Baseball sources have confirmed that Milwaulkee Brewer's star Prince Fielder has reached agreement on a nine-year, $214 million contract with the Tigers (close to 24 million per year).
Fielder's deal has already sparking conversation about whether he is worth that much money. Variations of the following phrase have propelled American sports fans into instantaneous, beer-toppling shouting matches for decades: “Athletes are grossly overpaid.”
Grandpa heard it in reference to Babe Ruth’s $80,000 salary in 1930 (worth ~$900K in 2011), which topped then-President Herbert Hoover’s salary (Ruth famously retorted that he “had a better year than Hoover.”) You or Dad might have heard it in 1984, the first year of Magic Johnson’s $25-year, $25M deal with the Lakers (yep, $1M a year through 2009). Everyone heard it in late 2000, when Alex Rodriguez signed a 10-year, $252M deal with the Texas Rangers that forever changed professional sports contracts; A-Rod earned higher than the 2000 median household income with each swing of his bat.
But what, exactly, is the assertion behind “overpaid?” Most who say it simply mean that “athletes make too much money,” an understandable opinion. Eight-and-nine-figure paydays for top athletes may be too much for some of our comfort, but as far as being paid more than they’re due … most aren’t.
For this article, we’ll focus on top athletes in major team-sport leagues, such as the NFL, MLB, NBA, and NHL. Like other occupations, athletes’ salaries are determined by supply and demand. Team owners pay athletes (and themselves) from team revenues, which are derived mainly from ticket sales, television revenues, media and advertising, and merchandising. (The media and public paid particularly close attention last year to the revenue split discrepancies that were the 2011 Lockouts.) When athletes are free agents (i.e. not under contract), they are able to seek market rate for their skills and potential contributions, just as anyone can. Team owners compete for this talent by offering higher wages. Drafts, salary caps, and player salary maximums are restrictions that leagues use to maintain competitiveness across teams.
A popular belief is that high player salaries are the main cause of ballooning ticket prices, which make attending sports events harder for the average fan. Yes, fan consumption pays players’ salaries. However, athletes’ salaries don’t directly determine the price of tickets. Once again, supply and demand does. Teams seek to maximize revenue from ticket sales, i.e. charge the highest that fans will pay. Player salaries are fixed costs, and must be paid out regardless of team revenue. Ticket demand is directly related to the quality of the team; losing, boring teams must often charge less for tickets. Unfortunately, the affluent can pay more, and attending sports events has indeed become pricy, but even if players were suddenly paid less, ticket demand would set the price.
I’d argue that some top athletes are underpaid. Michael Jordan is widely considered the most iconic basketball player of all time, as he was individually dominant, the face of one of the greatest dynasties in sports, and beget a brand that grew the sport of basketball worldwide. Jordan never made more than $4M in a season before his 10th season, but surely was responsible for a huge proportion of team revenues. Then, in his 10th and 11th seasons (’96-’98), he received over $30M each year from the Bulls, still the highest NBA annual team salary. Yet Jordan’s total career salary from teams does not even rank in the top 100 among professional athletes. Is he the most underpaid/overpaid athlete of all time?
What about the comparison to others whom many consider to be “overpaid”? I find it troublesome to use the word for athletes the same way it is used for financiers and CEOs, main targets of the Occupy movements. Game tickets and cable packages are very different from mortgages and investment portfolios; for most, they are opposite ends of the spending spectrum (maybe not for Spike Lee). Team revenues are comprised of sports fans’ disposable income: Fans choose what to spend on sports entertainment, with no expectation that it should positively impact their financial well-being (when I saw Vince Carter do this in 2000, I would have gladly given him my entire piggy bank, but that’s just me). There’s little room for deception or confusion when paying to see world-class physical feats.
Top athletes are paid a whole lot of money. Yes, money that would otherwise go a long way for those in need. But the reality is, it’s hard to argue that a top athlete is overpaid, unless one is being compared to another. Fans’ conscious valuation of sports entertainment affords them their salaries. Players earn and collect wages like all else, often with less job security. I’m not saying they have it tough, because they don’t. But in this department, top athletes have it like everyone else.
Photo Credit: Wikimedia Commons
The Discussion
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Mr. White- The hypocrisy of saying athletes deserve their money while bankers don't, just makes me ill. It's not as if athletes are such model citizens, just consider all of the scandals and their misbehavior over the years. It's not as if athletes produce anything, really. We have fun going to the games and watching them hit a baseball, make a basket or kick a soccer ball. You can't tell me society is a better place because of these guys. Basically, we all look up to athletes, to their skills, not their morals. We dream of scoring touchdowns and dropping one at the buzzer for a win. It's damn difficult to relate to bankers, right? What's an LBO anyway?
Bankers, whom I've written about ad nausea in essays and comments, are not all bad guys; I swear. They believe what they are doing is good for the economy, and that the market pays them high compensation because they are providing value added service. In fact, in the NY Times today, an article was published that referred to a number of studies that indicate that private equity deal makers (one of the biggest sources of business for bankers) do some pretty good things and are not responsible for wholesale losses of jobs (http://dealbook.nytimes.com/2012/01/24/amid-attacks-on-private-equity-efforts-to-study-its-value/).
In a free, capitalistic society, we should be able to select a career that suits our skills and ambition. Btw, every one of us has varying skills and ambitions, so some will be more successful than others and earn more money. That's okay so long as the "havenots", the ones with less skill and/or ambition, don't resent the "haves". If they do, you will have class warfare.
Athletes and bankers have skills that the marketplace is prepared to pay for; in some cases the amounts make some people squirm. Why? Well, some say that no one should make $5 million if others are starving. What the hell kind of logic is that? If some makes a lot of money, it is not the cause of the other person not making as much.
Great article Justin. Although many feel that athletes are overpaid compared to educators (for example), we must realize that highly paid athletes bring a stream of revenue to their teams and the local economy in the surrounding area. Fans in turn show little resistance to these exuberant salaries.
This article couldn't say it better. If we are willing to shovel millions of dollars into team's pockets from all the different revenue channels they have, athletes are entitled to their fair share.
Well written and well thought-out, Justin. I have no argument with your thesis or conclusions (or with Prince Fielder's new contract - although seeing him in a Tigers' uni this season is going to warp my mind for a while), just a few observations.
First, in our ongoing and almost neverending 1% v. 99% discussions, we almost never think about the short shelf lives of top professional athletes. Yes, they command astronomical salaries for their performance but their effective working lives are only - what? - a decade or at most 15 years long. Your average teacher, plumber or stock broker works for 35 or 40 years at his or her job and gets better (and presumably earns more) as he/she gets older. Athletes don't. They lose their marketable skills as they grow older.
Second, professional sports is/are just like any other part of the entertainment industry: the corporate interests promote and exploit the talent for what it can bring on the open market. Unless and until we, the consumers of the commodity, quit buying it; it's not going to change or go away. The large salaries are here to stay. My only real beef with the system is that it fools children into thibking that if they can play baseball or basketball; they too can get rich playing the sport professionally...NOT!
Third...WHEN do pitchers and catchers report to Spring Training? I am tired of off season!
Great piece, Justin. As my Sports and the Law professor used to say in law school: how many Michael Jordans are there in the world? There's a reason why top athletes are paid very well -- there are just so few of them.
Interesting article, I always compare the commitment, effort and time spent in becoming a top athlete (and the income that follows), with the income of actors, who to put it plainly, are just pretending to be a character.
Only two people have an opinion that matters in the overpaid/underpaid discussion: the employer and the employee.
I have no complaint with how much a professional athlete makes. The day I can get 50,000 people to watch me teach middle school, I'll start complaining about being grossly underpaid.
The point is, our athletes are not "grossly" overpaid. Our country is "grossly" obsessed with a multitude of money-hungry sports. The entertainment business; be it sports, film, or music, symbolizes both the benefits and grotesque discrepancies capitalism brings to our great country.
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A top athlete does a job at which millions of people compete. He is a one-in-a-million -- one of the very few who is the best in the entire world. The vast majority of people, competing in his job, make little or nothing.
So, how should the person who is the best businessman in the world be paid, especially considering the risk of making nothing if he is not the very best?
Top athletes are underpaid.
What would be interesting to see is whether or not there is a correlation with productivity/performance and such high salary. If I remember correctly, there was a book that described how CEO pay scale does not correlate well with performance because of the pressure, etc., associated with pay.
Nicely written article, Justin. I was making the same argument earlier in the week to my mother, no less, applying the principle of supply/demand to athletes' salaries.
The tidbit about "overpaid" CEOs threw me, though. You seem to think that it is fair to call CEOs overpaid because their salaries are not directly influenced through the same supply/demand dynamic governing professional athletes' salaries. I'm a bit confused on this element. By the way, both the Occupy Movement and corporate defenders are wrong when it comes to the 1% debate. It's not that CEOs are overpaid, its that their salaries have exploded incommensurately with stagnant or declining wages of the average worker. CEOs now earn some 343x more than average workers.
I have a hard time with this one. I can think of no human activity that squanders more resources for less point than professional sports. Are these people overpaid? Without question. So are their owners and everyone else associated with them. They do not now and have never done anything that remotely resembles productivity. There is no stretch of the imagination that allows that they in any way contribute to the society that they parasitically bleed for their exorbitant salaries.
And yet. . . .
I cannot argue with the reality that they are supported by their fans. That there are people out there who are willing to shell out hard earned money in mass quantities so that they can watch these overpaid clowns PLAY A GAME.
Maybe its not the athletes that are overpaid, maybe its their fans. If you are willing to pay the price of the ticket to acquire this "entertainment" then you have no business complaining about the salaries. I get to complain all I want because I refuse to directly support it.
Nicely written article which, in my opinion, seems to be making the point that money freely given is "deservedly" earned. In other words, as a good friend of mine self-labeled as a "socialist" once suggested, if the public wishes to spend their money on celebrities and athletes, at least they are doing it freely, something akin to the author's suggestion that the money spent is, or should be, discretionary income, and there is generally no thought of direct financial gain.
I happen to think the argument is more valid in terms of celebrities rather than athletes.
What seems to get lost in the discussion is the structure which supports the salaries.
Ironically, I have more space available, and yet it seems I find the need for more...(cont
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You put this arguement to rest. Supply and demand makes sense, as buying a ticket is a product, like any other and in our system, producers charge what the market will tollerate and what is needed to cover expenses and make a profit. By mentioning discretionary income, what I or anyone else does with their disposable income is their own concern, whether it's a game ticket or bottle of wine.
Yes.
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Great article. I often consider a lot of these crybabies to be overpaid, especially when they go on strike.
I have to hold back and remember that the teams they work for aren't just teams. They are organizations employing hundreds or somethings thousands of people. The stars get the fans in the doors, and by proxy also help to get other people paid as well.
Under a capitalist system, you're worth as much as you produce. While Lebron and A-Rod may not be designing the next iPad, they are helping to keep a lot of people in their organizations employed. Without the stars, many teams would decline in sales, and lay people off. That has to count for something.
Of course, I still don't like A-Rod lol
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Justin- excellent article! When I saw the headline, I feared I would be reading another piece bemoaning the one percenters of the world. Thank you for explaining the role of supply and demand in determining one's salary. This is a basic principle that seems to be lost on many.
Pujols gets paid $25 million because .00001% of the world population can hit a baseball and play the field as well as he can. The hot dog vendor makes minimum wage b/c virtually everyone in the country could perform the task. Thus, the demand for Pujols' services is astronomically higher than it is for the hot dog vendor.
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Mr. White- I thought your article was really interesting. You really dropped the basketball, in my opinion, when you indicated that executive compensation is determined differently than athlete compensation. They are, in fact, determined in exactly the same way. Customers pay companies for value added service, companies pay the key players big money if they produce. Come on, why did you sell out to the left with this illogical statement? I know athlete's provide a more to society than executives. Please!
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