Comments on Advanced NFL Stats: Player Salaries and Economic Rent

And there are dozens of reasons why that analogy d...

2011-07-23T15:43:21.988-04:00

And there are dozens of reasons why that analogy does not hold water. Not the least of which is that once you consider the benefits that they receive, their total compensation probably exceeds 80k. I have multiple friends in the Marines and Air Force who have benefited from free education, housing allowances, etc. etc.

US Army soldiers in combat make less than 80k and ...

2011-07-23T09:45:01.686-04:00

US Army soldiers in combat make less than 80k and deal with FAR more risk.

Actually, any more, I highly doubt they would play...

2011-07-23T09:39:54.917-04:00

Actually, any more, I highly doubt they would play for $80,000 a year. Too much risk of injury in a sport they average playing for 3 years. You get a concussion, can't walk again, etc. and you've only made $80,000 you are screwed, if you've made $800,000 for a year or two, you might be okay if you invest wisely. Frankly, for the level of risk these guys undertake, only the multi-million dollar guys are making enough in my opinion to overcome the quality of life issues to be suffered after their career is over. IMHO

T.E- Do you doubt the following?: "If you ask...

2011-07-22T20:59:46.205-04:00

T.E- Do you doubt the following?: "If you ask most football players if they would still play football for $80,000 per year instead of $800,000 or $8 million, they'd say yes. It's almost certainly a better proposition than whatever else they'd be able to do in the labor market."

What a crock! First, almost all economic transact...

2011-07-22T20:44:03.927-04:00

What a crock! First, almost all economic transactions accrue rent to BOTH parties. Why the focus on the several thousand men we watch play spitting half of revenue rather than the 32 men who split the other half?

I can't imagine how anyone possibly could believe this:
"3. There's an overlap in prices for all transactions, in which both parties would be willing to transact. I think the players are getting almost all of that overlap. "
Most people would do the owner's job (sit in luxury boxes, hobnob with the elite drinking fine alcohol and getting fine food, have lots of power and fame) for nothing, or enough to pay for 10 Big Mac's a week and a studio apartment.

As to stadium giveaways, yes they are disgusting. But the majority of revenue comes from TV and merch, not tickets. Only 22% comes from ticket sales (http://harvardsportsanalysis.files.wordpress.com/2009/09/the-nfl-business-model-and-potential-lockout.pdf). And subsidies account for only part of that revenue.

Ultimately, it is TV that stirs the pot in the NFL, and that is merely the viewers attention given up freely. Should that money go to the players or the owners. Who is it we are watching? The answer seems pretty simple to me.

I agree with Alex 100%. Holy cow! Apparently compe...

2010-08-12T22:32:55.230-04:00

I agree with Alex 100%. Holy cow! Apparently compensation is a very touchy subject. I understand now why most companies discourage discussing your salary with other employees. I realize that there are a LOT more football players than hockey players, but I'm still amazed that hockey players average as much or more than NFL players, especially since the NFL TV contract is worth SO much more than the NHL contract.

This has got to be the most frustrating list of co...

2010-08-10T15:13:20.014-04:00

This has got to be the most frustrating list of comments I've ever seen. Brian, I apologize on behalf of the internet. Your post was perfectly clear and very incisive. Not to mention true. Keep up the good work.

An interesting discussion; I think average fans &q...

2010-08-02T12:07:57.589-04:00

An interesting discussion; I think average fans "feel" that players are overpaid for three reasons:

1. Players' salaries are at least one order of magnitude greater than their own.
2. Football media extensively cover players' salaries but say next to nothing about teams' income and rates of profit, much less owners' personal fortunes and incomes. And while USAToday does a great job enabling fans to see how much cash money players take in on a yearly basis (DYK, by the way, that Marcus McNeill was the 6th-highest paid lineman on SD last year?), mostly they hear about the big contracts for elite players.
3. Football fans are overwhelmingly white (like the US population) and players are overwhelmingly black.

I agree with the many commenters that are against public stadium financing; I also think it would provide owners a better incentive structure to maintain their buildings.

Yes, salary and bonuses are a function of both the...

2010-07-17T02:08:44.120-04:00

Yes, salary and bonuses are a function of both the task and performance.

It also depends on the function and number of people required to do the task - there are few brain surgeons and an awful lot of cleaners.

And the competition. So for example there are huge numbers of photographers but only a tiny handful who earn a decent wage. This also applies to National Hunt jockeys who run huge injury risks every time they jump on a horse, generally for peanuts.

But salary and bonus also reflects the expected longevity of the individual in the role; for example a half-back or a CEO are hardly likely to stick around in that specific role for very long.

With high incomes comes a degree of social responsibility once one's own finances are reasonably secure.

There is no point accumulating "indecent" piles of cash without ploughing at least some back to the less fortunate or to the benefit of social projects

Hugh

Brian, Teachers are not paid enough. The starting...

2010-07-15T17:11:20.932-04:00

Brian,

Teachers are not paid enough. The starting salary is decent. The benefits are good. Summers off is great. However, according to your "economic rent" model teachers are not paid enough. Yes, the current crop of teachers agree to work at the current salary. However, teachers are gladiators as well, not bricklayers. You only get one physics teacher in the classroom and if he/she is better than the alternative then they are worth the increase. But, if I can make a lot more money being an engineer than a highschool physics teacher then I'm going to be an engineer.

If teaching salaries were higher I may have stuck with it. Instead, my students complained to me about their new teacher. Apparently, he wasn't a good teacher, but he was willing to work for less than I was. Allow higher salaries, allow firings for nonproductive teachers and it will create competition in the education system. This would greatly improve our product.

Let me highlight Jeff Clark's post. The taxpa...

2010-07-15T07:53:04.568-04:00

Let me highlight Jeff Clark's post. The taxpayer subsidies enable the high player salaries. If the owners had to finance stadium builds with more common means they could not fund such a high labor rate. I believe the difficulties with getting public financing is one of the primary drivers of the league's position.

Anyone who thinks capitalizing an enteprise worth hundreds of millions is easy or doesn't contribute much should try to raise a couple of million for an idea. Franchise owners, like everyone else who has seen success is both very talented and very lucky.

Thought experiment. If the outcome of the NFL CBA ...

2010-07-14T07:02:44.325-04:00

Thought experiment.
If the outcome of the NFL CBA negotiations were complete free agency e.g. no salary cap, no draft, no minimum salaries AND there was no collusion between the owners. Would the players would get more money in an essentially free market system than they do at present?

In European soccer which has a very free market approach and promotion/relegation. The NY times reported that
the top 5 leagues had revenues of 7.9Bn Euro but salaries of 5Bn this is 63% of revenue.
http://www.nytimes.com/2010/06/08/sports/soccer/08clubs.html

NFL NBA NHL salary caps are calculated as a percentage of revenues between 55% and 58%(I think) Although the definitions of revenue that this is based on varies from CBA to CBA and the NFL and NBA signing bonus/cap exceptions mean that players are probably paid more. (MLB players dont have a specified salary level but I think it is actually a lower %than the other leagues although arguably the contribution to minor leage players and draft signing bonuses should be included.)

So for a high revenue elite sporting leagues the North American Franchise/Draft model may pay players slightly less than the European Promotion-relegation/no draft model.

Is this a fair way of working our how much players "should" be paid?

James

How much of the revenue is due to the skills of the players and how much is due to the team owners and the league in building stadia, hiring coaches, negotiating TV deals and devleoping a sucessful product.

Also I think it is this issue that is the crux of the CBA renegotiations as

I dont think owners buy NFL teams to make money it is more a hobby/vanity project.

European soccer teams often pay a higher proportion of club revenue on salaries as they are in a promotion/relegation situation and the market is much freer, no salary cap no draft no minimum salary. And there is the phenomenum of billionaires pumping their own money in

I think that NFL Player salaries are experiencing ...

2010-07-14T03:55:48.694-04:00

I think that NFL Player salaries are experiencing a bubble much like the housing market where the underlying assumption of constant increase in value is flawed and is due for a crash.

If players aren't highly paid, then are they n...

2010-07-13T23:38:14.288-04:00

If players aren't highly paid, then are they not more likely to be corrupted by gamblers ? What happenned in 1919 ?

Brian, I think you are right on in your post. NF...

2010-07-13T20:41:14.700-04:00

Brian,

I think you are right on in your post. NFL players would play for less, and in fact, did play for much less prior to several victories by the NFLPA. I found one source that stated average salaries went from $198K in 1986 to $800K in 1993. $198,000 in 1986 dollars is still more thank $80,000 today, but your point is well taken. There are plenty of players who would have a difficult time making that kind of money outside of the NFL.

Ultimately I have to disagree with the position that the players are overpaid. The revenue from the NFL is going to go somewhere and personally I would rather see the majority of the money go to a young athlete that has worked hard to get where he is at than to someone like Jerry Jones, Al Davis, Dan Snyder, etc... who already have more money than God.

Sure it would be great if all the teams were a community-owned non-profit like the Packers, but that's not going to happen. It's a business and businesses make money. If the players didn't make 60% of the revenue the ownership would. Someday when the market changes and the league falls on hard times I'm sure players won't continue to get revenue at the levels they do now.

Brian, if you're trying to explain people'...

2010-07-12T19:18:28.222-04:00

Brian, if you're trying to explain people's feelings, you probably don't need to resort to economic arguments, as emotions and economics are poorly correlated.

People feel like players earn too much because our society does not reward moral good in the same way that it rewards the ability to create profits. It's easy to hate on someone's salary when they earn it by playing a game, or being in a band, or even by speculating on Wall Street. You were exploring the fairness question though, and well, I don't think you can confuse economics with fairness.

Btw, Navy SEALs are soldiers and under significant penalties if they try to strike for higher wages. The supply of potential astronauts is still far greater than the demand for astronaut services - they are not nearly as rare as NFL football players relative to the demand for their skills (there aren't very many space flights each year, after all).

I think lesser sports leagues are a decent example...

2010-07-12T19:17:32.658-04:00

I think lesser sports leagues are a decent example that athletes would play for much less. Look at the Arena football leagues, MLS, and even the past NFL. Yes, now that the sport is extremely popular and prosperous, the players might refuse to play for less as a negotiating ploy. However, if the money wasn't there, they'd likely play for less.

I wonder how true it is that the level of play wou...

2010-07-12T18:41:34.097-04:00

I wonder how true it is that the level of play would be the same. The multi-million dollar yearly paychecks are a great incentive for the stars to apply themselves fully.

On the other hand, would football still be fun to watch even if the players were not working as hard?

JudoJohn

Everyone seems to agree that there is an overlap i...

2010-07-12T17:44:14.597-04:00

Everyone seems to agree that there is an overlap in surplus values on both sides of a transaction. If someone sells his labor to an employer, both are better off for it, or else one or the other wouldn't agree to the arrangement. This is true for all occupations and transactions, not just for pro athletes.

That overlap of surplus value has to be split in some proportion between the seller and buyer. In other words, strictly speaking, I'm better off accepting a meager 1:99 split of the surplus rather than forgoing the deal. Likewise, my trading partner is rationally better off accepting a 99:1 split in my favor. Anywhere in between is a stable arrangement.

But many people (if not all) have an objection to lopsided splits like that. See the 'Ultimatum Game', for example. Spite has its purpose--to deter unfair deals.

It appears to me the players currently enjoy a lopsided split. They take >50% of the pre-expense revenue, so unless you think it costs zero dollars to operate and promote the NFL, players are claiming the vast majority of the surplus. Whether you think that's good or bad is up to you.

Again, I think the point is being missed by some of the commenters. Sorry if the post is unclear, but frankly, I don't think it is. And I think some people's brains are turning off once they get to the line, "Personally, I think they're all overpaid..."

There's no doubt football players are overpaid...

2010-07-12T17:16:27.424-04:00

There's no doubt football players are overpaid, but I think almost very football owner would do it for free as well (the publicity, the prestige, the fun, etc etc).

The real moral of the story is that we should fight taxpayer-financed stadiums. They are generally just $100M+ giveaways to the rich.

Kids playing in college that have NFL level abilit...

2010-07-12T16:43:47.056-04:00

Kids playing in college that have NFL level ability are playing for free because it is their ticket to a big time NFL contract upon graduation. They know if they do well in college they will make the big bucks in just a few years.

Of course, I think colleges exploiting these people are pretty scumbag. When one of these kids they make millions off gets hurt before they can go pro they get a big "fuck u".

Guy hit the nail on the head. Any of us would work for a substinance wage if that was the only option available to us. Luckily it isn't, there is a market for our skills that drives our wage up. Your line of thinking could apply to any profession, its meaningless.

____________________
3. There's an overlap in prices for all transactions, in which both parties would be willing to transact. I think the players are getting almost all of that overlap. My theory is that this may explain why people feel that players are overpaid.
___________________

This may be true, I'm no expert on the numbers of whose getting what. However, I don't think its the end of the world if players get this surplus rather then owners. At least they are playing. What have the owners done for the sport? The older owners build the sport, sure, but they have seen their investment grow exponentially, there has been no better investment over the last 40 years. They have gotten their fair share for their help in the leagues early days. The newer owners are just billionaires looking for a plaything or investors looking to suck as much revenue out of the sport for themselves as possible. What value is there in supporting a bigger slice for them.

You are right that teams should be setting aside more of their revenue for stadium building and improvements to the game. I don't have a problem with that. However, such a slice could come out of the owners pockets, the players pockets, or a mix. To determine what's best I think we need to see the books of teams finances to determine exactly how profitable teams are and reach a fair agreement.

Even if they do set aside money though, I have a feeling that the taxpayer subsidies will continue. Teams will still have a choice of where to build a stadium, and every local government will want it to be built in their area and will offer subsidies, even if teams can afford it on their own.

And of course its not just an issue of owners versus players. The owners need to work out a better arrangement between small and big market teams. The players need to work out a better arrangement between superstars and backups.

What it all comes down to is this. I think that the players put grueling work in and should be rewarded handsomely, and the NFL puts out a good enough product that the owners deserve a decent profit. However, if we don't have football in 2011 just because $100 million players are fighting with $10 billion owners for a bigger slice for themselves its gonna be awhile before I watch football again.

I have to say that the 4 points in the synopsis ar...

2010-07-12T16:19:55.935-04:00

I have to say that the 4 points in the synopsis are opinions, including point 4: the market being the only thing that matters as a good thing.

Leaving aside the much deeper analysis about markets as the best social arrangements to obtain certain ends, I'd say that this remark is not only tainted by your "political-economy" point of view, but also a flawed thought in terms of economics as a science. Even if we accepted that market is the best resource allocation mechanism, we would need them to be perfect. In our case, players have a union, the league is a monopoly (and -almost- a monopsony) so there's absolutely no certainty that "these" (product and factor) markets would work in a desirable way from an economcs standpoint. Then, it is an opinion if you think that players earn too much, but it is also an opinion if you think that "thankfully (...) the market is all that matters".

I'm sorry for any mistake in this comment, English is not my mother language.

Keep it on. The site is great

JUAN

PS: I'm in the group that think players probably aren't payed too much, as they are the main input (by far) in the production function of professional football. In other sports, such as football (soccer) players have prices the owners being the Clubs; for example Ibrahimovic was "bought" by FC Barcelona to Internazionale Milano. The price was Eto'o plus $35 million. I don't know the Ibrahimovic salary, but he must earn $5-8 million a year. In this case, you can see that Clubs keep a portion of the economic rent.

Your theory is that the reason you and many others...

2010-07-12T15:56:30.433-04:00

Your theory is that the reason you and many others feel NFL players are overpaid is because they would play for much less money. In other words, you feel they are overpaid because there is a very large gap between how much they can get paid plying their current trade -- professional football player -- as opposed to whatever their next-most-highly-compensated skill might be (the example you choose to give is "entry level position"). My question is, do you think you apply the same standard to other occupations? Do you think heart surgeons are overpaid by the difference between their current compensation and what they would make outside the medical field? Are CEOs overpaid --again, just your feelings -- to the extent they would be paid less if required to do something other than manage a company? Actors? Models? Architects?

I'll take your word for it if your answer is "yes." But I don't think this describes very well how most people evaluate who they feel is or is not overpaid. For one thing, almost every highly-paid person with specialized skills would be hugely overpaid by this criteria. But the perception of people being "overpaid" does not extent to all highly-paid occupations, or even all highly-paid entertainers. So I don't think the theory holds up very well.

As for players getting "almost all" the rent here, I'm not sure. If the next contract gives players 65% or 70% of the revenue, does anyone think there will then be NFL owners unable to find buyers for their teams? I don't. And that suggests the owners too are being better compensated than they "need" to be in order to persuade them to do the hard work of owning an NFL franchise.

I think that Brian does understand what economic r...

2010-07-12T15:22:05.323-04:00

I think that Brian does understand what economic rent is and that many of the commenters are failing to understand the message. Let's look at the words of one of the pioneers of economic theories related to economic rent, Henry George. He described it as:

"the part of the produce that accrues to the owners of land (or other natural capabilities) by virtue of ownership" and as "the share of wealth given to landowners because they have an exclusive right to the use of those natural capabilities".

While he was focused on land owners, the point is that NFL players would work for much less than they currently receive, but, since players have the exclusive right to make use of their abilities, which are in very low supply, they can charge much more than is necessary to compel them to play.

They do this through coordination (NFLPA). The teams also work together to charge high economic rent. If taxpayers could get their governments to stop subsidizing stadiums, much of this economic rent would dry up, as the league would have to reduce salaries and profits to pay for their own infrastructure. Of course, that won't happen.

Gabriel Froymovich

The conversation might be easier to understand in ...

2010-07-12T15:02:58.621-04:00

The conversation might be easier to understand in terms of producer and consumer surplus, instead of rent and 'other' overlap. (Keeping in mind that the players are the producers, and the teams are the consumers)

I think what you are getting at with 3 is that you think the producer surplus is greater than the consumer surplus. That's probably likely. Sports are wildly inefficient markets for a number of reasons.

I don't think an 80k salary would balance out the surpluses, but if you were to say "I think that player surplus is too high, and I think that public funds shouldn't be used to build stadiums, and I think those two things are related and bad," I think I could get behind that.