Sociology of Sport Journal, 1991, 8, 326-340
Efficiency and Power in Professional
Baseball Players' Employment Contracts
John Wilson
Duke University
The restrictive covenants contained in the professional baseball player's standard contract can be justified on grounds of being the most efficient solution
to the problem of transaction costs in an industry where the difficulty of
selecting and managing talent is acute. Contract law legitimates these restrictive covenants. Closer scrutiny of the history and sociopolitical context of
the employment relationship in baseball underlines the role of power differentials in determining the parameters within which transacting for labor takes
place. Not only the reserve clause but also the negative covenant in the
player's contract has been important in providing the conditions for the efficient trading of players.
Social theories that neglect the impact of legal decisions on bargaining positions or fail to see that bargaining power rests on far more than legal rights
explain almost nothing. (Macaulay, 1986, p. 474)
As the salaries of professional baseball players escalated in the 1980s,
new management problems arose for franchise owners. How could they secure
maximum, sustained performance from players with lucrative long-term, no-cut
contracts? One response of the owners was to conspire not to bid on free agents.
Another response, of central interest to this paper, was to propose that pay be
tied to performance: Devise measures of productivity applicable to all players
and tie wages to them. As this paper will show, this was a revolutionary proposal
from the owners and could only have been made in the context of modem labor/
management relations and free agency. In fact, for most of baseball's history,
the owners had consistently fought against such a system of managing labor.
In sociological terms, major league owners were dealing with the most
pressing problem of modem capitalism, how to convert labor into labor power.
At the heart of the professional team sports industry lies the process of recruiting,
training and, above all, managing athletic talent, in short the labor process. The
labor process "begins with a contract or agreement governing the conditions of
sale of labor power by the worker and its purchase by the employer" (Braverman,
John Wilson is with the Department of Sociology at Duke University, Durham,
NC 27706.
Baseball Players' Employment Contracts
327
1974, p. 32). This contract or agreement is of considerable interest to the sport
sociologist because of the particularly close links between labor and product
markets in the team sports industry. Baseball Commissioner Ford Frick reminded
Congress of these links when he testified before the House Judiciary Committee
in 1957:
Industry does not have the problem of public confidence in the loyalty of
employees to employers. The public buys Lucky Strikes without concern as
to whether the employees of American Tobacco Co. are doing their best for
that company or are trying to get jobs with Liggett and Myers or Reynolds
Tobacco Co. But the public demands that each baseball player have full
loyalty to and extend his best efforts for his club. How can public confidence
in player loyalty and will to win be maintained if the player, while playing
for one club, may seek a job with another, or may be pressed with offers
from several other clubs, against some of which he is playing? (U.S. Congress, 1957, p. 297)
The problem of ensuring that a player will "extend his best efforts for his club"
creates a rather unusual relationshipbetween the seller and buyer of labor power,
for it conforms neither to the typical wage-labor pattern nor to the kind of relationship that exists between an independent practitioner and the consumer of his1
her services. This is neatly captured in the modem practice of allowing collective
bargaining to set the framework of the employment contract but permitting each
individual player to negotiate its specific terms.
Scholarly interest in the employment relationship in professional sports
has come largely from economists, and they have tended to focus on the more
macrolevel questions of how efficient the labor and product markets are in professional team sports, given the agreements that exist between one team owner and
another and between team owners and the players (Cairns, Jennett, & Sloane,
1986; Noll, 1974; Scully, 1989). What, they ask, is the impact of monopsony
on player salaries? Largely missing from these accounts is any scrutiny of the
employment contract itself, a contract Scully (1989, p. 23) regards as "unique"
among agreements between employers and employees.
While it might be appropriate for some purposes to analyze employment
contracts in economic or legal terms, my purpose here is to analyze them sociologically. Whereas an economist might explain variations in employment contracts on the basis of considerations of efficiency, a sociologist must take
seriously Durkheim's dictum that contracts do not build social relationships but
instead rest upon them: "A contract is not sufficient unto itself, but is possible
only thanks to a regulation of the contract which is originally social" (Durkheim,
1933, p. 215).
The rational calculations used to construct contracts embody and express
a broader set of norms and values and do not result simply from negotiations in
which the exchange of equivalentsbetween autonomous individuals is managed.
The meaning of the terms necessary for the calculation of efficiency (e.g., costs,
benefits, goals) is derived from social understandings that exist prior to the contract being written. Whereas a legal scholar might examine the definition of
property rights contained in a contract (insofar as it expresses a relationship
between an individual and a commodity), a sociologist must take seriously
Man's dictum that property rights express not simply relationships between
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people and things but also relationships among people (Campbell & Lindberg,
1990, p. 635). Legal concepts are, in short, part of the description of the mode
of production.
The ability to define basic contract terms is determined by social power
(Oberschall & Leifer, 1986, p. 248). As power relations change, so will the
definition of these terms and, consequently, the nature of the contract. In this
paper I will argue that this has happened in the case of baseball. Labor contracting
in professional sports-particularly baseball, which has the longest history-has
passed through four distinguishable periods, each of which framed the labor
contract within its own sociolegal context and gave different meaning to concepts
of "efficiency" and "cost. "
In the first period the "revolving" of players from team to team was tolerated; sports labor was considered craftwork dependent on self-discipline. Labor
contracting in this period resembled the workings of a "spot market" in which
"faceless buyers and sellers . . . meet . . . for an instant to exchange standardized
goods at equilibrium prices" (Williamson, 1986, p. 112). The second period
saw the capitalization of baseball, the standardization of managerial discipline,
and the pseudo-individuation of the player by the adroit use of baseball mythology, a period that lasted from about 1890 until 1921. During this period the labor
contract was redefined. A "number of restrictive covenants" (Scully, 1989, p.
23) were introduced, the effect being to internalize the transaction between owner
and player. The reason given was that transacting for players on the open market
had simply become too costly, given the nature of the work for which they were
being hired.
There followed a third period of complete managerial hegemony during
which the commissioner system was solidified to forestall state control, and
various forms of vertical integration, such as the farm system, were imposed. A
fourth period of collective bargaining restored to the players the powers they had
possessed during the craft period just after the Civil War.
Of greatest sociological interest in this history are the circumstances that
encouraged, and permitted, the employment function to be performed within
the league rather than by market processes. Transacting for labor tends to be
internalized in this way when it is judged to be too costly to be left to the market.
The costs of transacting are chiefly those of measuring the valuable attributes of
what is being exchanged and the expense of protecting rights and policing and
enforcing agreements. It takes resources to measure valued attributes and additional resources to define and measure rights that are transferred. An employer
considering entering the labor market must not only anticipate the purchase price
of labor (e.g., the dollars per hour to be paid in wages) but also the cost of
locating, measuring, assessing, and policing the performance of that labor.
In the case of trading for professional athletes, the issue is not the cost of
the player but the cost of buying or selling the player and, specifically, the cost
of writing and enforcing contracts. The cost of labor contracting is driven up by
job idiosyncrasy. The more unusual the job, the harder it is to specify and assess
performance, and the more rational it seems to internalize the task of filling it.
Where training for jobs involves acquiring task-specific and firm-specific skills,
occurs on the job, and has a team element, both employer and employee will
have a vested interest in the stability of the employment relationship and will
seek to ensure this by an internal ordering of promotion, perhaps by seniority.
Baseball Players' Employment Contracts
329
In short, the less fungible jobs are, the more costly labor transacting will be and
the more institutional restraints (in Scully's terms, "restrictive covenants") there
will be.
These considerations alone, however, would not be sufficient to account
for the way labor contracts in professional baseball have developed, for they beg
an important question: How are the basic terms of the contract defined? How,
for example, is idiosyncrasy defined and which party to the contract exercises
the most influence over which definition is used? If the restrictive covenants in
labor contracts are imposed as a rational solution to a transaction problem, what
social understandings make them appear rational? The following attempts to
answer these questions.
From Craft to Wage Labor
Baseball had its origins in amateur clubs formed to play some version of
rounders. As early as 1866 it was well known that many clubs paid their better
players, either salaries or shares of gate receipts on benefit days, despite a National Association ban on such payments. By the late 1860s, clubs began to divide
into members who were exempt from dues payments because of their playing
skill and those members "who do the paying part of the business" (Goldstein,
1989, p. 95). The differentiation of capital and labor in baseball had thus begun.
Fully professional teams emerged in the 1875-1890 period. Players were
now treated not as craftsmen with full membership voting rights in the club but
as "completely mobile, unfettered individuals free to contract with any club
independently of familial, geographical, or fraternal considerations" (Goldstein,
1989, p. 136). At the same time the liberties of this "free'' labor were limited
by a maximum wage agreed upon among the owners in 1885 which, since it was
"honored in the breach" (Voigt, 1966, p. 174), had to be undergirded by a new
system of ' 'reserving" players.
On the field, self-discipline was replaced by managed discipline, and in
the clubhouse a three-level hierarchy of wealthy club backers, managers, and
players formed. Athletes were now prized less for their independence than they
were for their quietness and steadiness, and contracts were aimed principally at
enforcing discipline on and off the field. Baseball statistics were developed to
better measure each player's productivity (Goldstein, 1989, p. 144). Owners
established profitable connections with railroads and other transportation companies and fostered civic boosterism in order to increase ticket sales. Their capital
thus became less mobile and their interests more distinct from those of the player,
who benefited from easy mobility.
In short, the baseball club became capitalized and the employment relation
became more hierarchical and exploitative. The sport had created (or absorbed)
a two-class structure, breaking down the old craft organization that had survived
the Civil War. It is this nexus of social relationships with which baseball entered
its years of major expansion and commercial establishment in the 1890-1920
period.
With the decline of the craft organization of baseball, owners developed a
strong vested interest in establishing their case that transactions with players were
extremely costly. They had to attempt this in the face of resistance from players,
who argued the reverse, that transacting for players was cheap and would be
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cheaper the more it was left to the open market. The workers in this case did not
benefit, or seek to benefit, from their idiosyncrasy. Indeed, this was used as a
weapon against them. We can see this if we examine the manner in which contract
law was applied to baseball.
The Negative Covenant
The contract between the owner and the professional athlete that evolved
in the period of capitalization had two aspects. One was a requirement for the
performance of certain services, the other a "negative covenant," an undertaking
by the player not to play for another team during the life of the contract. The
problem with the first aspect was the difficulty of measuring and ensuring adequate performance, a difficulty particularly acute for any outside parties that
might be called in to settle the dispute. This, and the courts' reluctance to enforce
contracts that seem to require involuntary servitude, meant that the emphasis in
sports contract law shifted to the second aspect, the negative covenant.
The courts were more comfortable with contracts forbidding a player under
contract from playing for another team because these required no measure of
~erfomanceand did not raise the ex~ectationthat the courts would be called in
every time a player was suspected of slacking off. Of course the negative covenant did not by itself force the player to work hard, or indeed work at all (and
players have been known to sit out a year), but the assumption was that "independent economic forces" (Weistart & Lowell, 1979, p. 340) could be relied on to
motivate the player to work hard (i.e., no other club would hire him for fear of
litigation, he must support himself, his talents are highly perishable, so he continues playing for his present club).
The negative covenant part of the player contract would not have been so
important had the sports industry resembled more closely the entertainment field
from which the idea was taken. In entertainment contracts (e.2..
music hall
.
stars) there were similar problems of specifying performance ahead of time, and
negative covenants were likewise enforced. But the terms of the contract were
for a specific period of time and the alleged breach would have to occur during
that time. In many sports cases, on the other hand, the breach would occur after
the original signing period had elapsed but the club would hold the player to the
contract by invoking the reserve clause, which made the contract perpetual. The
reserve clause stated that if a player refused to sign for the next playing season,
the club could unilaterally renew the contract for 1 year under the same terms
and conditions.
The reserve clause was justified on the grounds that it would help achieve
the collective good of competitive balance, but this argument is specious. It rests
on two assumptions, both of which are questionable. The first is that the rules
exist to equalize playing strength, and the second is that such equalization can
be most efficiently achieved by placing restrictions on players rather than owners.
The reserve system might indeed help balance playing strength in the league,
were the owners to restrict their own freedoms as much as they restrict that of
the players. But, contrary to Daly and Moore's (1981, p. 83) assertion that
trading players' contracts for cash is rare, especially for star players, and generally disapproved, the sale of players' contracts for cash "historically has been a
feature of the business" (Scully, 1989, p. 85).
u
,
Baseball Players' Employment Contracts
331
In the absence of rules prohibiting all player movement, the rules merely
serve to transform the player contract into a marketable commodity to be bought
and sold on the open market. The rules do indeed internalize the external diseconomies associated with league balance and thus reduce transaction costs, but they
do so at the expense of the players' rather than the owners' freedom. Daly and
Moore (1981, p. 82) admit as much, but they rather disingenuously declare
that a player, unlike the owner, has "no incentive to internalize the relevant
externalities." Thus, because players are excluded from any prospect of sharing
in the profits jointly produced by the competing firms, they must bear the brunt
of lowering the transaction costs necessary to achieve league balance. In comparison, the owners bear a negligible burden.
As Markham and Teplitz (1981, p. 22) point out, most of the rules devised
to regulate teams' playing strength have limited their use of inputs (chiefly players) because free-rider problems are more easily overcome when the cost of
conforming is actually borne by the players, not the owners. In the case of
rules that might reduce the incentive to win (e.g., a more equal division of gate
revenues), owners balk because they do not trust each other to make an equal
effort to stimulate home attendance. Such reforms are not entirely out of the
question: Commissioner Ueberroth was able to persuade superstations such as
WTBS in Atlanta (owned by Ted Turner, also owner of the Atlanta Braves) to
share with other owners a portion of the revenues generated by the nationwide
broadcast of Atlanta Braves games.
The reserve clause added tremendous significance to the negative covenant.
Together they created a power differential between owners and players. This
power differential enabled the owners to legitimate an understanding of the transaction between employer and employee that was greatly to their benefit. It was
in the players' interest to have the labor market operate as freely as possible.
A completely commercial approach to labor contracting would work to their
advantage, each player being treated as an independent businessman offering an
intermediate product to the producer of the end product, the game. Services
performed would thus quite closely resemble inanimate goods provided, eminently calculable, and thus cheap to exchange.
The players would have some justification for taking this approach, considering the brief careers most of them had and the high turnover rate of athletes in
a sports organization; that is, in practice they resembled the bulk raw material
used in manufacturing and treated as highly substitutable. In other words, players
would benefit from having the first aspect of the contract emphasized and money
damages used to compel contract performance. This would help keep the labor
market open. To ensure this, they would have to establish the policy position
that as players they were fungible, easily replaceable.
The owners, on the other hand, benefited from a policy position that regarded each player as unique, for the following reasons: "A finding that the
athlete has unique skills establishes that it is unlikely that the club could secure
a replacement who would perform in precisely the same manner as the player
who has defected" (Weistart & Lowell, 1979, p. 360). Unique skills mean that
the damage caused by the player's defection cannot be precisely measured, which
means that money damages cannot be used to compensate the aggrieved party.
Unique skills mean that the emphasis in contract law shifts from the first to the
second aspect, from a positive inducement to perform to a negative inducement
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not to perform for another team. fie negative covenant is thus of crucial importance in the process of "internalizing" labor contracting.
On close inspection, then, the meaning given to crucial contract terms like
"idiosyncrasy" proves to be ideological, a reflection of material interest. During
the craft period of professional baseball, the question of whether players were
unique was by no means settled. It might seem self-evident that contracting for
athletic performance is costly given the nature of the activity. Baseball mythology
contributes by painting a picture of the relationship between athlete and team that
evokes ideas of communal loyalty and fraternalism.
Furthermore, fans have never been particularly receptive to the idea that
professional baseball players are universally interchangeable. "Rather than face
the complete industrialization of the game, a development for which there was
little emotional support, it was far easier to participate in a fictive process of
hometown identification" (Goldstein, 1989, p. 117). For their part, owners fostered a double standard on behalf of the fans: They were encouraged to enter the
market to buy the talent needed to win championships, but the players were
"disloyal" if they entered the market in search of a better job.
Initially, the trend was away from uniqueness as the more wealthy club
members created a class of interchangeable, journeymen players, exempt from
dues paying but without voting rights in the club. Such players were regarded as
temporary, and revolving was widely accepted (Goldstein, 1989, p. 97). The
goal at this time was to break down the "craft" independence of the player. This
view was reflected in several early legal cases when courts rejected the argument
that any given player was unique (Weistart & Lowell, 1979, p. 362). By the
period of capitalization, however, the owner's investments and profits were such
that they no longer had an interest in seeing players as highly mobile but sought
to fix them as firmly to one enterprise as was their own capital. They fought the
idea that players were interchangeable in an attempt to control the market for
labor, especially during periods of interleague competition.
To give teeth to the negative covenant forbidding players to offer their
services elsewhere, the owners had to secure legitimacy for the argument that
the services of the players they hired were so unusual, so incalculable, that
compensable money damages could not be assessed. The case of Philadelphia
Base Ball Club v. Lujoie (1902) proved to be a major turning point for them.
Reflecting the earlier, craft view, the lower court ruled in favor of Lajoie, who
had jumped his contract with the Philadelphia club, accepting the defendant's
argument that he was not so unusual that the Philadelphia club would have difficulty replacing him.
The appellate court, however, declared, "The defendant is an expert baseball player in any position. . . . he has a great reputation as a second baseman . . .
his place would be hard to fill with as good a player . . . his withdrawal from
the team would weaken it, as would the withdrawal of any good player, and
would probably make a difference in the size of the audience attending the game"
(Weistart & Lowell, 1979, p. 337). A number of judgments beneficial to the
owners were contained in this ruling: Lajoie is an "expert" (rare), he has "a
great reputation" (impossible to measure); and his withdrawal from the team
would "weaken it" (the departing player is an integral, but immeasurable, part
of some larger whole).
There was also a subtext to this judgment that would continue to influence
Baseball Players' Employment Contracts
333
legal thinking in this area for many years-that professional athletes were paid
so handsomely that a few restrictions on their freedom were a small price to pay.
The court did not see any lack of mutuality in Lajoie's contract because the fact
that Lajoie could be terminated on 10 days' notice while having no termination
rights of his own was "part of a consideration for the large salary paid to the
defendant" (Berry & Wong, 1986, p. 72).
Three of these judgments in particular, the assumed expertise of the player,
his functioning as a member of a team, and the difficulty of calculating the
damages inflicted by his departure, are of crucial importance because each is
considered a good measure of idiosyncrasy. None is free of political bias, however, and all three were the subject of considerable controversy.
Uniqueness
How was a player's uniqueness decided? Typically, the courts would hear
from witnesses who had closely observed the athlete's performance. Needless to
say, the evidence given by witnesses for the owner would differ from the evidence given by witnesses for the player. No objective assessment seemed possible. In partial acknowledgment of this difficulty, the courts would. also gauge
uniqueness by the relative level of the athlete's salary and the amount of salary
increases he had received. These were obviously very crude and indirect measures. Besides, they seem to measure imputed excellence as much as uniqueness,
and the former would not necessarily increase transaction costs. The player was
thus shackled by his level of performance. The better he played, the more unusual
were his imputed talents, and the more difficult it would be to measure the
damages incurred by his loss.
More important, the courts became more and more likely to assume that
any professional athlete must have unique skills, otherwise he would not have
the job at all. By the time the commissioner system had fully developed, all
players were liable to be judged unique! Baseball players were included in a 1961
judgment (Central New York Basketball v. Barnett), in which the court declared
that "Professional players in the major baseball, football, and basketball leagues
have unusual talents and skills or they would not be so employed" (Weistart &
Lowell, 1979, p. 363).
The court in the Lajoie case had set about deciding whether Lajoie was
"readily replaceable in the existing labor market" (Weistart & Lowell, 1979, p.
362). Later courts simply assumed that if an individual had secured a job as
a professional athlete, he must be irreplaceable. And by tacitly including all
professional athletes in the category of unique, the courts conveniently glossed
over the fact that the negative covenant did not forbid the player from taking
another job but simply from taking another job with a competing sports franchise.
The interpretation of contract law thus evolved in a direction highly favorable to the owners because it accepted their argument as to the cost of writing
and enforcing contracts imposed by the uniqueness of the player's labor, thereby
legitimating the negative covenant. "Modern courts now routinely enforce negative covenants in professional sports contracts" (Weistart & Lowell, 1979, p.
342). The standard player contract in the major sports leagues today contains a
clause in which the player agrees that his services are unique and not compensable
in terms of money.
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Teamwork
One of the reasons the court gave for determining the idiosyncrasy of
Napoleon Lajoie was that he had become an indispensable member of a team.
"He has become thoroughly familiar with the action and methods of the other
players on the club, and his own work is peculiarly meritorious as an integral
part of the team work which is so essential" (Beny & Wong, 1986, p. 71).
Efficiency considerations guided this judgment. Where job skills were learned
on the job and could not be easily transferred from one employer to another
because they were embedded in a pattern of work relationships, an open market
for workers would be inefficient (Williamson, 1985, p. 243).
Lajoie set precedent in this area, too. The owners had managed to get the
courts to accept the view that their human assets were specific to their firm and
could not be easily transferable. The courts thus conveniently overlooked the
fact that a lively market existed for players' contracts in baseball. Owners, while
occasionally expressing apprehension about how new players would fit in, or
about the gap left by departing players, did not allow these apprehensions to
stand in the way of a market over which they exercised complete control.
Irreparable Harm
Classical contract law held that an employer could prevail over an employee only if it could be shown that the loss of the employee would render harm
to the employer's enterprise not reparable in money damages. This too was a
transaction cost issue. The actual loss was less important than the dificulty of
calculating its magnitude. This also proved to be controversial. Players maintained that teams would survive quite well without them and that no problem was
created by calculating the loss. But they did not prevail, and the courts came to
accept the owners' view instead.
Since Lajoie, the courts have generally imputed damage caused by contract
violation on the basis of the athlete's star quality. The assumption is that "because
so many individuals and such diverse external factors influence the financial
success of a team, the effect of the loss of any one player, even the best player,
is thought to be wholly speculative" (Weistart & Lowell, 1979, p. 338). Hence
the drive to internalize this transaction. But the crucial point here is that the loss
is thought to be wholly speculative, a notion that at the time benefited owners
much more than players. Achieving consensus on the values to be embodied in
employment contract law proved to be highly problematic, for there simply did
not exist an agreed upon set of principles and practices of commerce in labor.
It is quite clear from these examples that contract law, and the judges'
interpretations of it, embodies social relations rather than some real and objective
condition. It is not derived from some set of abstract principles. The courts must
choose between competing normative standards on a policy basis. To make up
their mind, judges look "to actual commercial behavior for quasi-objective
norms on which to base judicial decisions, while stating the norms as abstract
principles" (Feinman, 1983, p. 836). These reified norms are then fed back into
economic theory and used as assumptions on which labor contracts naturally
must be based in order to maximize efficiencv.
In the case of playerlmanagement disputes, this ignores the fact that the
courts were led to base their determination of the uniqueness of athletes on the
Baseball Players' Employment Contracts
335
cases that came before them. These cases were the actual commercial behavior
that judges gradually elevated to the status of a quasi-objective norm. Unfortunately, the cases that came before them almost always involved star players-for
whom the argument of uniqueness could most convincingly be made-because
owners simply did not compete for or fight over journeymen (highly substitutable) players. Transactions involvingjourneymen players played no part in establishing this norm. These players of course would have had different views as to
what constitutes actual commercial behavior.
It is not without significance for this argument that judges have been much
less likely to support the notion of uniqueness on those rare occasions when the
case before them involves a minor league player. In Spencer v. Milton (1936),a
New York Supreme Court found that Milton, a minor league player at the time,
was for that reason not providing services of a "unique" or "unusual" character
(Berry & Wong, 1986, p. 74). The courts clearly see minor league players as
less distinguishable than major league players and thus entitled to a more marketlike treatment. Minor professional boxers have been treated the same way (Berry
& Wong, 1986, p. 77).
The Commissioner System
Where transaction costs become very high, then it is likely that a "minisociety with a vast array of norms beyond those centered on the exchange and its
immediate processes" will form (Williamson, 1986, p. 105). There could be no
better description of the commissioner system in baseball. By the time the troika
method of government was replaced by a single commissioner in 1921, labor
contracting in baseball had evolved to the point where the negotiation of the
typical player's contract was "more ritualistic than substantive, an exchange of
gestures between player and owner" (Seymour, 1971, p. 354). This state of
affairs was not the result of an increasingly more efficient system of ordering
social relationships; it has been brought about by a combination of the negative
covenant and the reserve svstem.
As we have seen, the first was legitimated in a series of court decisions
establishing the idiosyncrasy of playing talent and acknowledging the owners'
right to internalize labor contracting within their own firm. The second, the
reserve system, was to prove rather more troublesome to the owners politically
but was eventually tacitly approved in the 1922 Supreme Court decision legitimating organized baseball's monopoly. Judge Landis assumed power knowing
that since before the First World War the owners had been blacklisting any
reserve players who sought to move (Krasnow & Levy, 1963, p. 754). The
blacklisting indicated that baseball had not yet obtained state approval for all its
restraints on labor mobility and could not expose itself to challenge in court. The
reason was antitrust law.
Baseball's reserve clause, the inequities of contract to which it led, were
especially vulnerable during times of interleague competition. For example, in
American League Baseball Club of Chicago v. Chase (1914), the New York
Supreme Court condemned a contract that had the player promise to play for a
team for an undefined period but reserved to the owner the right to terminate his
obligation at any time upon 10 days' notice. The judges, while agreeing that
Chase could not be easily replaced, set aside the negative covenant in this case
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on the grounds of an "absolute lack of mutuality" created by the reserve clause
in the national agreement which the Chicago Club had signed (Berry & Wong,
1986, p. 94).
But the judges were less intent on protecting the contractual freedoms of
the player than they were on fostering business competition within the baseball
industry. The American League was in a fight with the Federal League at the
time, and the court considered the national agreement "an illegal combination. "
The court set aside the negative covenant only in the case of league jumping
precisely to promote competition between leagues.
The reserve clause always operated, then, in the shadow of possible antitrust prosecution. It is noticeable that, throughout the period leading up to 1922,
institutional restraints on employment contracts were always more vulnerable to
state intervention during periods of interleague competition. Not only did more
players jump teams but the courts would be more lenient with players who
jumped from one league to another because they (the courts) were seeking to
promote business competition between economic enterprises. Consequently, although common law principle prohibited "unreasonable" contracts (e.g., those
that bound the player for a long period or "perpetual servitude"), in practice
this principle was applied only when there was interleague competition. Even
this practice would disappear once baseball's monopoly was established in 1922.
Subsequently, the courts tended to read contract language more narrowly
than perhaps they would have done otherwise, precisely because to do otherwise
would raise "serious antitrust problems" (Weistart & Lowell, 1979, p. 286).
For example, the courts chose to interpret the reserve clause as meaning that the
player was bound for one more term contract rather than to a perpetual rollover
of a succession of contracts. Even when the legitimacy of the reserve system
began to erode after the Second World War, contract law did not much help the
players. By then the weapon of equity in labor contracts had lost some of its
power as the courts moved away from a requirement of strict mutuality and
shifted to the opinion that "sufficient exchange of consideration" is provided
simply by requirement of notice of termination (Weistart & Lowell, 1979, p.
377). The players' recourse under this aspect of contract law today is limited to
requesting a court injunction to require the club to honor its contract.
The Commissioner System Weakens
The fourth phase of the evolution of employment contracts started when
baseball's immunity from antitrust action began to weaken as the result of strike
action and antitrust litigation on the part of players. Even then the basic terms of
the labor contract did not significantly change. A collective bargaining agreement
did not by itself eliminate the transaction between player and management. It
simply bound the parties to bring about the introduction of its terms into the labor
contracts to which it applied. A player could not bargain away his rights as
stipulated in the collective agreement.
However, collective bargaining did alter the balance of power in the industry. Now the argument of idiosyncrasy worked to the players' benefit because
the mobility they had gained enabled them to exploit any uniqueness they could
claim. Now it was the owners who insisted on the fungibility of players. One
solution, broached in 1989, was pay for performance, gauging salaries to carefully measured performance, a method of attaching wage rates to the job rather
Baseball Players' Employment Contracts
337
than the person in a manner similar to many other internal labor markets. Another
solution was long-term (often no-cut) contracts, rich with contingency clauses
and performance incentives.
Symptomatic of management thinking at this time was a negotiation seminar for owners and their lawyers held at Haward University in 1981, in which
one of the most heavily attended sessions was on contract language. The many
problems of writing player contracts were minutely examined. Owners were
instructed to be specific and exact in their language. Thus a contract promising
bonuses to a player if he were to be "top punter in the NFL during the league
season7' was criticized for imprecision because it did not specify what "top
punter" meant or how it was to be measured: "For punters, the NFL Record
Manual lists net points, gross yards, gross average yards, net average yards"
(Berry & Wong, 1986, p. 249). Transactions were clearly becoming more exposed to the open market and less subject to determination by fiat. Other efforts
to lower or externalize transaction costs were the formation of scouting combines
and the institution of tryout camps where college players could be put through
their paces and subjected to standardized testing before a number of NFL management teams.
The clubs were thus forced to abandon their claim that performance contracts could not be specific enough to be enforceable or for breach of contract to
be compensable. In the process, players became eminently comparable which,
on the more open market and in the context of certain guarantees they had won
through collective bargaining, worked more to their advantage. Of course, contingency clauses and performance bonuses could also be used to control the
player's opportunity to earn. For example, a player who was offered bonuses for
the number of games started could simply be run in one minute after the game
had begun. Conflict thus shifted from the amount a player was paid to the amount
of opportunity he had to earn his pay.
The power shift of the 1970s also cast the practice of trading players in a
different light. Despite the legal arguments of the 1900s that players were highly
idiosyncratic, owners freely and enthusiastically traded players, or rather their
contracts, among themselves. Often owners would trade away almost their entire
roster in order to obtain a winning team. Complex, multiplayer deals were common. The owners seemed to have little difficulty dealing with players as fungible
property, the contract for a player's services being as marketable as the title to a
piece of land. But this system of trading could have developed only under closely
controlled conditions, wherein a contract did indeed bind a player for the length
of his playing career or at least a specifiable term.
Trading was also confined to certain periods of the year, and trades could
be voided by the commissioner if he considered them not in the best interest of
the game. And, as we have seen, these conditions did not occur naturally but had
to be fought for by the owners. Under these conditions, much of the trading
uncertainty was removed, the cost of doing business was reduced, and the exchange of players could proceed unhampered by resistance from players.
In the 1970s and 1980s, when free agency raised the cost of doing business
(not just the amount of the contract but the cost of writing and enforcing it), the
owners had to resort to the cost-cutting measure of collusion, agreeing among
themselves not to engage in bidding wars. The owners' behavior thus confirmed
that we cannot understand how and why parties to an exchange benefit unless we
Wilson
338
are aware of the background of alternative contract and property entitlements.
"And this choice of background entitlements-which govern the ability of a
seller to extract a price from a buyer-cannot be settled by a simple appeal to
efficiency" (Brunell, 1984, p. 983).
Conclusion
Many aspects of the employment relationship in professional baseball can
be accounted for by the drive for efficiency and the desire to lower the costs of
doing business. A sports league does pose unique management problems, and
the hiring and firing of professional athletes is difficult to handle either by a
completely open market, which would produce instability, or a rigid hierarchy,
which would create inefficiencies in the distribution of talent. This study has
indicated that efficiency considerations have played an important role in the
evolution of the player contract. However, it has also confirmed the sociological
view that economic behavior is embedded within a broader set of social relationships which structure that behavior and help define the terms of exchange that
make it compelling to both parties.
Labor contracting is an example of market behavior, the worker selling
and the employer buying labor power. But the professional team sport athlete
must enter a relationship in which his power is necessarily less than that of the
owner. The wage contract is part of a nexus of social relationships in which
capital is pitted against labor. This is somewhat disguised by the use of the term
"contract. "
Despite their similarities, and despite what classical contract theory in law
says, commercial and labor contracting are not the same. In commercial transactions the law assumes that both parties have full discretion to define the nature
and scope of the contract's authority. When it comes to the employment contract,
however, 19th-century law imported a set of implied contract terms reserving
full authority of direction and control to the employer. "Once the contract was
defined as an employment contract, the master-servant model was brought into
play" (Selznick, 1969, p. 137). By excluding the employee from participation
in the continuing process of rule-making and administration, the employment
contract amounted to a protection of the prerogatives of the employer, "a mode
of submission" (Selznick, 1969, p. 137). In short, power imparts to the capitalist
not only economic leverage but also the ability to deJne the terms of the relationship.
Labor transactions are not naturally costly but are made costly by the actions of human agents. Sports team owners cultivate the idea that they can compete in the marketplace for inanimate objects such as gate receipts and concession
sales because in this case transaction costs are relatively low. They claim that
player transactions, on the other hand, are governed by bounded rationality and
opportunism (shirking, contract jumping). The market can efficiently govern the
former, but hierarchy must govern the latter. However, the determination that
player transactions are different from negotiations about the distribution of gate
receipts is a political one.
These same considerations apply to the question of information. The owners favored the argument that labor contracting must be internalized on rational
grounds because information is incomplete and rationality bounded. But the ques-
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340
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