Last week, Gary Kauffman of Augusta Business Daily reported that “the PGA Tour was the only meaningful option for golfers playing at the highest levels, yet the tour doesn’t compensate the golfers for their revenues at the level of athletes in other sports.” (See Pro golfers file antitrust lawsuit). Eleven golfers have filed an anti-trust lawsuit against the PGA Tour.
In economics, a monopoly is a single seller of a product. As every student in an introductory class knows, a monopoly can charge a higher price for its product than if there was some competition. A monopsonist is a single buyer and is often associated with the labor market.
Economists have studied the effect of monopsonistic employers on wages and find that they pay lower wages than when there is more competition. The reasoning is that workers have no other firms to go to and so must accept the lower wage on offer, just as the golfers allege.
Coincidently, much of the economic research on monopsonistic employers is in the sports industry. Between 1876 and 1920, there were periods when rival baseball leagues competed for players. The American Association existed from 1882 through 1891, the American League from 1901 through 1903, and the Federal League from 1913 through 1915. During these times of rivalry, wages increased as can be seen in the graph below taken from Kahn’s (2000) The Sports Business as a Labor Market Laboratory.
Similar patterns of competition and wages can be seen in other major league sports. When the American Basketball Association (ABA) rivaled the National Basketball Association from 1967-1976, salaries rose as they did in hockey when the World Hockey Association rivaled the National Hockey League from 1971 to 1979.
The rise of LIV Golf is many things, but what it does is challenge the monopsonistic nature of the Professional Golf Association Tour and the golfer’s prize money is reflecting that.
Rival leagues have also been responsible for innovation in athletic competition. The American Basketball League introduced the three-point field goal which was popularized by the ABA. Today, LIV Golf is providing a different golf competition based on teams.
Previous challengers to the dominance of the incumbent sports organization have ended up consolidating with the established league. It will be interesting to see if the same thing happens in golf.
