Free agency in baseball and law
The interesting division of the pie between the Boston Red Sox, Daisuke Matsuzaka, and Japan's Seibu Lions (for those who follow baseball) is a good reminder of the oddities of baseball's contractual and legally sanctioned rules. Players can find the teams willing to pay them the most, more or less - at least at episodic points in their careers - and the deals are enforced by the enterprise (of professional baseball and the players' union) though, again, within limits. And so what emerges are many multi-year contracts, and one question is why we do not find similar contracts for law professors, say, or star associates at law firms. Why not "we really like you and instead of paying you $200,000 for the next year at our firm (with perhaps a bonus based on billed hours), let's lock each other in for 5 years and $2 million. One possibility is that liquidated damages would be needed, in order to serve the function that major league baseball, as a unified organization, plays in the other setting (preventing players from jumping in mid-contract to another team), and such contracts are stymied by our traditional disinclination to enforce them if they look (even ex post sometimes) like penalties. There is of course some attempt, especially at universities, to lock in "players" with forgivable loans, but rarely do these discourage negotiations with other universities.
An alternative explanation makes baseball look puzzling. It is that when an employer tries to lock in the employee with a multi-year deal, the employee thinks "I will lose if I agree to this, for if the employer wants to lock me in, it must mean that I will likely earn more if I keep open the possibility of outside offers. The multi-year offer is a sign of weakness, as if the employer thinks that I would not want to stay aboard if I could decide each year." If this sounds right for schools and law firms, then the puzzle is why baseball players think otherwise. I do not think the quick answer of fear of injuries or decline saves the argument, because employers face the same risk, and there is something of an insurance market.
There is also an argument built on the idea of synergy among players. If a team knows that its star shortstop is locked in for 7 years, then it knows that it can focus on other positions or perhaps on more speed or slugging, given this fixed star. Year-to-year contracts might give the star more hold-up power later on. But it is hard to see why that should be a greater factor for teams than for law firms or universities.
Note that we do not lock in students because even if they were barely admitted by a school at the outset, they can transfer if they have a good 1L record. Indeed, there are schools that take in a very large number of transfer students - perhaps because they need not count the LSAT scores "against" their US News rankings information (but that is a separate story) - and therefore schools that must pay good performers not to transfer out by offering mid-course scholarships. Again, we might expect schools to secure contractual promises not-to-transfer, but the damages might need to be too low in order to satisfy the inclination to be hostile to penalty clauses.
And then there are social conventions and reputation. A university president sometimes has a contractual bonus that kicks in after 5 years of service or so, in order to discourage costly departures. That is as close as we come to multi-year lock-ins. But there is also something of a reputational loss for leaders who leave in the midst of a project, such as a capital campiagn, especially if the tenure has been short. In the end, the question is whether to expect baseball contracts to get shorter, or law firm and university contracts to get longer (and tenure is hardly a substitute because that is a one-sided promise), or to find a good reason why the current and disparate conventions will stick.