ABSTRACT

Labor markets in the four major North American sports leagues were marked by significant monopsony power for most of the 20th century. As the sole buyer, a monopsony can drive down the price it pays. The reserve clause bound players to the team that held their contract for as long as the team wanted them.

By 1976, all four major North American sports had adopted some form of free agency. Leagues have tried to limit the impact of free agency while promoting competitive balance in a number of ways, including revenue sharing, salary caps, luxury taxes, and the reverse-order draft.

Unions in professional sports provide a counterbalance to the monopsony power of leagues. Unions in professional sports have proven remarkably successful at organizing their workforce. Player associations in team sports have elements of both craft and industrial unions.

The sports industry has experienced far more strikes and lock outs than have other industries. Economists explain strikes as a mistake by one or both of the negotiating parties. When one or both sides in negotiation overestimate their own bargaining power or underestimate the power of the opposition, it may fail to make or accept a proposal in the contract zone.