Renegotiation Design: Evidence from National Football League Roster Bonuses
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.