Competition and Player Salaries: The Impact of the Federal League

Last week, Maury Brown released The Biz of Baseball MLB Salary Database. It’s still in beta mode, so I decided to test it out this weekend.

One interesting feature of the database is that it includes some salaries from far back in baseball’s history. The database is not comprehensive (nor should it be expected to be) but the data that is there provides an opportunity to analyze salaries at a key times in baseball history.

For example, in 1914, the Federal League began play as a competing major league. It lasted for two seasons until reaching an agreement with the American and National Leagues. During its two years of operation it raided AL and NL rosters for its players, ignoring the reserve clause that was keeping salaries below the competitive level. Most of the jumpers left in 1914 (80 players), with 16 additional players joining the FL in 1915.

The agreement between the AL and NL created a monopsony for baseball talent, because each team represented a single buyer for its player’s services. The FL added competition for baseball talent, and even if players didn’t jump, their wages were likely to raise from the threat of jumping. While I don’t think anyone would disagree with this in theory, it would be nice to observe this effect. Someone may have examined this before, but I haven’t seen it.

Though the salary data is not comprehensive, it’s possible to track players who play over consecutive seasons to see how their salaries changed from the previous year. Salaries are affected by many factors; however, by tracking percentage-changes for individuals, player quality is approximately constant. I looked at a ten-year sample from 1910–1919, tracking an average of 16 players per year (ranging from 9 to 28 players). The figure below maps the average annual changes over the sample.

Player Salary Changes (1910-1919)

Before the Federal League became a major league, the AL and NL showed healthy salary growth, which is consistent with their average annual attendance growth of 4.5% from 1901–1913. During the FL’s inaugural season in 1914, there was a drastic spike in salary growth. 1915 also showed a 27% rise in salaries, which is the third-greatest change in the sample. In 1916, after the league disbanded, salaries rose only a paltry 7%; and in 1917, salaries fell by 3%—the only negative year in the sample. In 1918 and 1919, salary growth was 16% and 11%, muted compared to what it was before and after the entrance of the FL.

Thus, the available evidence is consistent with economic theory. New competition raised player salaries, and after the competition went away (buying off the owners most likely to start a new league) salary growth was depressed.

Thanks to Maury Brown and the other folks over at The Biz of Baseball Network for making this tool available.

(Source for the historical info: Quirk and Fort, Pay Dirt, pp. 313–319)

One Response “Competition and Player Salaries: The Impact of the Federal League”

  1. Marc Schneider says:

    It really bothers me when people complain about players making too much money–as if they should be the only people in America with no right to increase their paychecks. If any other industry in the United States colluded to suppress salaries like the sports leagues have done (NL/AL, AFL/NFL, MLB/FL)and with, essentially, the blessing of Congress, there would be a hue and outcry. Scott Boras isn’t the reason that baseball players make a lot of money–supply and demand is the reason.