Are unions good for sports leagues?

For you NBA fans out there, I have some bad news. There is a high probability that there will be no 2011-2012 NBA season. Recently the players union rep Derek Fisher has met with league officials, and he has recently stated that the only way to reach a new collective bargaining agreement is to remain strong as a union. During the 1998 lockout, remaining unified as a union lead to a resolution of the work stoppage.

The NFL took a different strategy in their collective bargaining conflict. The players voted to disband the union and pursue a resolution through lawsuits and the courts. They had success previously with lawsuits; that is how they gained free agency. Just like in 1987, this strategy worked and it is certain the union will recertify in a year or two.

In fact, in most major sports leagues the players have organized a union. Tennis players are now facing the issue of whether to unionize or not.

Dr. Ben Hansen, Assistant Professor of Economics at University of Oregon, wrote a very insightful piece for the Sports Illustrated Tennis Mailbag article (see link here)

Here is what he said:

"My discussion will concern the basic economics of unionization, and will not treat other more complex political issues.

Pro-union arguments

1. In some labor markets, a single employer often arises. For instance, a coal mine in a small town. As everyone works at the coal mine, the coal mine can underpay and underinvest in safety, exploiting monopsony (a single purchaser of a good) power. If tournaments didn't coordinate, they might compete by offering better pay, better conditions, etc. To the degree tournaments in the ATP can coordinate (which we might also call collude), they can pay less, provide worse conditions, etc.

2. Thus, to balance the effects of monopsony power, a union can encourage bargaining, which may arrive at outcomes that would naturally result were it not for the market power of tournaments.

3. Tennis players face in game theory what is known as the prisoner's dilemma when it comes to how often they play. They might all prefer a scenario where everyone plays for two fewer months in a year. But each individual's private incentives are to deviate from that outcome to amass additional ranking points. Relatively, no one has a higher ranking because everyone plays more, and thus everyone is worse off (except for the low-ranking players who benefit from simply another pay day).

Arguments against a union

1. Unions make entry difficult. Many professions that have associations or unions require absurd qualification tests. For instance, to become a hair stylist, individuals must work for free essentially in order to be qualified to cut hair. Is this to protect the hair stylists of the world? Many other professions have gradually increased requirements to keep bad apples from competing, but in actuality, it increases their own wages. Only recently have lawyers had to complete formal law school or undergraduate degrees. Previously, it was fine to teach yourself and pass the bar. To some extent, rankings and seeds (up to 32 at Grand Slams) have made it more difficult to enter the top tiers of the sport and easier for established pros to keep their ranking. Would unionization make entry for the next generation more difficult? No turning pro until one is 18? Other rules to initiate new players would limit entry and competition.

2. Wage compression often results in unions. Likely low-ranked individuals would end up being paid more (as they would have voting power in the union), even though the top stars generate all of the negotiating power. Determining voting power in the union is a difficult issue, because the masses (those ranking 100 and below) have different incentives from the stars. Do the stars really want those ranked 100 and below determining the negotiations via voting? Or are votes weighted based on ranking? And if you do that, no individual ranked 100 or below has a strong incentive to join the union.

3. Lockouts. Actual strikes are, of course, extremely costly to everyone, because there are huge gains from trade in tennis. We get tennis, everyone gets money, everyone is certainly much better off than the alternative, with no tennis. However, if the threat of a strike isn't credible, it hurts bargaining power. Tennis pioneers in the pre-Open Era were willing to make sacrifices to go pro, but also came at huge gains. I doubt that a strike could happen at a Grand Slam, but I could see one for the year-end championships. It would be most successful because fewer players are involved. At some point, I am sure those ranked 10-30 would be tempted to step in, although it's not clear much revenue would come from a final matchup between players of that caliber."

Dr. Hansen mentioned tournament conditions, and here is an example of tournament officials doing a poor job on dealing with inclement weather. Needless to say, Andy Roddick was not happy with the situation.

(See video link)