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Book Cover
Author Rockerbie, Duane W.

Title Contract options for buyers and sellers of talent in professional sports / Duane W. Rockerbie, Stephen T. Easton
Published Cham : Palgrave Macmillan, 2020


Description 1 online resource
Series Palgrave Pivots in sports economics
Palgrave Pivots in sports economics.
Contents Intro -- Preface -- Contents -- List of Figures -- List of Tables -- 1 On the Rise: Player Compensation and Multi-year Contracts -- 1.1 Introduction -- 1.2 A Brief History of Multi-year Contracts: Early Years (1876-1975) -- 1.3 Early Years of Free Agency -- 1.4 Free Agency Since 2000 -- 1.5 Multi-year Contracts in Basketball, Football, and Hockey -- 1.6 Player Salaries and Marginal Revenue Products: the Scully Method -- 1.7 Real Options -- References -- 2 The Puzzle of Overpaid and Underpaid Players -- 2.1 Introduction -- 2.2 A Revenue Model
2.3 Estimates of the Revenue and Winning Percentage Functions -- 2.4 Calculating a Player's Net MRP -- 2.5 A Linear Probability Model -- 2.6 Summary -- References -- 3 Contract Options for Buyers and Sellers of Talent -- 3.1 Introduction -- 3.2 Employment Contracts that Include Real Options -- 3.3 Setup of the Real Options Model -- 3.4 The Player's European Put Option -- 3.5 The Owner's European Put Option -- References -- 4 Extensions to the Put Option Model -- 4.1 The Player's Option Value in a Three-Year Contract -- 4.2 The Owner's Option Value in a Three-Year Contract
4.3 Option Values with Different Career Profiles -- 4.4 Contract Values with Player and Owner Put Options -- 4.5 Multi-year Contracts with Option Years -- 4.6 No-Trade Clauses in Multi-year Contracts -- References -- 5 Concluding Remarks -- 5.1 An Empirical Test -- 5.2 Extensions to the Real Options Model -- References -- Index
Summary This Palgrave Pivot re-examines salary formation in Major League Baseball in light of real option theory to clarify the connection between salary and marginal revenue product for professional baseball players. Current literature has tended to treat single-year and multi-year contracts similarly, ignoring the potential option value for teams and for players. Recent work points to the observation that both high-productivity and low-productivity athletes have salaries that systematically differ from their marginal revenue product, and that free agents signing multi-year contracts are overpaid relative to free agents signing one-year contracts. This book argues that the value of signing an athlete to a contract should be determined similarly to the determination of the value of an investment project or a financial asset. This book demonstrates how to calculate the value of real options to the player and the team owner with a simple two-year contract, and offers extensions to the real options model for multiyear contracts or when a player is early or late in his career. Duane W. Rockerbie is Professor in the Department of Economics at the University of Lethbridge, Canada. He is a member of the editorial board of the Journal of Sports Economics and is a past Vice-President of the North American Association of Sports Economists (NAASE) Stephen T. Easton is Professor in the Department of Economics at Simon Fraser University, Canada
Bibliography Includes bibliographical references and index
Subject Major League Baseball (Organization)
SUBJECT Major League Baseball (Organization) fast
Subject Baseball players -- Salaries, etc. -- United States
Professional sports contracts -- United States
Baseball players -- United States -- Salaries, etc
Labour economics.
Business & Economics -- Labor.
Business & Economics -- Econometrics.
Business & Economics -- Economics -- General.
Baseball players -- Salaries, etc.
Professional sports contracts
United States
Form Electronic book
Author Easton, Stephen T.
ISBN 9783030495138