You Decide: Are Professional Sports Players Overpaid?

By Dr. Mike Walden

It’s March, and for most of my colleagues, neighbors and friends, this means only one thing – “March Madness” and the NCAA basketball tournament. This is a big deal in the country, but especially so in North Carolina where we have so many great teams.

But I have to admit something. While I am certainly interested in seeing the elite of college basketball play in March, another sport gets an equal amount – if not more – of my attention. That sport is major league baseball because March means spring training.

To understand me, you need to know I was born and raised in Cincinnati. Cincinnati had the first professional baseball team in 1869, which means this year the Cincinnati Reds (originally Red Stockings) are celebrating their 150th birthday. I began following the Reds in the 1950s with Ted “Big Klu” Kluszewski, Frank Robinson and Gus Bell, then continued through the successful “Big Red Machine” years of Pete Rose, Johnny Bench and Tony Perez, and I am still an avid fan today even though the team has recently struggled.

Yet to my wife – who is a “grudging” baseball fan – one question has always perplexed her.  Why do baseball players get paid so much for playing a game? Indeed, I can generalize her question to apply to most pro sports players. My wife’s puzzlement is partly stimulated from the fact she worked over thirty years as an elementary school teacher, where the paychecks are significantly lower.

To answer my wife’s question – and likely many of you have the same question – let me first discuss some of the basic economics of the labor market.

First, workers are paid for doing a task that others’ value. If you like doing something no one else values, or if you’re not good doing something that people do value, companies and consumers will be unwilling to pay you.

Second, workers have different skills and talents, so the work each of us performs can be valued differently.

Third, everyone doesn’t value particular kinds of work the same. What matters in affecting a worker’s earnings is the number of people who value the work and their willingness to spend to support the work.

Now let’s apply these three principles to pro sports players. Clearly millions of people in the country, as well as around the world, value professional sports. It’s a major source of entertainment. Modern technology is also increasing access to pro games.

Pro sports players have unique and special physical and cognitive skills. Among them are strength, precision, speed, dexterity and the ability to make quick decisions from rapidly changing and multiple types of information.

Last, millions of people enjoy watching these talents and are willing to pay to do so.

Hence, there are two main reasons why pro sports players are paid so much. First – and in economics lingo, from the “demand” side – there are large numbers of fans in the country and world who like pro sports and are willing to pay to access it. Second – from the “supply” side – there is a relatively small number of individuals who have the talents, skills and capabilities to perform at the levels required by professional sports.

Anytime in economics there is high “demand” and low “supply”, the price – which here is the average player’s earnings – is high.

Many of you may not like the conclusion I’ve given but understand the explanation. Yet there are some practical suggestions for any worker implied by the reasoning.

Every person has specific skills, talents and interests.Working hard to develop those skills, talents and interests can be both rewardable and enjoyable.

However, it’s also important for workers to “stand out” – in a good way – so they will be harder to replace. Pro sports players always try to develop an “edge” so teams and owners will think only certain players are able to fill a need. For workers today, a foreign language skill or an ability to work with large data sets are skills which can provide this “edge.”

Ultimately, however, workers need to recognize what they have to offer in the workplace must match what employers – and ultimately consumers – want. Sellers of labor skills must have buyers for those skills. Dreams are often limited by this reality.

Unless the reality is wrong.  There are many examples of pro players who redefined the game and thereby made themselves valuable. In baseball, players have extended their careers by having the versatility to play several positions or by becoming specialists for certain game situations. Something new today is the player who can both pitch well and hit well. Firms will often take a chance on workers who “think outside the box” and perceive a better way of accomplishing results for the “team.”

Some may be jealous of the high salaries pro players earn. But can all workers benefit by understanding why those big bucks are paid, and by applying that understanding to their own careers? You decide.

_______________________

Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.