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Multi-period contracts as risk management in professional sports

In: Personnel Economics in Sports

Author

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  • Joel Maxcy

Abstract

The chapter examines issues related to contract-length in sport. It focuses on the observed phenomena in baseball where players on long-term contracts also receive a salary premium – a result that is counter to the standard hypothesis that workers on long-term contracts transfer their performance risk to clubs, and hence should be willing to accept a salary penalty for such transference. It discusses a possible reason for this empirical finding – high-skilled free agents are difficult to replace, and teams may be willing to enter long-term contracts to protect against future increases in the market price for these players’ services. The chapter’s empirical results find that both player performance and free agent-eligibility (as opposed to players that are only arbitration-eligible) independently increase the probability of a player receiving a long term contract.

Suggested Citation

  • Joel Maxcy, 2018. "Multi-period contracts as risk management in professional sports," Chapters, in: Neil Longley (ed.), Personnel Economics in Sports, chapter 5, pages 88-110, Edward Elgar Publishing.
  • Handle: RePEc:elg:eechap:17319_5
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    File URL: https://www.elgaronline.com/view/edcoll/9781786430908/9781786430908.00013.xml
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    Cited by:

    1. Fumarco, Luca & Longley, Neil & Palermo, Alberto & Rossi, Giambattista, 2024. "Strategic Behaviours in a Labour Market with Mobility-Restricting Contractual Provisions: Evidence from the National Hockey League," IZA Discussion Papers 16836, Institute of Labor Economics (IZA).
    2. Furmaco, L. & Longley, N. & Palermo, A. & Rossi, G., 2021. "Employees’ Performance Variation over Fixed-Term Contracts - Evidence from the National Hockey League," Working Papers 2107, Tulane University, Department of Economics.

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    Keywords

    Economics and Finance;

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