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Contract Length, Expected Surplus, and Specific Investments

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  • Meng-Chi Tang

Abstract

This study empirically tests how expected surplus and specific investments affect the structure of National Football League player contracts. Empirical results show that both length and monetary compensations of a player’s contract increase with expected surplus and specific investments. In particular, early draftees with higher expected value of future performance signed longer and more lucrative contracts than later draftees did. This correlation is affected by a team’s expected surplus from contracting with their draftees. Comparing to the other teams, teams with more empty seats and fewer wins in the previous season invested more in early draftees, but less in later draftees. The results also indicate that players requiring more specific investments negotiated longer and more lucrative contracts than did other players, particularly quarterbacks.

Suggested Citation

  • Meng-Chi Tang, 2015. "Contract Length, Expected Surplus, and Specific Investments," Journal of Sports Economics, , vol. 16(3), pages 295-311, April.
    • Handle: RePEc:sae:jospec:v:16:y:2015:i:3:p:295-311
    DOI: 10.1177/1527002513486653
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    References listed on IDEAS

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    Cited by:

    1. Hsuan-Yu Lin & Chih-Hai Yang, 2016. "Uncertainty, specific investment, and contract duration: evidence from the MLB player market," Empirical Economics, Springer, vol. 50(3), pages 1009-1028, May.
    2. W. David Allen & William P. Curington, 2018. "Managerial time constraints and young worker productivity: Natural experiments with NFL rookies," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(2), pages 180-199, March.
    3. Panu Poutvaara & Tuomas Takalo & Andreas Wagener, 2017. "The Optimal Duration of Contracts," CESifo Working Paper Series 6808, CESifo.
    4. Conlin, Michael & Orsini, Joe & Tang, Meng-Chi, 2013. "The effect of an agent’s expertise on National Football League contract structure," Economics Letters, Elsevier, vol. 121(2), pages 275-281.

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