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Baseball's First Economist: Remembering Gerald Scully

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The National Baseball Hall of Fame recently released its list of non-player candidates being considered for enshrinement. The name that stands out on the list is Marvin Miller, the experienced union executive who turned the Major League Baseball's Players Association into sport's most powerful labor union. In the 1970s, his leadership was instrumental in removing the reserve clause which bound players to teams for life. It was a long and hard-fought battle, and some baseball insiders never forgave him, which is why Miller previously has been denied Hall enshrinement.

Now, I'm not someone who really cares too much about Hall of Fame debates. To me, we all have players and personalities that impacted the game in a special way. The debates over who gets in and who doesn't can be entertaining, but I've become bored with them -- what does it matter if Jim Rice is or isn't in the Hall? Let's keep the Hall of Fame as an inclusive museum to preserve as much baseball history as possible and be done with it. However, by the standards that have been used to select past members, Miller most certainly should be admitted.

But this isn't an article about Miller -- everyone knows of Miller's importance -- it's about a figure who played a role behind the scenes to highlight the exploitative working conditions for Major League Baseball players: economist Gerald Scully. Scully passed away quietly from pancreatic cancer this past May, but thankfully the New York Times felt his obituary was worthy of publication. Scully made many contributions to economics outside of baseball, but it was his work on baseball's labor market that generates his legacy.

Using economic theory as a guide, Scully viewed Major League Baseball as a monopolist employer -- the sole buyer of a very specialized type of labor. Being the only organization that purchased major-league baseball talent, players had little bargaining room to negotiate their pay. Team owners understood this and created the reserve clause, which bound players to their current teams. They received low wages and could be traded across the country on a whim. Like Miller, Scully understood that the impact of this relationship between teams and players meant that owners collected a large percentage of revenues that players generated by playing baseball. While Miller worked to undo the damage of the reserve clause, Scully sought to measure it.

Using estimates of team revenues and performance metrics, Scully calculated how much performance affected winning and how much winning affected revenue. The limited computing resources available at the time meant that this was no simple task. His estimates allowed him to generate dollar-value approximations of the revenue that players generate. When he compared the expected generated revenue to what players actually earned, the difference was striking. Players earned only 90-percent less than the revenue they generated through their play. It is easy to see why players were upset, owners were profiting from the low salaries of players.

The Andy Messersmith and Dave McNally cases in 1975 finally led to the repeal of the traditional reserve clause, and player wages rose accordingly. Free agency now requires teams to compete for players, driving salaries upwards to levels that approach players' revenue-generating potential.

Gerald Scully published his article "Pay and Performance in Major League Baseball" in 1974 in American Economic Review. In almost any history you read about the origin of free agency in baseball, Scully doesn't receive a mention. There is no doubt that once Scully's conclusions were published that the reserve clause would soon fall. Either a rogue league would enter the market to pay players higher wages or the courts or Congress would finally be convinced of the damage being done to players.

This off-season will be filled with announcements of new multi-million dollar free-agent contracts that will inevitably lead to complaints about excessive player salaries. But Scully revealed that players earn high salaries because they possess unique skills that fans pay to watch, which generates revenue for owners. While it is hard to sympathize with millionaire players, it is important to understand that what players don't get goes to the owners, who are a much wealthier cohort. Plus, let's not forget that Scully-estimates can be used to evaluate free agent contracts for fun -- a favorite pastime of mine.

I'd like to thank Gerald Scully for his contribution. He may not make it to Cooperstown, but he's in my personal Hall of Fame.

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