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