Renegotiation Design: Evidence from National Football League Roster Bonuses

Gregor Matvos

Journal of Law and Economics, 2014, vol. 57, issue 2, 387 - 430

Abstract: I exploit unique data on National Football League (NFL) players' contracts to show how contractual arrangements in the NFL shape renegotiation and through that channel significantly affect players' compensation and allocations. I show that a change in the timing of payments through the use of roster bonuses leads to contractual renegotiation and termination earlier in the off-season. This change in renegotiation incentives has quantitatively important consequences for players' compensation and allocations. Players are willing to forgo approximately $260,000 for a contract with modified renegotiation incentives. Moreover, players who are terminated earlier sign more valuable subsequent contracts and rematch with other teams more frequently. These predictions are consistent with a model in which players in the NFL are subject to contractual holdup. Designing renegotiation incentives through an altered timing of payments--the roster bonus--ameliorates this problem, which substantially increases ex post transfers of players and changes player allocations.

Date: 2014
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