The Man Who Changed Professional Sports

Marvin Miller passed away last week.  When this happened I immediately began work on a post detailing the important impact Miller’s work — as the first leader of the Major League Baseball Players Association — had on sports.  And then I noticed that many other people had the same idea (see Jayson Stark, Jon Wertheim, Lester Munson, and Richard Justice – among many others).  Given all the wonderful writing on Miller’s life and career, I decided to focus on how Miller impacted our understanding of both sports and economics.

Such a post… well, I could write more than a few thousand words on just that topic.   Since few people want to read that many words at a blog, I am going to focus on Miller’s work to end baseball’s reserve clause (and what that has meant for baseball, sports, and economics).

Our story begins back in the 19^th century. As noted in a wonderful article by E. Woodrow Eckard in the Journal of Sports Economics, the National League began in 1876 with a labor market quite similar to the markets we tend to observe outside of sports.  Teams were required to respect the contracts players signed with other teams (i.e. you couldn’t sign a player already under contract to someone else).  But once a player’s contract expired, the player was a free agent and eligible to sell his services to any team.

In 1879, though, the National League decided to make a significant change to baseball’s labor market.  Eckard reports the following statement from September of 1879 (which sounds very much like something you would hear a sports owner say today):

The financial results of the past season [1879] prove that salaries must come down. We believe that players in insisting on exorbitant prices are injuring their own interests by forcing out of existence clubs which cannot be run and pay large salaries except at a large personal loss.

The season financially has been a little better than that of 1878, but the expenses of many of the clubs have far exceeded their receipts, attributable wholly to the high salaries. In viewof these facts, measures [italics added] have been taken by this League to remedy the evil to some extent for 1880. (NL statement dated September 29, 1879, reprinted in Sullivan, 1995, pp. 113-114)

The remedy was reported in a Buffalo newspaper in early October:

The principal cause of heavy losses to [NL clubs] is attributed to high salaries, the result of competition. To prevent competition it was suggested that a uniform salary list be arranged, but it did not take long to demonstrate the impracticality of this scheme. Finally, it was proposed that each [club’s] delegate be allowed to name five desirable players from his own club as a nucleus for a team in 1880, and that these chosen men should not be allowed to sign with any other club without permission. This would prevent unhealthy competition and at the same time give each club a majority of its players for the next season. . . . The aim of the League is to reduce expenses so that clubs can live. (The Buffalo Commercial Advertiser, October 3, 1879, reprinted in Sullivan, 1995, pp. 114-115)

So in 1880, the National League operated for the first time under a reserve clause.  And as Eckard observes, initially this clause was justified in terms of player costs.

Eckard notes, though, that as time went by the justification switched from player costs to a focus on competitive balance.  In other words, although the owners didn’t make this argument in 1879, owners eventually argued that the reserve clause was necessary to maintain league parity.  In addition, the number of players who were subject to the reserve clause included every player who signed a contract with a Major League team.

In sum: in an effort to promote competitive balance, baseball claimed that it needed a labor market where once a player signed with a team, that player could never sell his services on a free market again.

Eckard’s analysis indicates that the results from the latter 1870s failed to justify the owner’s competitive balance argument.  Specifically, in the late 1870s the small market teams actually did better than the big market teams in the National League.

Other research also cast doubt on the competitive balance defense.  Simon Rottenberg – in 1956 – argued that theoretically competitive balance with and without the reserve clause would be the same.  Subsequent research (for example, here is a paper from Martin Schmidt and I) confirmed Rottenberg’s story.

So if the reserve clause wasn’t about competitive balance, what was the point?  Back in the mid-1960s it was quite clear to Marvin Miller. For Miller, it was fairly clear that baseball players were not being paid what they were worth in 1966.  As he observed in his autobiography A Whole Different Ball Game: The Inside Story of the Baseball Revolution:

Considering that major league players represented the very top of their profession, salaries were bad-no, not just bad: pitiful. During the past twenty years, a period of rampant inflation, the major league minimum had gone from $5,000 to $6,000 a year. The average salary was a paltry $19,000, and since World War II, only superstars like Ted Williams, Stan Musial, Joe DiMaggio, Willie Mays, and Mickey Mantle had reached the unofficial maximum of $100,000. When Pirates slugger Ralph Kiner (the man with the second-highest home run to at-bats percentage in baseball history) asked for a raise, the team’s general manager, Branch Rickey, summed up the owners’ attitude with his reply: “We finished last with you; we could have finished last without you!” Of course, Rickey neglected to mention how many fewer tickets he would have sold without Kiner.

Such actions by owners could be clearly linked to the reserve clause.  This clause meant that each player faced a monopsonistic employer (a monopsonistic market is one where there is only one buyer). And economic theory indicates that when faced with a monopsony, workers will see wages that are less than the worker’s value (i.e. the worker’s marginal revenue product).

In other words, given the labor market players faced, we
should not be surprised that Hall-of-Famer Ralph Kiner could lead the National League in home runs in 1952 and see his salary cut.

Efforts had been made to end the reserve clause in the past.  But because the Supreme Court ruled in 1922 that baseball was exempt to anti-trust laws (because the Supreme Court had the bizarre notion that baseball was not interstate commerce) baseball’s reserve clause endured.

After Miller took charge of the union, though, changes came relatively quickly.  Within ten years of Miller’s arrival, the reserve clause was limited to player with less than three years of Major League experience.  And players with six or more years of experience got to see the same labor market that existed in baseball in 1879.

The story of how Miller accomplished this is detailed in his autobiography (and other places).  For here, let’s just note what the sports economic literature makes clear:

• Under the reserve clause, players are paid a wage less than the player’s marginal revenue product.  So players are undepaid when subject to a reserve clause.
• Not surprisingly, free agency – or ending the reserve clause — allows salaries to grow.  But although we see some athletes who are overpaid, free agency does not generally appear to result in salaries that are in excess of marginal revenue product.
• Competitive balance in baseball today is better than what we generally saw in the reserve clause era.  This doesn’t mean that free agency improves competitive balance. Balance is primarily about the underlying supply of talent.  So institutions like the reserve clause and free agency tend not to impact the level of parity in a league.

So Miller’s actions didn’t alter competitive balance in baseball (and again, the reserve clause didn’t improve league parity). But they did result in baseball players earning much more money (the average salary in baseball has grown from $19,000 in 1966 to more than $3 million today). And that means that Miller’s work allows us to see how monopsonistic power can be offset by collective action by workers.

And it wasn’t just in baseball where we see these change.  Miller’s work with baseball’s labor union appeared to inspire labor movements in the other major North American sports leagues.  The success of these efforts has often paled in comparison to what we saw in baseball from Miller and the MLBPA.  Nevertheless, the higher salaries we see in other sports today are also due to the efforts made to limit the owner’s bargaining power.

Such efforts have not come without a cost.  Strikes and lockouts in sports simply didn’t happen much before Miller.  After Miller, though, these struggles seem to come on a regular basis.  This is not surprising.  Owners were not going to give up their monopsonistic power – and the revenue that goes with that power – without a fight.

Unfortunately, these fights rob fans of games in the short-run.  In the long-run – as published research has indicated – it doesn’t appear that many fans truly hold a grudge.  Nevertheless, as the bargaining power between players and owners became less unequal, the fight over who gets the money sports generate became more common.

Some might blame Miller for these disputes.  But one could just as easily blame the owners. In other words, it takes two to tango.  And in a dispute between owners and players – where both sides want the money sports generate– it is not surprising that these fights cannot be settled without some sort of strike or lockout.

It is clear that before Miller, though, these fights didn’t happen because the owners did indeed have significant monopsonistic power.  This monopsonistic power was used to limit the wages paid to professional athletes for more than eight decades.  It is Miller that led the fight to change the balance of power in sports.   And so Miller’s work did indeed have a substantial impact on professional sports in North America (and in the process, helped economists better understand the nature of monopsony power).

All of this was best summarized by another person who changed baseball. And it seems best to close this post with the words of Bill James (as noted in Miller’s autobiograph):

And that is what makes Miller special to the history of the game, that he was the man who saw the absurdity inherent in The Natural Order of Things and took the trouble to expose it. While the economics of baseball today are bizarre to many of us, Miller was the first to see that the economics of baseball twenty-five years ago were bizarre in their own way. Miller was able, by the sheer logical force of the arguments he developed, to shatter an existing structure grown heavy with the weight of time. Anyone can see in retrospect the absurdities that Miller exposed, but what many people fail to see is that there is something quite improbable in the story of Marvin Miller himself.