Islj 2009 3-4 - TMC Asser Instituut

are in place to limit the powers of the clubs. Despite these regulations,
the clubs still have more power than the athletes for several reasons.
One reason is that clubs are more often in contract negotiation and
what follows is that they are more experienced in negotiating. It leads
to less power for the players, who are much less experienced in a bargaining
process. The clubs have more knowledge of the bargaining
process than the players have. A club also has more knowledge on the
salaries of other players, which lead to an advantage of the club in the
bargaining process.
For example young players, which never have been in a bargaining
process before, do not know what they can ask from the club. Absent
other information, they may think that the contract offered is normal
to a player with his marginal product of labor. 12 If the clubs are fair and
act trustworthy, there will be no problems. But under the assumption
that clubs maximize profits, they will offer the player a wage below the
marginal product of labor. When the wage is under the marginal
product of labor, a club exploits the player (Sandy et al., 2004). In
economic theory, the asymmetry in the experience and information in
the bidding process of both parties is a market failure. This market
failure explains the creation of the market of sports agents. Sports
agents assist athletes in the bargaining process, as explained before in
the chapter 2.1. The sports agents have a function to protect the athletes,
and with their expertise knowledge they are able to do it.
In the bargaining process, clubs are trying to present the marginal
product of labor as low as possible from a player. Whereas the players
want to present a higher marginal product of labor than it is in reality,
in order to increase salaries (profits). The club is highlighting the
bad things a player did during a match, which lowers the marginal
product of labor. A sports agent could be the objective third party 13 ,
who determines the real marginal product of labor. The bargaining
process, the renewal of the contract, can have negative externalities on
the performance of the athlete. So, for athletes as well as the clubs, it
is beneficial that sports agents fulfill an insulating function in the critics
on the player from the club (Sobel, 1987). It is also explained shortly
in function two, but it illustrates why sports agents are not only
beneficial for athletes, but also for clubs.
Furthermore, the contract for athletes is getting more complicated
than it used to be. Clubs have to meet a host of legal regulations from
the authorities, with setting up a legal contract. Clubs do not always
have the specific knowledge of designing such a contract. Players even
know less about setting up a contract, because clubs are more often
designing such a contract or they could even hire a lawyer in the
organization. The clubs will have more knowledge about designing
the contract in a legitimate way, which could result in exploitation of
the player. For instance, the club may include some restrictions in the
contract, which the player does not fully understand. Again, this indicates
a market failure in the labor market for athletes. Sports agents
play an important role here, because they have more knowledge of the
design of a contract. They can protect the athletes from exploitation
and clubs do not need to hire a lawyer.
After all the most important regulation, which resulted in the creation
of the market for sports agents, is the free agency. Before the free
agency athletes did not have any market power, if they wanted to play
they had to accept the contract offer (Wilde, 1992). Due to the reserve
clause, athletes had not any bargaining power and were most of the
times their whole career with the same club. After the free agency, and
when the professional sports evolved into a multi-billion euro industry,
the need for professional sports agents became apparent.
12 It is hard to decide what the marginal
product of labor is for a rookie. There
are no stats available or stats from the
past. There exists future uncertainty as
explained in chapter 2.2.1.
13 It could be possible, if he is paying on
an hourly base for example. If the sports
agent receives a commission, like it is the
case nowadays, then the sports agent
also wants a higher salary for the player,
in order to increase his own commission.
2.2.5. Unions
In the bargaining process between clubs and players, there is another
actor active. In this chapter the role of unions will be explained shortly,
because it will complete the picture. In the United States of
America the unions have more power than in Europe. In the USA the
unions came up in the 1970’s, and their power was revealed in several
strikes and lockouts in all four sports in the USA (Quirk & Fort,
1999). With these rigorous actions, the unions tried to achieve better
agreements for the players.
Unlike most unions, sports unions both in USA and Europe do not
negotiate the salaries of individual members (Sandy et al., 2004).
The main task of a union is to bargain the conditions of a contract
for every player in that sport. They bargain collectively about working
conditions, insurance against injury and pension arrangements for
example. They reach a collective bargaining agreement with the clubs
and the agreement applies to all players in that sport. Due to the short
duration of a career of the athlete, it is important that the focus of
sports unions is on the health and safety risks (Sandy et al., 2004).
The individual salary setting is done by clubs and the players, who use
a sports agent. So, a union is settling an agreement for all the players
with the secondary conditions. Every player is bargaining with the
club about his individual salary and length of the contract. It will be
illustrated in figure 1.
The role of unions is explained from the perspective in the USA.
There exists a great difference between a union active in Europe and
a union active in the USA. The power of unions in the USA is larger
than in Europe. In Europe they bargain mainly over the secondary
working conditions. These elements of the employment relationship
between player and club apply to all the players. A good example is
the safety, because the safety net is important of a player, who is
injured. It means that sports agents take care of player-specific elements
of the contract, such as the salary, transfer fee, contract duration
and more. The role of the unions limits the services offered by
the sports agents.
Sports agents do not have to bargain about every aspect in the contract,
because the unions solved the secondary working conditions.
So, the limited influence of unions in Europe means that sports
agents have more space in the negotiations. In the Netherlands there is
a collectively bargaining result, which leads to some rules about the secondary
working conditions. The sports agents or clubs cannot change
this rules by a contract. The bargaining process in the Netherlands is
discussed extensively in chapter 3.5.2.
2.2.6. Conclusion
As Staudohar (1996) explains in his book, the labor relations in the
sports business are not that straightforward.
Figure 1: The relation between the different actors in the labor
market.
Source: Staudohar (1996)
The focus of this study is on the blue parts, and the purple part (government)
has an important influence in the three-way relationship by
regulations. The green part of the figure will be left out of the
research, with the exception of the collectively bargaining process. It
is not the main focus of the paper, but it is interesting to see an example
of the collective bargaining process. It will be shown in chapter
3.5.2.
A RT I C L E S
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