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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.