Wednesday, January 16, 2019

Why are baseball salaries falling?

Because the profitability of winning has fallen with increases in revenue sharing:

“If you’re at the top, and you’re going to have to share more of your revenue with low-revenue teams, then maybe you’re less willing to pay on hiring that new player,” Bradbury tells Deadspin. (Revenue sharing, in case you’re wondering, operates like a marginal tax even on low-income teams’ revenues, since the size of their checks dwindles for each additional dollar they earn themselves.

In fact, economists had predicted that salaries would eventually fall:

“A lot of us in academia wrote about that and actually told the players’ association that that was going to be the effect,” says Stanford sports economist Roger Noll. “And they didn’t really believe us, because they thought that salaries were driven simply by total income, not by the increment to income driven by a player.”

HT:  MarginalRevolution.com

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