Most Professional Athletes Are Not Overpaid and Top Ones Are Often Underpaid

August 3, 2015
professional athletes, sports, economics

The National Basketball Association began its free agency period on July 1st and coaches, management and owners immediately began running around like lunatics to court available players to their teams. Doing so involves detailed pitches to these players that include basketball strategy, meeting future teammates, how the player will fit into the team, and even info on what off court opportunities might come their way. “Come play for us! We’ll make sure you become the official spokesman for Wally’s Wing World and Karl’s Tire Barn!”

But, of course, the biggest variable — or at least the one we hear about most — is which team can afford to drive the most Brinks trucks full of money to a given player’s mansion. Insane amounts of money changes hands during free agency.* It’s exorbitant, and it’s too much, right? Right?

Whether professional athletes make “too much” money is a qualitatively different question than whether they are over or underpaid. Discussions about the amount of money athletes make often turn to the perceived worth of what they do relative to other professions we consider more noble. “The President only makes $400,000! Teachers make peanuts! What about doctors, police and firefighters?” That these careers are underpaid, often egregiously, changes nothing about what pro athletes should or should not make within the system that exists.

This Market Makes No Sense

At its simplest, the market for professional sports ballers (or sports puck-ers, if that’s your thing) functions like other labor markets. Employers want the most skilled employees they can afford and must bid for their services, competing with other prospective employers. While exceptions are made for personal preferences, in general the top bidder gets the top employees. Isn’t that how most of us approach our job opportunities?

Pro sports is silly. Easier to just accept that.

That’s where the similarities to most labor markets end and where the market for athletes gets weird. First, there are huge distortions in scale. There are comparatively few available positions and to be qualified for one you have to be among the absolute best in the world at what you do. Sticking with basketball, there are 30 NBA teams and 15 roster spots per team. That means there are a whopping 450 jobs titled “NBA player” available.* There are, of course, other levels of professional basketball and other leagues both in the US and beyond. But it’s a small field no matter how you look at it.

Compare that to another labor force that gets lots of attention for rapid salary growth: computer programmers. In 2012, the Bureau of Labor Statistics estimated there were nearly 350K programmers in the US. Our increasing reliance on software and services to manage every moment of our lives has significantly driven up the demand for talented programmers. Supply has not kept up with demand, driving wages up.

But regardless of supply constraints, the market for programmers can grow while the market for professional athletes is much closer to fixed. Leagues occasionally add new teams, but at an utterly glacial pace compared to any other market where demand for the skill set is through the roof. Even at the upper echelon — the NBA or NFL of programming — at places like Google or Apple or Facebook where programmers make large salaries, those companies can add “roster spots,” so to speak, while pro sports teams cannot.

Normally, you might expect this to drive down wages. There are literally millions of people who would love to play sports for money, meaning the pool of applicants is nearly unlimited. And that’s often the exact argument you hear when a player holds out and demands a higher salary. Some 38-year-old YMCA weekender with a janky knee wearing Kurt Rambis Rec-Specs says “I’d play for pennies compared to this clown! He’s playing a kids game and should be grateful!”

Of course you’d play for pennies, comparatively. You are worth pennies. You are bad at basketball, and that is why no one will pay you to play it.

Yes, In This Case, Hate the Game but Not the Players

This is how incredibly skewed the available skill level is in this specific activity, and how highly valued that skill is. The people “qualified” for the job are incredibly few compared to both those who might want it and to even the tiny number of jobs available. At the absolute top level of a sport – your LeBron James or Stephen Curry types in basketball – demand for their services greatly exceeds supply. It’s not even just those guys, though, because there are huge price premiums for midrange players with particularly useful skills, too.***

But all those guys do make giant sums of money and I dare to say they might still be underpaid? Yes.

Here’s just about the easiest example that exists, though the basics of it apply to many athletes in leagues where a salary cap restricts wages. When LeBron James decided to rejoin the Cleveland Cavaliers in the summer of 2014, the estimated valuation of the team nearly doubled, to more than $1 billion. Meanwhile, LeBron’s salary was something like $19 million entirely because of salary cap restrictions. That $500 million increase in value, easily attributable to his presence alone, does not go to his pocket.

I don’t know or really even care what precise amount he theoretically could or should receive from that, but it’s clear restrictions in the market prevent him from obtaining the full value of his skill. As a fan, this makes things more fun because salary caps enable more teams to reasonably compete to win. But this kind of wage ceiling would be decried as un-American in any other context, and we’d be better off at least acknowledging that.

A Simple Solution for Overpaid Professional Athletes

The bottom line in this is simple. Professional athletes make this much money because we collectively enable it. This article from almost two years ago projects growth in the spectator sports industry of nearly 5% a year leading to a 2017 valuation of $67.7 billion. That’s with a “B,” folks.

We’re the ones who pay these salaries. The owners are just money launderers from our pockets to the players, keeping much of that exchange for themselves. And you know what? Fine. I’m comfortable with the fact that it’s a weird, distorted market that makes almost no logical sense. I don’t necessarily like it, but I’m not losing sleep over it.

But before anyone complains that athletes are overpaid, we have to admit we are the ones to blame. What they are worth in a currency valuation is completely separate from their value in a vague socio-moral sense. If you think athletes make too much money, it’s easy. Stop watching.

*Technically any agreement reached before July 9th is nothing more than a verbal agreement and maybe a handshake. Players cannot sign new contracts until the 9th, which leads to situations like the circus surrounding DeAndre Jordan this year. Before anyone gets high and mighty about him “breaking his word” or some such, consider whether you’d say the same about someone who does the same thing for any regular job. Should he really have committed five years of his life to a job he wasn’t sure he wanted because he’d made a verbal commitment? It sounds like he could have handed it better and more professionally, but I don’t begrudge him the right to change his mind up until the ink is dry. Also, players hire agents to deal with the back and forth part of it, so it’s rarely the player saying “yes” or “no” directly.

**This is not necessarily the same as the number of people a given team is paying. There are quirks in terms of how injuries work, whether a player has a guaranteed contract regardless of whether he’s playing, etc. If you’d like to be further bored by this, be my guest.

***There is a certain level of interchangeability at the lower talent levels on pro sports rosters, which is why there is so much turn over for those who sit the end of the bench. It’s possible there would be something of a free fall in wages at these lower ends if not for union-negotiated salary minimums, but there’s still a pretty limited supply of qualified players.

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  • Reply Dan August 7, 2015 at 10:20 pm

    Completely agree. And while we’re on this topic…how insane is the idea of trading players? Telling someone that not only are you relocated, but you’re expected to show up for work 24-48 hours after you were informed of this? It’d be like Target thinking “man, we really need some heavy hitters in here to make our Q4 numbers” and then trading 50 of their high-potential associates to Wal-Mart for a couple directors…and then expecting said directors to be in the office and contributing 48 hours after. Extending the analogy…imagine the ex-Target associate, freshly relocated to Bentonville, now getting traded to Costco four months later as a “throw-in” so Wal-Mart could get under the Wall Street-imposed salary cap. Three cities in four months with no say in the matter? That’s a lawsuit waiting to happen.

    I love this topic. I get into plenty of bar arguments since I’m firmly in the player’s “make money while you can, where you can” camp instead of the fan’s “you’re getting paid to hit a ball/be loyal to the team that drafted you” camp…because the second you lose half a MPH off your fastball, you better believe management’s going to be looking to dump you for a newer model and the fans will be helping you pack up your locker.

    • Reply David August 8, 2015 at 4:47 pm

      Yeah, for the sake of expediency, there’s a lot that had to be left out about other ways in which being a pro athlete is weird compared to other professions. Your trading example is hilarious, and perfectly demonstrates just how atypical a market it is. Using your example of 50 high potential associates getting sent between Target and Walmart, some of them aren’t going to pan out, right? If retail were like pro sports, 2-3 years later most of those 50 would be out of the industry and would NEVER get another meaningful opportunity in that field again. Would anyone dare suggest those associates shouldn’t have taken every penny they could from the “teams” trading them like unwanted school lunch items during that tiny window they had value? Of course not.

      The Indians just traded Nick Swisher. When he signed with Cleveland, the home team angle–he’s from Columbus and went to OSU–was a big part of the pitch. By all accounts that did matter to him, and fans generally seemed to pull for him. But he’s been hurt a lot and not very productive even when healthy. I’m still waiting on someone to refer to trading him as a betrayal of loyalty, and I think I’ll be waiting a long time…

    Tell me what you think, but be chill about it.