How Much Did Baseball’s Antitrust Exemption Cost Bob Gibson?

• Author: David J. Berri,Anthony C. Krautmann
• Published date: 01 December 2019
• Date: 01 December 2019
• DOI: http://doi.org/10.1177/0003603X19875042

Article

How Much Did Baseball’s

Antitrust Exemption Cost

Bob Gibson?

David J. Berri* and Anthony C. Krautmann**

Abstract

Major League Baseball was granted an exemption to antitrust laws in 1922 by the Supreme Court. This

exemption led to the creation of a monopsonistic labor market that prevented baseball players from

fielding offers from other organizations once that player signed with any Major League Baseball team.

Economic theory predicts that such a market would reduce a worker’s wage below a worker’s

marginal revenue product. The question this study seeks to address is how much wage depression

existed before the introduction of free agency in baseball in 1976. Specifically, we will examine the Hall-

of-Fame career of Bob Gibson, a career that ended in 1975. Our examination will not only explore the

standard approach economists have used to answer this question for more than forty years but also a

simpler approach that gives a more realistic answer to the question.

Keywords

monopsony, marginal revenue product, exploitation, antitrust exemption

Clayton Kershaw was the highest paid player in Major League Baseball (MLB) in 2018. Given his

regular season record, his $35.6 million salary certainly seemed justified (https://www.spotrac.com/

mlb/rankings/2018/). When the 2018 season concludes, Kershaw’s career earned run average (ERA)

1

of 2.39 was better than the career mark of any starting pitcher in nearly 100 years.

2

From 2011 to 2017,

Kershaw won three Cy Young

3

Awards, one league Most Valuable Player

4

award, and was named to

the mid-season All-Star game roster every season.

*Department of Economics and Finance, Southern Utah University, Cedar City, UT, USA

**Department of Economics, DePaul University, Chicago, IL, USA

Corresponding Author:

David J. Berri, Department of Economics and Finance, Southern Utah University, Cedar City, UT 84720, USA.

Email: berri@suu.edu

1. Earned run average is simply how many earned runs a pitcher surrenders on average per nine innings.

2. Eric Stephen, Clayton Kershaw vs. The Postseason, Explained, SB Nation (Oct. 29, 2018), https://www.sbnation.com/mlb/

2018/10/17/17965876/clayton-kershaw-postseason-history-dodgers-legacy.

3. The Cy Young award goes to the top pitcher in the American League and National League each season.

4. The MVP award goes to the top player in each league. Generally, this goes to a hitter. Occasionally, though, it goes to a

pitcher that is truly amazing.

The Antitrust Bulletin

2019, Vol. 64(4) 566-583

ªThe Author(s) 2019

Article reuse guidelines:

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DOI: 10.1177/0003603X19875042

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In the postseason, though, it had been a different story. From 2008 to 2018, Kershaw appeared in 30

postseason games and pitched 152 innings. His ERA, though, was only 4.32, or nearly two runs worse

than his career regular season performance. And in none of these years did Kershaw’s Los Angeles

Dodgers finish the postseason as World Series champions.

Failing in the playoffs doesn’t directly impact player’s compensation. Player salaries in professional

sports are only for the regular season. So, before the playoffs started in 2018, Kershaw had already

collected his $35.6 million. Given this point, perhaps Kershaw’s regular season brilliance fully justifies

his salary. Then again, maybe people should expect a player as great as Kershaw in the regular season

should be more like Bob Gibson when the season ends.

From 1964 to 1973, Gibson was very much like Kershaw in the regular season. Across these years,

Gibson won two Cy Young awards, one league MVP, was named to seven mid-season All-Star games,

and won nine gold gloves. In the playoffs, though, Gibson was equally amazing. Prior to 1969, the

postseason only consisted of the World Series. In 1964, 1967, and 1968, the the National League was

represented in the World Series by Gibso n’s St. Louis Cardinals. In those three s easons, Gibson

pitched in nine World Series games. In eight of these, he pitched a complete game. He also threw

two shut-outs and had a postseasons ERA of 1.89. In addition, Gibson’s Cardinals won two world

championships and each time this happened Gibson was named World Series MVP.

When we consider regular season and postseason performance, one could argue that Gibson was a

bit better than Kershaw. At least, th at is the story told by the statistics we use to track on-field

performance. If we consider player pay, though, Kershaw completely dominates Gibson.

As given in Table 1, Gibson was only paid $30,000 in 1964. Although his pay generally increased in

each of the next eleven seasons, this was not always the case. For example, after the 1969, 1971, and

1973 seasons, Gibson’s annual salary was not changed. In an era of relatively high inflation, that means

Gibson, in real terms, was taking a pay cut despite posting statistics that suggested Gibson was one of

the top pitchers in MLB.

When we consider all twelve seasons, we see that Gibson was only paid $1.3 million in nominal

terms and only $8 million in 2018 dollars. In contrast, Kershaw was paid more than four times this

amount just for the 2018 season.

Once again, both Kershaw and Gibson rank among the all-time pitching greats. So on-field per-

formance simply cannot explain the large observed difference in pay. To understand the salary dis-

crepancy, we have to focus on the nature of the labor market each player faced.

1. Major League Baseball’s Unusual Labor Market History

Kershaw agreed to a 7-year, $215 million contract with the Los Angeles Dodgers in 2013.

5

In 2018,

this deal was extended for three seasons.

6

The extension not only added years to Kershaw’s contract, it

also increased his annual pay.

With both deals, the Dodgers faced a choice. Either the team reaches a contract agreement with

Kershaw or watch Kershaw play out his contract and then watch as the remaining teams in MLB bid

on his services. In other words, alt hough Kershaw was only negotia ting with one team, if those

negotiations broke down eventually, Kershaw would have an opportunity to negotiate with many

more teams.

5. Matt Snyder, Dodgers, Clayton Kershaw Agree to Seven-Year, $215 M Deal, CBSSports.com (Jan. 15, 2014), https://www.

cbssports.com/mlb/news/dodgers-clayton-kershaw-agree-to-seven-year-215m-deal/.

6. Dayn Perry & R.J. Anderson, Dodgers Reach New Contract to Keep Three-Time Cy Young Winner in Los Angeles through

2021, CBSSports.com (Nov. 2, 2018), https://www.cbssports.com/mlb/news/clayton-kershaw-dodgers-reach-new-contract-

to-keep-three-time-cy-young-winner-in-los-angeles-through-2021/.

Berri and Krautmann 567