Major League Baseball Player Contracts: An Investigation of the Empirical Properties of Real Options

Matthew Clayton and David Yermack

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: We study contracts negotiated between professional baseball players and teams to investigate the use of real options in a commercial setting. Baseball contracts feature options in diverse forms, and we find that these options have significant effects on player compensation. As predicted by theory, players receive higher guaranteed compensation when they allow teams to take options on their future services, and lower salaries when they bargain for options to extend their own contracts. The apparent

Date: 1999-11
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