Roger Noll, “The Economics of Baseball Contraction,” unpublished paper presented at Baseball Economics Conference, Vanderbilt University, February 21, 2003. Forthcoming in the Journal of Sports Economics, November, 2003.
Professor Noll (Stanford University) analyzes three issues in this paper. First, what are the social welfare implications of eliminating a weak MLB franchise like the Montreal Expos? Second, what incentives for contraction are built into the revenue sharing provisions of the 2002 MLB collective bargaining agreement? Third, what is the relationship between contraction and franchise relocation?
Without including external benefits and the non-pecuniary benefits of ownership, Professor Noll concludes that for Montreal (the weakest team in MLB), social benefits are approximately equal to social costs. From a theoretical view, this is the expected outcome for the marginal team. For all other teams (including the Minnesota Twins), Professor Noll concludes that there is a social surplus.
Given the 2002 agreement on revenue sharing, the benefits of contracting a team that are realized by the other teams in the league are the total shared revenues currently being paid to the contracted team (revenues that will no longer be shared after contraction). Professor Noll estimates the discounted present value of this amount for the Expos to be $652 million ($26 million per remaining team). So the current revenue sharing agreements generate a strong incentive for contraction.
This must be compared to the value of a team in the most desirable unoccupied market. Currently, this would seem to be NYC/Northern Jersey or DC/Northern Virginia. If a weak team (like the Expos) could freely move to one of these areas, then the franchise value may approach $500 million, and the incentive for voluntary contraction disappears.
This is an excellent but complex paper. The economic concepts are advanced, but the arithmetic/mathematics is not difficult.
Reviewed by: Lawrence Hadley
University of Dayton
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