Why Athletes Get Paid So Much and We Don’t
Ever wonder why athletes and movie stars get ridiculous salaries? Are the nation’s priorities skewed or is there a good reason for it? Through simple economic principles, we find the reasoning behind it all.
A lot of people wonder why athletes and entertainers get
paid so much. You know the old cliché,
how can we pay teachers so little but pay athletes $25 million to swing a
bat? It seems a little ridiculous,
doesn’t it?
The reason for their inflated salaries lies in a fundamental
concept of economics. Basic economics
states that people get paid in exchange for the services they provide their
employers. Having said that, another
fundamental concept is the idea of service
consumption and how it relates to salaries. As an employee a company consumes
your service. Typically, only one
company can consume your service at a time; therefore, only one income stream
can be applied to that service per unit time.
Athletes and entertainers are different. For them the service they provide is not
consumed so much by their franchise or studio, but by sports fans and
moviegoers. Athletes provide a service
which fans consume, not the franchise itself. Movie stars provide a service that moviegoers consume, not so much the
studio releasing the film.
The beauty of it is that the service can be consumed by more
than one individual per unit time. Think
about it, a stadium of people watching A-Rod consumes his service at the same
time, which means his service is available to thousands of people in unison. Factor in television and you’ve got a service
available to millions of people all at once. The more consumers of your service per unit time means you have a
greater source of income per unit time. In other words, you can make millions of dollars while doing no more
work than any other person. The
difference is the level of consumption of that service.
For famous people, the A-Rods and George Clooneys, the value
added because of their expertise and fame only augments the fact that millions
of people can consume their service at a single time. For the average Joe, this is like having an
MBA that a million companies are willing to pay for versus having an
undergraduate degree consumed by millions of companies. This explains the reason for the range of
salaries in sports and entertainment. Note,
however, that even unknown relief pitchers command six-figure salaries due to
the level of service consumption available to them. The difference between them and Brandon Webb
is expertise and command of the game.
That’s pretty much the reason behind it all. It is not so much a case of skewed priorities
in our society, but more an example of economics supporting the situation. So next time somebody makes a comment about
athletes’ salaries you can explain the economic underpinnings of it!
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Post CommentAnonymous
On May 23, 2008 at 3:38 am
Well, it’s still a case of screwy priorities, because if we REALLY wanted to deflate their salaries, we’d stop watching until the prices lowered. Of course, if we could figure out how to raise everyone else’s salary we wouldn’t need to do that… Because really, a New York fireman probably services how many people? A high school teacher up to 700 students a year? (that’s a figure from my school) The difference is these audiences have been told that they don’t need to give money to these people
And while their audience is smaller, it still doesn’t explain why incorporated engineers make more than them. I like your thinking, and from a purely economic standpoint it makes sense. But it doesn’t discount our societal problems.
Anonymous
On May 23, 2008 at 3:41 am
Okay, re-rereading that, the part about engineers was an entirely different can of worms… I shouldn’t have even gone there.
sam
On May 23, 2008 at 6:35 am
nose bleed!!Hehehe
To post #1
On May 23, 2008 at 12:23 pm
Thank you for your comments. It is easy to make comparisons between teachers, fishermen, and other professionals who apparently have multiple people consume their service per unit time. This is not really the case, however.
The difference is that every single person in a stadium (or theater) pays to consume that service. Every child in a school does not pay to use the teacher’s services, rather the tax revenue is what funds such services. Private schools are funded through tuition, but private schools are also ridiculously expensive and for the very reason we suggest here. I believe you alluded to this in the first paragraph, and that is the key difference.
Firefighters do not provide a service to millions in tandem (only one fire/emergency per unit time per firefighter). That’s the difference. Is it possible for a firefighter to save multiple lives in a given situation? Yes. But it is not something he/she does every second of their job and it will not be for millions of people at a time.
The issue is not the availability of a service to millions of people, but the actual consumption of it by millions of people.
If we wanted to lower their salaries, yes, we could stop watching the games or movies. But the truth is that it does not really affect the public in any tangible way.
We should not be asking ourselves how we can lower athlete salaries, we should be asking ourselves how we can raise teacher salaries; if such is the concern.
nancy
On May 23, 2008 at 4:21 pm
nice explanation. still not sure they deserve what they get though!
Jack
On July 27, 2008 at 7:14 pm
Maybe I am a little confused… but it is my understanding that sport franchises and movie studios set salaries regardless of the amount actually obtained by the sporting event (number of consumers) or amount of moviegoers. So how are the consumers directly affecting the salary?
paul
On December 30, 2008 at 7:10 am
If everyone stopped going to a sports event or a movie or a rock concert for 3 months You would see those saleries start to come down. Basically we the employers would be firing them all.
So stop being nice guys stay home and let them feel what everyone else is feeling.
Jay
On March 3, 2009 at 12:51 am
I disagree that a person salary should be proportionate to the amount of people they service…. In my opinion a jobs effect on society should determine the amount that a person is making… Also just like in the sports industry I think that society should have a salary cap as well… At least per job, now if a person wants to make more money than is provided by his profession than by all means get a second job…. Honestly I think the sports industry and the media industry should be highly taxed… They don’t provide a service that is actually benefiting society, it is simply entertaining…. So in conclusion I believe that a jobs salary should be proportionate to the importance of said service.. I.E. Teachers, Police Officers, Firemen, Doctors should be paid more than musicians, athletes, and entertainers…. But that is just my opinion… I mean I understand, watching sports are fun… I’m sure society would collapse without the super bowl, but maybe we would be able to find a way to survive!!!!
mike
On April 22, 2009 at 11:02 am
The key economic concept here is actually scarcity. These athletes have scarce skills (low supply) for which there is high demand. Competition among potential employers (teams) drive up the salaries, particularly for those with the most scarce of skills (the Jordans and Gretzkys).
You are correct in that there are many people paying for their services (high demand), but the other side of the equation is the low supply of elite athletes.
The notion that this is relective of society’s priorities is bang on.
Dat Man Than- Than
On November 16, 2009 at 4:12 pm
No body cares about your stupid conversations! DAMN!
mike hawk
On February 26, 2010 at 12:20 pm
shut up u guys are just hating cause u guys suck at sports and are jealous that ur poor and not rich like them
Ray Loon
On October 11, 2010 at 8:44 pm
Although the economics and market make a sence of it and I would have to agree with those terms, the answer still avoids the problem. Perhaps this article can open some minds up further beyond the reasoning of economics.
http://www.dailymail.co.uk/debate/article-1255279/Fabio-Capello-dared-say-think-overpaid-footballers.html#