Losing money to make money: The benefits of redistribution in collective bargaining in sports

Abstract

I develop a model of majority-rule collective bargaining between a sports league and its players when delay costs incurred by players are wealth-dependent. I propose a refinement of subgame perfect equilibrium that requires equilibrium strategies to be immune to deviations by any majority subgroup. I show this is equivalent to giving the player with median bargaining power the unilateral ability to negotiate with the league. Using this model, I demonstrate that policies reallocating surplus from high-talent to moderate-talent players, such as maximum contracts in professional sports, can improve the welfare of all players. Redistribution of surplus harmonizes players' interests, giving a majority of them a greater stake in the bargaining outcome. The model highlights the gains to be had if a heterogeneous group agrees to concessions that increase the alignment of their individual interests.