The Long-Run Effects of Abolishing the Baseball Player Reserve System

Abstract

PROFESSIONAL sports have been exempt from United States antitrust laws governing restraint of trade because of an important industry characteristic: a good season results only if teams are fairly well matched and play exciting games with uncertain outcomes. The antitrust exemption has allowed owners to develop the reserve system for the ostensible purpose of attaining and maintaining league balance. The reserve system consists of two components: (a) noncompetitive amateur draft selection by professional teams, the teams with the poorest records selecting first; (b) the signing of a professional player contract which gives the team owner the right to retain or sell the skills of the player.' The question of interest in this paper is what effect the abolition of the reserve clause will have on league balance and the existence of teams which are marginal when the system is in operation. Rottenberg2 and Demsetz3 argue that the reserve clause does not affect player trades or team balance because the same allocation of players will result regardless of who owns the players' skills. Rottenberg further argues that the player draft in which the worst teams select first is equivalent to income redistribution among clubs and that a system of money transfer can be substituted. But industry spokesmen argue that due to high competitive salaries, which would be paid if the reserve clause were abolished, the wealthiest team would sign up all the best players and the marginal teams would go out of business. Obviously the allocation of players will be affected if some cities lose their teams! In their powerful articles, Rottenberg and Demsetz do not give a complete analysis of the baseball market--they do not address the long-run problem of possible team dissolution should the reserve system be abolished. This paper