The Underpayment of Restricted Players In North American Sports Leagues

In this paper, we consider whether underpaying players restricted by the reserve clause is a common practice in the three largest sports leagues in North America-the NFL, NBA, and MLB. Our results are consistent with the hypothesis that owners of professional sports teams do exercise monopsony power whenever and wherever they can. Although differences exist across the three sports, our results indicate that in general: restricted players are underpaid; when the negotiating power of players rises, owners are less able to extract a surplus; and, the greatest surplus tends to be extracted from those who create the greatest amount of value.