Are Athletes Overpaid?
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The quick reaction to this question is “yes”.
Let’s take a deeper look. As usual, I’ll use baseball as an example.
The news media reports the big signing bonuses of the first round draft picks – but fail to report that the size of the bonuses drop precipitously throughout the draft. In the later stages of the draft, a player might received a bonus of a couple thousand dollars – or no bonus at all. But then they jump into the minors at a hefty salary, right? Well, if you consider $1100 per month to be a lot of money. That’s the MAXIMUM a player can earn in his first season, if he signs a minor league contract. (A very small number of elite prospects sign Major League contracts with different rules). The salaries increase as you move up through the system, but it’s very difficult to get rich playing baseball in the minor leagues. Many players have another job in the off-season.
In this year’s draft (which begins on Monday night), 1500 players will be drafted by baseball teams each year. Hundreds more are signed as foreign free agents. The active roster for a Major League team is 25 players (expanded to 40 in September). That means that there are 750 active major leaguers for most of the season. In theory, this could expand to as many as 1200 in September if everyone expanded thie rosters to 40 players (which is not the case). Obviously, the vast majority of minor league players are never going to make it to the Major Leagues. Most of the players who do make it to the highest level won’t stick around very long.
What we’re really looking at when we see the “rich” athletes are the elite performers. But elite performers in nearly every industry are very well compensated. Find me one of the top 750 bankers in the country, and I’ll bet she makes a few bucks.
Atheletes are entertainers. When we look around the world of entertainment, we see a lot of highly compensatated stars - people who make as much money working on one movie as A-Rod makes for a season of work. Yet, people seem much more willing to point at A-Rod as overpaid, but not so much at Tom Cruise or Taylor Swift (no, we’re not Taylor haters – we like her).
Why is this? I’m really not sure. It may be the perception that actors and singers work at their craft, whereas athletes are just using their “God-given” talents to play a child’s game. If you subscribe to this theory, watch some of the “human interest” stories during the Olympics. You’ll hear about kids putting in long hours of practice from the time they were knee high to a grasshopper in order to hone those raw God-given gifts into polished skills – beginning the “apprenticeship” aspect of their career at a very young age.
A typical baseball team has a payroll of about $100 million. For the same cost, you could produce a Hollywood movie with a couple of big name stars. I personally see more value in 162 baseball games than in one movie. People complain about the cost of tickets to sporting events, but in a lot of baseball stadiums, you can actually buy a ticket for the same price as a movie ticket. The difference is that the baseball team has a detailed price structure based on seat location and the desirability of the game. When you buy a ticket to a movie, you pay the same for bad seats to a horrible movie as you do for good seats at the best movie of the year. How’s that for logic?
Are athletes overpaid? Nah. Are elite performers in various industries overpaid? Perhaps – but people pay for elite talent, whether it’s in baseball, acting, or investmenting.
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