Islj 2009 3-4 - TMC Asser Instituut

sports agent will not bargain at arm’s length and will not serve the athlete
in his best interest. It is hard to monitor for an athlete, whether
the sports agent is serving his interest. It leads to information asymmetry
between the sports agent and the athlete.
In principle, the sports agents will be bargaining at arm’s length,
but the clubs can increase the influence on the sports agent. Due to
the information asymmetry, the sports agent cannot be monitored
fully.
2.5. Conclusion
In this chapter, several economic theories have been discussed, which
are relevant in the market of sports agents. Economic theories like
monopsonistic market, winner’s curse, moral hazard and bargaining
at arm’s length are very important. With the explanation of these theories,
the understanding of the market of sports agents should be better
for the reader. It should be clear what the role of a sports agent is
in the labor relation between athletes and the clubs. Decades ago, the
bargaining power was with the clubs, because they had monopsonistic
power. It has changed by regulations and the professionalizing of
sports. The power shifted to the athletes, which had to use sports
agents in order to get the best contract. The dependency of athletes
on sports agents lead to an increase in power of the sports agent. The
change of power lead to the creation of the market of sports agents
and the power of sports agents is still increasing. There is regulation
(and more needed) to restrain the power of the sports agents. In the
next chapter, there will be an overview of the regulations in the market
of sports agents.
3. Regulation of the market of sports agents
In this chapter, there will be a review of the literature from the academic
world. In chapter 2, there has been referred to several papers.
In order to avoid repeating myself, the articles already explained in
chapter 2 will not be discussed extensively. After that, the regulations
will be explained, which affects the sports agents in the Netherlands.
The focus of the regulations will be on the Netherlands and Europe.
Regulations from the USA will not be included, unlike the literature.
3.1. Labor market of professional sports
There is a lot of academic literature about the labor market available.
In the previous chapter, I have used some of the literature already.
There are some interesting articles which will be discussed shortly in
this chapter. In most articles about this specific topic, there is referred
to Rottenberg (1956).
Rottenberg was the first to investigate the labor market for athletes
from an economic point of view.
Rottenberg focused on the American sports, like most research in
professional sports. His research was done with the assumption of the
frictionless world of the Coase theorem. He found that free agency
has no effect on the player allocation. The most important difference
was who would get the money.
In the case of free agency, more money would go to the athletes. It
would have some important implications for professional sports
worldwide, but the assumptions he made are very strong and these
assumptions will not hold in the real world. One implication could
be that the free agency did not have any influence on the mobility of
an athlete. Some of the assumptions Rottenberg made were: perfect
information, transactions costs are zero and that the wealth effects are
zero. These assumptions are strong and not always realistic. If the
assumptions do not hold, than the free agency could play a role in the
player allocation (Rottenberg, 1956).
Rosen and Sanderson (2001) also wrote an interesting article about
the labor markets in professional sports. They find that it is easy for
clubs to measure the marginal product of labor, because there are a lot
of stats available of the individual player. In this way, it is easy to calculate
the marginal product of labor for an individual player. They
find something interesting, which is a well-known labor market
observation, the variation in starting wages in professions is much
smaller than the variation in wages of more experienced workers. The
wages of athletes will increase by their work ethic and abilities to
learn. At the start, when they are rookies, most salaries of different
players are the same. They also refer, like many authors in the field of
labor economics, to the case of wage discrimination. In many team
sports, wage discrimination was present in the 70’s and 80’s, but in the
90’s the wage discrimination was not easily to detect. In the book of
Sandy, Sloane and Rosentraub (2004), they support the finding of
Rosen and Sanderson (2001) that the marginal product of labor is easily
to measure for clubs. They state that there are some difficulties in
determining the marginal product of labor, like cross-player complementarities
and future uncertainty. It has been discussed extensively
in chapter 2.2.
Quirk and Fort (1999) wrote a chapter about the players. It is an
interesting chapter, if a reader wants to know more about the players,
I have to recommend reading it. The public opinion thinks that the
high salaries of the athletes are leading to the higher costs of the tickets
in a stadium. This is not the case, because the higher salaries only
reflect the value of a player to the team. The higher demand towards
professional sports leads to the multi-billion dollar industry, which it
is nowadays. So, the higher demand towards professional sports is
leading to the higher salaries of athletes. An important feature of the
higher demand is how high the competitive balance is. When there is
more competition between clubs on the field, the crowd will like the
sport more (Groot, 2008). The writers represent gate-sharing as a
solution to the escalating player salaries, but these salaries are still the
value of a player. The gate-sharing will not be discussed in this
research as a regulation, because in Europe it is not a regulation.
3.2. The business of sports agents
Shropshire and Davis (2008) wrote a book about the business of
sports agents. The book is focused primarily on the American sports,
but the experiences in these sports can be used for the European
sports. The sports agent has a long tradition in the American sports.
A standard anecdote is told in this book about the coach of the green
bay packers, Vincent Lombardi.
‘It was time to negotiate center Jim Ringo’s contract for the coming
year. The player came into the office with a gentleman wearing
a suit. When Lombardi asked the player to identify the gentleman,
Ringo responded that he had come to help in the contract negotiation.
The story has it that Lombardi excused himself, stepped into
the next room, and made a phone call. When he returned he
informed Ringo that he was negotiating with the wrong team
because he had just been traded to Philadelphia.’ (Shropshire &
Davis, 2008, p. 12)
This anecdote is illustrating how most team owners or managers looked
towards the profession of sports agents. They think the sports agents are
just there for a fast buck, but this view has changed over time. The anecdote
is from the 60’s and there are some changes since then, as
explained before, which have lead to the acceptance of sports agents.
There are some problems arising in the business of sports agents,
which have led to the need of regulation stated before. There is the
danger of unethical behavior by the sports agents, when they want to
attract young talented athletes. Some stories tell that the unethical
behavior differs from giving money, gifts or even threaten the talents
to sign a contract with the sports agent. In order to avoid this unethical
behavior or in some cases even criminal behavior. Specific regulation
is needed to restrain the power of a sports agent and to increase
the control on sports agents. There are several solutions presented to
overcome these problems in the book of Shropshire and Davis (2008).
The specific laws explained in the book are not interesting for the
research, because the laws are mainly on a state level or federal level in
the USA.
Another book about the business of sports agent is written by Stein
(2008), with the main focus on England and especially on the regulations
of the Football Association (FA). Mel Stein is a sports agent
himself and wrote the book to give some insights in the different regulations
of the FA, with a cynical view on the regulations and the
license. It is not an academic book, but it gives insight in the business
of sports agent from the point of view of a sports agent. It becomes
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