Date of Award

2017

Document Type

Dissertation - Rollins Access Only

Degree Type

Dissertation

Degree Name

Doctor of Business Administration (DBA)

Abstract

Since Major League Baseball (MLB) instituted free agency in 1976, baseball fans and scholars have observed notable increases and decreases in player performance around their eligibility to negotiate as free agents. This is cause for concern since lucrative free-agent contracts have guaranteed durations and salaries regardless of player performance, the impacts of which extend beyond the playing field to an organization's bottom-line. When organizations participate in free agency, they are gambling that a player's future performance will generate more benefits than costs.

This dissertation uses two competing theories of human behavior to explain such changes in player performance between their contract year (year before becoming eligible for free agency) and free-agent year (year after signing a free-agent contract) and explores the impact of player performance on organization revenue in the free-agent year. Based on a comparison of actual and estimated performance in the contract year, players who underperformed were found to have improved performance in their free-agent year and their contributions to organization revenue exceeded their salary. In contrast, players who overperformed in their contract year experienced reduced performance in their free-agent year and their salary exceeded their contributions to organization revenue.

From a sample of 305, non-pitching, first-time free agents, 51 underperformers and 50 overperformers were analyzed. Using a composite measure of player performance, on-base plus slugging percentage (OPS), statistical comparisons of contract-year and free-agent-year OPS were performed for each group. As predicted by equity theory, contract-year underperformers significantly increased free-agent-year OPS, while contract-year overperformers significantly decreased free-agent-year OPS as predicted by expectancy theory. To determine the contribution of free-agent-year OPS on organization revenue, marginal revenue products (MRP) were estimated for each player, then economic rents (free-agent-year salary minus MRP) were computed and analyzed for all players in each group. Drawing on equity theory, contract-year underperformers positively impacted profit (MRP > salary) and, drawing on expectancy theory, contract-year overperformers negatively impacted profit (MRP < salary). Comparing the contributions of free-agent year underperformers and overperformers, these results suggest contract-year underperformers were a better financial investment as they produced profits for their organizations, whereas the performance of contract-year overperformers resulted in a financial loss for their organizations.

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