Sports economics is my absolute favorite thing, and yet I don’t write about it as often as I want. Maybe because I think you don’t want to hear it. But I don’t care today. Just so you know, I am going to leave emotion out of this because I know that at some point, once the trade deadline is over, I will write an emotional post about my feelings. That is not appropriate today.
I’ve only written about free agency once since the madness started and that’s because it drives me a little nuts. This is the first year the AFL has introduced free agency and people are not loving the results and I think it’s because they’re not really “getting it.” So here are the economics of it all… in the simplest terms I can think of.
Firstly, terminology. Restraint of trade means that there is something unreasonable preventing a person from conducting business. If someone says, for instance, they want to work for a certain company, the restraint of trade would be the person who tells them: “Nope. Can’t do that.” Nearly all countries (free countries, anyway) have some form of law forbidding this. In Australia it’s competition and contract law. Just remember this term. By the way, something like a 4 week notice requirement or forgoing a bonus for breaking a contract is not a restraint of trade because it’s not unreasonable.
Secondly, conditions. I’m sure you already know them, but for arguments sake, let’s just go over the years, at least. The AFL free agency systems are pretty… preventative. In the NBA, for example, a player can become a free agent after two years (typically four, but two is possible depending on his team). In the AFL, you have to play with a club for EIGHT YEARS. That’s ages in sports years.
Thirdly… why we have to have free agency. The bottom line is that sports is one of very, VERY few industries where people don’t have any say about their work environment. Let me paint you a picture: you’re hired for a job at your dream company and you’re pumped. You sign a standard contract and get to work. A year later, you hate it. You’re not making enough money to live, you don’t get along with your co-workers, your boss hates you and there’s an amazing organization that’s headhunting you. So you tell your boss: “This is my 4 week notice” and he tells you, “No, it’s not. You owe me the next 7 years of your life, whether or not you like it. Oh, and you’re being fined for talking with that other company. 10% of your salary.” Yea… doesn’t really sound fair, does it?
That’s what it’s like in sports. It’s even worse when, for example, an athlete isn’t playing as much as he wants. Can you imagine if your company told you, “You’re no longer getting any good assignments. We’re going to pay you less and taking away most of your responsibilities… but you can’t leave.” No. Not okay.
This is where restraint of trade comes into play. These are ridiculous requirements that a player must fulfill and they certainly prevent them from carrying on business and accepting opportunities for them. Player contracts have the tendency to be unreasonable. Players can’t do what they want – that much is clear. Even once the club decides the player is free to go, the clubs decide what they get for him. Why should a club get compensation for their player? (I know why… but in economic terms it makes no sense) How would you react if your current employer told you, “Go ahead and work for that other company, but make sure that they know they owe me 2 new employees and a million dollars.” Seems like a strange request, no?
That’s why there is free agency. By giving players free agency, they are being allowed to choose who they play for – something that anyone else, in nearly every other industry gets to do. No, I don’t want my favourite players changing teams as often as they change their underwear, like in some other leagues, but you MUST have free agency. Seriously… it’d be illegal otherwise. Interestingly, there have been several cases when eight years was deemed too long and people have been let out of it. Hmmm…
Before I close, I have to say that sports is an exception to the rule. Due to the nature of the industry, they can get away with things like long, unreasonable contracts and can trade for players and determine what a player is worth and where he can work next. It does seem like the AFL has a decent handle on this, at least this year, but I am counting the days until players want the period before they become free agents to be shortened. That day is, already, fast approaching.