Pay and Performance in the Spanish Soccer League: Who Gets the Expected Monopsony Rents?

Abstract

In the labour markets that gather few companies to compete for many workers, the economic theory predicts the existence of monopsony rents. It should also be the case of the Spanish soccer industry. However, the clubs of this league do not profit from the expected rents. The purpose of this paper is to explain such a contradictory evidence. Spanish soccer labour market is characterised by the presence of some outstanding workers (soccer superstars). It means that the winner-take-all hypothesis holds when analysing the soccer industry. This idea states that being slightly better than the other workers generates large earnings differentials (escalating earnings of league superstars). This paper considers the soccer industry as a dual labour market. One segment of this market could certainly be characterised by the traditional analysis of monopsony, in which a little number of clubs are willing to hire many potential candidates. The opposite occurs when studying the case of the superstar players. A number of entities (not just Spanish clubs) would fiercely compete for hiring those few superstars, who accumulate market power. The paper suggests that the monopsony rents that the clubs were to obtain from most of the soccer players, would eventually revert to the superstars, who enjoy strong bargaining power. In order to empirically test this idea, the paper analyses the data of the Spanish professional soccer league, for the season 2001/02. The analysis pays especial attention to the economic impact associated to each particular player, as far as it may help to explain the large wage differentials that could not be explained due to performance differentials.