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The Impact of Free Agency on Professional Sports

By Bisk
The Impact of Free Agency on Professional Sports

The current system of free agency in sports has benefited athletes in multiple ways, most notably via an increase in annual player salaries. According to the Society for American Baseball Research, Milwaukee Brewers outfielder Hank Aaron was the highest-paid baseball player in 1975, earning $240,000 a year. When Major League Baseball adopted its formal free agency policy a year later, Philadelphia Phillies third baseman Mike Schmidt was the biggest benefactor, earning a league-high salary of $560,000 annually. As of 2014, Los Angeles Dodgers starting pitcher Clayton Kershaw earned the largest annual salary in major league baseball history at more than $30.7 million per season.

In American professional football, the results were similar. In 1992, before the NFL enacted its free agency policy, the average player salary was roughly $484,000 a year. One year later, the average salary rose 33% to nearly $667,000 annually. Player income has continued to multiply every year since free agency was established. According to a 2012 study by Forbes, the average yearly salary for a NFL player was $1.9 million, the lowest average player salary among the “big four” – MLB, NBA, NHL, NFL – sports leagues in the United States.

According to a 2013 report by the Major League Baseball Players Association, the average baseball player’s yearly salary increased 5.4% from the previous year to a record $3.39 million. Professional basketball players in the NBA average the highest annual salary among the four major U.S. sports at approximately $5.15 million a season.

Skyrocketing salary debate

Over the last decade, athlete’s salaries have increased exponentially. The upward trend is one cause for concern among some owners and league officials because pay increases have made it more challenging for teams to afford a competitive roster. The best free agents often request higher salaries, typically auctioning their talents to the highest bidder.

While the free agency process was a necessary step toward sports equality, it dramatically raised the salaries for all players, not just free agents. Subsequently, some team owners are forced to offer highly lucrative contracts to the top players in each sport in order to keep a competitive edge.

This has allowed the most profitable franchises to essentially buy a team filled with the best free agents on the market. This issue primarily applies to baseball, as American basketball, football and hockey have salary cap systems which help limit wealthy teams from buying a full roster of top players. Salary cap supporters believe the system promotes parity between teams and helps keep spending under control.

Largest contracts by sport (excluding individual sports):

  • Baseball: Miguel Cabrera (Detroit Tigers), 10 years, $292 million; Alex Rodriguez (New York Yankees), 10 years, $275 million
  • Soccer: Lionel Messi (FC Barcelona), 8 years, $343 million; Gareth Bale (Real Madrid), 6 years, $146.3 million
  • Basketball: Kobe Bryant (Los Angeles Lakers), 7 years, $136.4 million; Jermaine O’Neal (Indiana Pacers), 7 years, $126.6 million
  • American Football: Calvin Johnson (Detroit Lions), 8 years, $132 million; Michael Vick (Atlanta Falcons), 10 years $130 million
  • Hockey: Alexander Ovechkin (Washington Capitals), 13 years, $124 million; Shea Weber (Nashville Predators), 14 years, $110 million

How much is too much?

When players’ salaries are broken into pieces, it can be mind-blowing how much money they earn compared to the average American worker.

During the 2012-13 NBA season, Los Angeles Lakers All-Star Kobe Bryant grossed nearly $38,000 for every made basket, according to an October, 2013 study by Sports Interaction.

Based on his yearly average of 676 plate appearances during six seasons with the Detroit Tigers, All-Star Miguel Cabrera stands to make approximately $43,000 per plate appearance. According to the Social Security Administration, the average national yearly wage for 2012 in the U.S. was $44,321.67.

Money Problems

As player salaries have steadily increased over the years, so too has the impatience of many team owners. This has inevitably led to league lockouts and strikes. A lockout is imposed by team owners or league executives and it specifically prevents athletes from being affiliated with the organization until an agreement has been made between the Players’ Union and owners. A strike occurs when athletes make the decision to discontinue playing until their demands are met by ownership or league officials.

Labor disputes have become a byproduct of free agency in each of the big four professional sports in the United States. Work stoppages have resulted in postponed seasons, cancellation of regular season and playoff games, and in the case of the NFL, the use of replacement players. A high number of arguments have centered on money and free agency stipulations.  

Feuding Sides

Baseball was the first major sport with a labor shutdown, and has endured the most stoppages (eight) of any professional sports league in the United States. Likely the worst disagreement occurred in 1994, as team owners attempted to limit salaries as part of any future labor deal. The regular season began without problems, but by August, the Major League Baseball Players’ Association refused to adhere to owner regulations. Players boycotted the remainder of the season, leading to a cancellation of the playoffs and the World Series. It marked the first time in 90 years that Major League Baseball was forced to cancel its World Series.

Also in 1994, National Hockey League owners initiated a lockout due to increased salaries and a lack of television revenue to pay all of the players. After a 103-day stoppage, players and owners came to an agreement on a six-year contract, which helped salvage the remainder of the regular season.

In 1998, NBA players and ownership were unable to reach an agreement regarding escalating salaries. Players threatened a strike and owners countered with a lockout which canceled more than 450 games before a settlement was finalized.

Arguably the most detrimental work stoppage in professional sports history was the 2005 National Hockey League lockout. At the end of the 2004 season, NHL owners committed 76% of total revenues to player salaries. In offseason negotiations, they demanded a more reasonable salary cap, collective salary compromises and an enforced luxury tax on high-spending teams. Discussions remained unchanged until training camp the following season. In an unprecedented move, NHL commissioner Gary Bettman canceled the entire 2005 season until a settlement could be reached. With the decision, the NHL became the first and only major professional sports league in the United States to lose an entire season because of a labor dispute.

Final Assessment

While some might claim that free agency has been anything but free, it is hard to argue against it hurting the business of sports, fan attendance and television viewership. According to Plunkett Research, in 2013 alone, the estimated yearly revenue of the entire United States professional sports industry was approximately $470 billion.

Free agency has allowed eligible athletes the opportunity to switch teams and play where they choose to play. Not only does free agency encourage parity among sports teams, it likely increases fan interest because an organization can quickly transform from an average team to a championship contender with just a few new acquisitions.

Overall, free agency appears to be beneficial for everyone. Players receive higher salaries and the rights to change teams when eligible. Owners benefit from fan attendance, television contracts and team performance, and fans typically get what they want – an exciting, ever-changing product that offers year-round entertainment.

Category: Business and Law of Sports