Introduction
Over the last century, professional baseball has grown to become one of the most popular forms of American entertainment. Indeed, the sport’s nickname – “America’s Pastime” – has become embedded in the nation’s lexicon. More than 70 million fans attended major league baseball games in 2023. However, America’s love affair with baseball is not without controversy. The perception that greedy owners who control huge television and merchandise revenues run the game has alienated many fans.
Recently, the United States Congress has considered several pieces of anti-trust legislation aimed at MLB that, if passed, might change the way the game is run and played forever. Most notably, fans and sportswriters around the country have criticized what many regard as grossly overpaid players. Fans seem to hearken back to the days when baseball was a working- class sport and when working-class people could relate to a working-class baseball player. Critics claim that, because few working-class people can imagine making $1 million a year, baseball has lost its original fan base and has destroyed the fan-player relationship.
Are MLB players overpaid? Are the owners overpaying players and thus acting outside their own self-interest? Are owners paying players their true market worth? These are questions that economic analysis can shed light on. This lesson will help answer these questions and others concerning MLB salaries and the players’ market.
Learning Objectives
- Identify if MLB is a competitive market, a monopsony, or a monopoly.
- Determine whether or not MLB players are overpaid.
- Describe the roles specialization and human capital play in the determination of wages.
Resource List
- “A Pedestrian’s Guide to the Economy”: This article talks about the debate of whether athletes deserve the large salaries they are receiving. Teacher note: The article uses the term “Third Estate” to mean “commoners” or “everyday people like you and me”.
https://www.amosweb.com/cgi-bin/awb_nav.pl?s=pdg&c=dsp&k=9. -
Commentary: Are MLB Players Overpaid? https://granitebaytoday.org/commentary-are-mlb-players-overpaid/
- Decoding Baseball Salaries: How Much Do Players Really Make? https://medium.com/@presscs/decoding-baseball-salaries-how-much-do-players-really-make-fc70a1277fc7
- “Glossarama”: Database of 2,000 economic terms and concepts.
www.amosweb.com/cgi-bin/awb_nav.pl?s=gls - “Baseball and the Supreme Court” This article discusses how the MLB may be a monopsony.
https://sabr.org/supreme-court/antitrust#:~:text=This%20ruling%20granted%20Major%20League,a%20legal%20monopolist%20and%20monopsonist. - “MLB salaries”: This shows the average player salary by years dating back to 2003.
https://www.statista.com/statistics/236213/mean-salaray-of-players-in-majpr-league-baseball/ - “MLB Top Player Salaries”: This article shows the salaries of the highest paid players in the MLB by year and team.
https://www.usatoday.com/sports/mlb/salaries/ -
“Shohei the Time Value of Money” -This article breaks down the record-setting contract signed by Shohei, including the effects of inflation and the time value of money. https://www.bloomberg.com/opinion/articles/2023-12-12/shohei-ohtani-s-contract-should-become-a-case-study-for-mbas
Activity One
Have students answer the questions below using the handout Student Handout: Are Baseball Players Overpaid or Underpaid?
Read an excerpt from “A Pedestrian’s Guide to the Economy ” outlining the main points in the argument over professional athletes’ salaries.
Read other on-line articles summarizing both sides of the issue. Use a two-column chart to list examples of the argument that MLB players are overpaid as well as examples of the argument that MLB players may be underpaid.
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Commentary: Are MLB Players Overpaid? https://granitebaytoday.org/commentary-are-mlb-players-overpaid/
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Decoding Baseball Salaries: How Much Do Players Really Make? https://medium.com/@presscs/decoding-baseball-salaries-how-much-do-players-really-make-fc70a1277fc7
Activity Two
Use the The Market for Major League Baseball Players Handout to determine how MLB meets the criteria for perfectly competitive market. Chart answers below:
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Limits on the number of buyers for players factor inputs (labor): only 30 teams in MLB; limits on the amount of factor inputs clubs can buy (25 player rosters)
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Uniform Player Contracts: amateur players must be drafted by MLB clubs. Players must sign with team that drafts them and play for 5 years. Cannot negotiate with other clubs while under contract. Free agency is only available after 3 full years in MLB.
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Binding arbitration – players cannot sell inputs to highest bidder.
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Owners’ collusion – owners agree to keep salaries low; agree to consult other owners on pay scale.
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Limited markets for the skill players possess no substitution of skills across sports. (Monopsony argument)
Use an on-line glossary amosweb.com/gls/ to define:
competitive market
monopsony
monopoly
human capital
specialization
Read this article about the Supreme Court and baseball anti-trust suits to learn more about monopsonies.
What data do we have that might lead us to believe MLB is a monopsony? If MLB is a monopsony (or other form of market failure) what does this imply for current players’ salaries?
Read “Shohei the Time Value of Money”. This article breaks down the record-setting contract signed by Shohei, including the effects of inflation and the time value of money.
https://www.bloomberg.com/opinion/articles/2023-12-12/shohei-ohtani-s-contract-should-become-a-case-study-for-mbas
Is Shohei Ohtani really making $700 million dollars? What are the costs and benefits of signing this contract for Shohei? What are the costs and benefits of offering this contract for the Dodgers?
Assessment/Exit Slip
Have students answer the following question.
Are Major League Baseball players overpaid or underpaid? Use the concepts of human capital, specialization, competitive market, and monopsony to help explain your answer.