Contract Length, Expected Surplus, and Specific Investments

Abstract

This study empirically tests how expected surplus and specific investments affect the structure of National Football League player contracts. Empirical results show that both length and monetary compensations of a player's contract increase with expected surplus and specific investments. In particular, early draftees with higher expected value of future performance signed longer and more lucrative contracts than later draftees did. This correlation is affected by a team's expected surplus from contracting with their draftees. Comparing to the other teams, teams with more empty seats and fewer wins in the previous season invested more in early draftees, but less in later draftees. The results also indicate that players requiring more specific investments negotiated longer and more lucrative contracts than did other players, particularly quarterbacks.