camp. When there's a strike the replacement teams are going to be 80% or 90% as good as the real teams. In a few months the scabs will have closed the gap even more with access to training and coaching and facilities. Within a year or two so many or most of the striking players wouldn't be good enough to go back and make the roster of their old teams. So NFL owners know they can run out the clock and essentially force the players to capitulate.

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glaxaco

Jon's comments (#25) is a good summary of the eloquent argument Bill James makes in his essay "Revolution", which can be found in his book "This Time Let's Not Eat the Bones" (and probably other places as well). A great read if you can find it (it's out of print now, natch).

MBuck

It would be interesting to see if you could use economic models to predict which of the leagues on average gets the most athletic players. NBA players like Lebron James and Allen Iverson were strong football players in high school (from what I understand) and instead chose the NBA. I wonder if they made this choice because they enjoyed playing basketball more or if there was a higher likelihood that they could obtain more money and notoriety given their overall athletic prowess in the NBA. Given this information, is there any correlation between the overall athletic ability of the players and the respective sports they choose?

Garry

A little off the topic, but.
Will someone explain to me how the professional sports drafts are legal?
Aren't they a form of indentured servitude? Which of course is banned by the Thirteenth Amendment!
Don't these guys coming out of college have the right to choose their employer rather than having their employer chosen for them?
Why hasn't anyone gone to court & challenged the draft as a civil rights violation?
After all, everyone else leaving college, grad or not, chooses their employer, if that employer will have them.
We don't see engineers, doctors, art history majors or most importantly lawyers, drafted.

Jeremy

I am surprised no one has talked about signing bonuses or guaranteed money (Rovell uses an argument that in the NFL they don't have guaranteed contracts). Both of these give players in the NFL somewhat of an edge in contracts, and signing bonuses are used in MLB. I wonder if there is a big difference in signing bonuses between the two sports. Also don't forget that the NFL issues guaranteed money, which gives the owners an incentive to not cut a player (otherwise they lose dead money).

Shan

I think Gennaro's answer is the best. It makes more sense than the next two, which practically dismiss a conclusion based on hard data, and is more specific and true than the fourth.

Sexy Shoes

Very good and helpful post.
I add your interesting blog in my Google Reader! ;)

Daniel

It isn't the system of drafting players that stinks of indentured servitude, but rather the path players are forced to take to get to the respective leagues that should be looked at. It appears to me that the NFL and NBA are colluding with the NCAA to restrict the flow of talent from the amateur ranks to the pros. By enacting rules that place limits on the access potential players have to available jobs the leagues are forcing players to enter into indentured servitude at the collegiate level, where they risk catastrophic injury for little compensation for the chance to be considered for professional employment after one or two years.

Bill Dawers

Take a look at Jared's comment up there at #9. This discussion has been poorly framed and perpetuates a media climate of incomplete information regarding the labor market. If a simplistic term like "professional" is used to describe baseball players, then the discussion needs to include anyone who is being paid to play baseball, and that would include maybe thousands of minor leaguers who are contractually affiliated with major league teams.

It's curious that so much of the media and the public seem to object to college basketball players "giving up on their educations" to receive multi-million dollar contracts (come on, who wouldn't?), but almost no attention is paid to the thousands of kids who come right out of high school and begin playing professional baseball (or other sports like hockey) at the most meager levels of compensation.

Matthew

I would like to make an argument that is also supported by the above data. When you look at what baseball, football and basketball players get paid per year, it looks like football players are getting the short end of the stick.

However, if one was of the opinion that sports are entertainment and each game is an individual performance, than Football players earn far more than their brethren in other sports per appearance.

Football: 1.5 million average yearly salary divided by 16 games = $93750 per game
Baseball: 2.9 million average yearly salary divided by 162 games = about $17900 per game
Basketball: 5.1 million average per year divided by 82 games = $62195 per game

Rob

Two questions:

1. How do the pension/retirement/long-term care packages compare between the NFL and MLB? I'm thinking of this in reference to the average career length of the NFL vs. MLB.

2. If you compare the minor league aspect of MLB with the larger rosters of the NFL, how does annual salary compare on a per capita basis?

Ajay

Football has a national presence whereas baseball is much more local market driven. In addition to the size of the TV contract, it has to be this way since football has 8 opportunities to generate local revenues whereas MLB has 81 opportunities to generate local revenues.

Also, how are large market vs. small market defined?

I recall in the early 90s Toronto was considered to be large market but now it has become a mid-market?

In contrast, Boston is considered to be a large market?

Andy

Answers ranked from best to worst:
1. Vince Gennaro- he went right to the point. The owners pay the salaries of the players relative to how much they pull in. If the owners in the NFL and MLB think a player will help them make more money, they will pay him more.
2.Darren Rovell- also answered the question. the power that the MLB union has is due to the fact that they don't have a salary cap and they have guaranteed contracts. I don't think he answered why things are like that, but he peeled one layer of the onion back.
3.Andrew Zimbalist-short, but insightful.
4. Stan Kasten- kind of weird to throw an owner into this conversation, and he was defensive. I guess that would be expected.

---I did some quick research to see if their are any people who are owners of NFL and MLB franchises, and I could not find any. If there are, it would be interesting to hear their take.

Mikey

Yeah, this is a very very cool blog. ;-)
I just added you to my favorites.

Thanx,
Mikey