Sports and Economic Principles

This morning Robinson Cano, an all-star second baseman who made a name for himself with the New York Yankees, reportedly signed a deal with the Seattle Mariners. After intense negotiations the Mariners offered Cano a whopping a 10-year, $240 million contract. Why would the Mariners be willing to dish out so much money for one single player? Is Cano really that good? On the other hand, why would Cano want to go to Seattle? Last year the Mariners only managed 71 wins in a conference with weak competition. Seattle does not seem like an attractive place to be for a superstar.

This is where the economic principles come in. One must consider the network externalities when a baseball team is shopping for players. In traditional network externality theories the value of a network is increases as more users join the network. For a sports team, consider the quality of users, or players, rather than the number (which is the same for every team). Teams with more high quality players become more valuable. Since quality varies from player to player, superstars like Robinson Cano should have added weight to the extent of their quality, making his presence on a team even more valuable. Thus, perhaps Seattle is trying to increase their attractiveness to players through network externality and perhaps Robinson Cano realizes that his presence in Seattle could attract other players to Seattle.

This is not the first time there has been a glaring example of network externalities at play in sports. In the NBA the formation of the “Big 3” – Dwyane Wade, Lebron James, and Chris Bosh – on the Miami Heat was the result of Network externalities. In a single offseason the Miami heat were able to attract three of the NBA’s biggest stars to one team. Wade was already a member of the Heat. Early in the offseason Bosh announced that he would join the team. With two superstar players on the team, James was very attracted to Miami. The combined value of Bosh and Wade made Miami the most attractive choice for James. After the “Big 3” signed with Miami, network externalities gave way to Miami attracting other all-stars like Ray Allen.

One thought on “Sports and Economic Principles

  1. “… perhaps Robinson Cano realizes that his presence in Seattle could attract other players to Seattle …” – do we have to go to such theoretical lengths? What if (have you checked?) this was simply the highest paid contract that also saves him any more renegotiation until “retirement” from the sport and makes him shine brighter if the opposite that you suspect happens – if the other players stay mediocre. Which is likely unless Seattle has really deep pockets. I would guess after his deal they are so out of money and any very good second third etc. player would ask for such a steep advance that essentially they have painted themselves into a corner where the rest of the team maybe costs as much much as Cano – taken together …

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