THE BOOK--Playing The Percentages In Baseball

This has always mystified me. No one gets outraged by the money made by rock stars and the top-grossing movie actors, but some people really get exercised about the money made by professional athletes. I’d really like to read a plausible explanation of why.

Plausible?  From The Holy Writers?  Funny guy.

“I am outraged that Tom Cruise made $20MM for MI3 (which I saw) and for MI2 (which I saw) and for MI1 (which I saw).  And I’m going to keep my phony outrage as I continue to support every movie he makes.  It’s ridiculous!  That money should be going to the studio chief.”

I agree that it is perverse how much pro athletes are paid. I also agree that it is beyond perverse how much the owners make and how little college and minor league players are paid. Why in the world would you put the onus on the players, especially given the myriad of health risks they face? I don’t see why the pro sports leagues have anti-trust exemptions when they are run at a profit. Sports leagues should be non-profit, imo, but clearly I live in the wrong country.

Sports salaries are determined through the laws of supply and demand, just like the salaries of almost any other job.

Supply of baseball players is limited. There are only 750 available positions. And you can’t find just anybody to fill these positions. Baseball players are the absolute best at what they do, and there are very very few people out there who can do what they do. Thus, the supply is extremely limited.

Demand for employees in any profession is determined by how much money you can make by employing them. Baseball teams have the potential to make a LOT of money. Millions and millions of dollars. Thus, owners are willing to spend millions and millions of dollars on payroll. If the owners couldn’t bring in tens of millions of dollars in revenue, they wouldn’t pay the players so much. It’s the same reason why big law firms pay their employees so much. Because they can bring in a lot of revenue. Same with investment bankers (notwithstanding the financial troubles of the past 2 years). Conversely, if baseball owners don’t hire a talented group of employees, from the extremely limited supply, people won’t watch them and they won’t make any money. In order for the business to continue to operate, they have to choose from this limited supply of players, and they have to be willing to pay them a lot of money.

Extremely limited supply, coupled with extremely high demand, results in extremely high salaries. There’s nothing perverse about it

Tom/4

“Extremely limited supply, coupled with extremely high demand, results in extremely high salaries. There’s nothing perverse about it”

Again, given the money going into MLB and the others there’s nothing perverse about the share of the pie that the players are getting; they should be getting some amount more and the minor league/college players should be getting much more.

But I clearly see something “perverse about it.” Is it not perverse that there are thousands of wealthy people who are much more willing to pay top dollar to watch elite athletes than they are willing to contribute that money to other causes? The demand is perverse, but of course it is a demand that is manufactured by the profit drive of the suppliers. The sports leagues are not minding their own business and merely taking in the money of people who should know better; they are actively shaping consumers’ desires. How is this not a perverse situation?

We are not talking about the supply and demand of a food staple. It would not be perverse for the price of rice to go up during hard economic times because the supply is low. But is it not perverse that millions suffer while thousands are willing to shell out for Red Sox tickets? The manufacturing of market irrationalities shapes the supply/demand curve, and we must interrogate whether *that* is perverse.

fifthOF/#5 - You’re probably right that it’s perverse to spend $100 on baseball tickets or a jersey. But, that’s more of a commentary on our society in general than sports in particular. You can say the same thing about spending that kind of money on a Broadway show, a four-star restaurant, or a boxed set of the Sopranos. Not to mention larger expenses like giant flat-screen TVs and luxury cars.

You can make an argument that a moral person would only spend money on necessities and donate the rest to charity. You can also make an argument that we’re all wasting our time analyzing baseball when we should be using our time and brainpower to figure out a way to solve world hunger.

#5:

The average household in the USA contributes a couple thousand dollars a year to charitable causes as of 2004.  I’m in that neighborhood personally in terms of contributions.

I personally spend a few hundred per year on sports programming for my TV, plus maybe one game per year for a few hundred total.  When you figure that I have some income from sports, overall, I’d say charitable causes win out pretty handily, and that’s most likely true for the majority of Americans (and Canadians

You have a point that people could do more, I don’t want to totally disagree with you here.  But you can’t be suggesting a total embargo on sports entertainment so long as suffering exists on this Earth - if so, be careful of that glass house of yours (unless you don’t own a TV, don’t purchase books or music, never go to the movies or a show, etc.)

Yeah, well, since I never suggested an embargo I’ll respect your opinion that I cannot suggest one.

Of course it’s a comment on the society, of which these sports leagues belong and from which they are produced. My point isn’t that spending the $100 is perverse. My point is that the overall distribution of wealth (as well as of income) is perverse, and the sports leagues and their players make the money they do as a result. It doesn’t make any sense to single out the sports leagues, but they seem to be contributing rather than pointing the way forward. Look at where the BIG money is at in sports - the demographically-centered advertising, the luxury suites, etc. - and tell me why I shouldn’t be nauseated that I follow MLB.

Greg, your contributions to the sports economy are obviously not what I am talking about. I don’t have a problem with sports or people spending some of their cash on it, although you should be careful about accusing stone throwers of living in glass houses; people who know me better would find your last paragraph quite amusing.

The sports leagues are part of a perverse economy, and while the author of the article doesn’t put any time into thinking through the causality, I have a major issue with those who say “Oh, it’s supply and demand” and stop there. How are the supplies and demands produced? Haven’t the sports leagues spent the last few decades converting taxpayer monies into luxury boxes in order to BOTH increase their incomes AND pay higher salaries?

I am not suggesting that it is immoral to spend one’s money on sports. Indeed, sports aren’t even uniquely problematic - it’s not like the wealthy folks would be giving to greenpeace if not for the luxury suite tickets. Opera houses are perverse too, imo. How does that make the salaries of professional athletes any less perverse in a country where so many are unemployed, underemployed, or incarcerated?

I am not suggesting that the world would be a radically better place if all the sports consumers were to donate their money to charity, just as the author of the linked article is not suggesting that athletes should merely give their money over to charity. But the growth in sports revenues over recent decades is quite strongly linked with economic stratification, both within the US and globally. Sports have LEVERAGED something perverse into greater revenues, and in the process begat the perversion that the author alludes to. (As have the TV, book, music, and film companies, Greg.) Without a grossly imbalanced distribution of wealth in the US, the distribution of wealth in sports would not be so grossly imbalanced. The Yankees don’t have so much more revenue simply because they are the Yankees and they have more fans, although that is of course part of it; New York is a financial and industrial center with a heavy concentration of wealthy people.

The top 750 lawyers, bankers, business executives, doctors, engineers, scientists, and teachers all probably make more on average than major league baseball players.

"Look at where the BIG money is at in sports - the demographically-centered advertising, the luxury suites, etc. - and tell me why I shouldn’t be nauseated that I follow MLB.”

“I don’t have a problem with sports or people spending some of their cash on it”

How do you reconcile these two statements?

"The top 750 lawyers, bankers, business executives, doctors, engineers, scientists, and teachers all probably make more on average than major league baseball players.”

Maybe over a lifetime, because pro athletes have a relatively short working life.  But it’s unlikely that even the top practitioners in personal services such as law or medicine can compete in annual earning capcity with top pro athletes or movie stars, because personal service professionals can only serve one individual or entity at a time, whereas with mass media technology performers in the fields of sports and entertainment can “serve” millions of people at once.  If we as a society believe there is some value to setting a general limit on how much such people can earn, it would be simple enough to tax income over $x million per year at say a 70% marginal tax rate, perhaps with exemptions allowed for especially valued services (medicine or science or education, what have you).

"Maybe over a lifetime, because pro athletes have a relatively short working life.  But it’s unlikely that even the top practitioners in personal services such as law or medicine can compete in annual earning capcity with top pro athletes or movie stars, because personal service professionals can only serve one individual or entity at a time, whereas with mass media technology performers in the fields of sports and entertainment can “serve” millions of people at once.”

I meant per annum.  All the top lawyers make at least $5-8m per year just from their firms; remember, there are quite a lot of major league players making the league minimum, or close to it.  For bankers, their bonuses alone exceed most major league players.  Business executives is obvious.  Doctors and engineers usually hold very profitable patents.  Same with professors (though this one I’m less confident about).  All of these people at the top of their game sit on various corporate boards, each of which is at least $250k a year, so they’re already making more money than many major league players for a two week’s (or even less) worth of work.

Your reasoning is pretty good on the surface, but your mistake is in not realizing that the professionals I’ve listed are all involved in the creation of mass-marketed products (execs run the companies, lawyers/bankers finance it, engineers/scientists/professors invent).  People spend a magnitude more on such goods than on sports entertainment.

Think about how much money is spent in goods from the technology sector alone.  I would bet that the occupations I listed associated purely with that industry even exceed the major league average.

"But it’s unlikely that even the top practitioners in personal services such as law or medicine can compete in annual earning capcity with top pro athletes or movie stars, because personal service professionals can only serve one individual or entity at a time”

That’s why the Lawyers created class action suits.  Some of them have made enough money to buy entire teams of ballplayers - like Peter Angelos.

Greg(7) - where did you hear that couple-thousand figure?  I guess I’m not a typical household yet, but I find that hard to believe.  A couple thousand in “charitable” write-offs, sure.  But in the traditional sense of writing checks and putting dollars in kettles around Christmas, I do find that hard to believe.

I found it somewhere on the net, can’t find the exact place now, but I checked again, and found this link that has a larger number than that (more than $3K), though it is by taxpayer, not every person.

http://www.afpnet.org/ka/ka-3.cfm?content_item_id=10008&folder_id=2345

And if you are saying that not every deduction is a genuine donation to charity, I’d say you’re probably right, a lot of people probably do write off more than they give.  And maybe some wouldn’t count donations to one’s church as a charitable cause…

"Same with professors (though this one I’m less confident about).”

Top academic salaries tend to be in the $1.5 million to $3 million range with the coaches, top administrators, health sciences/medical, and business/economics/engineering faculty dominating the highly paid lists.

Please…

Compared to the established practice of conning and or bullying millions of dollars of the tax payers to pay for new stadiums I find it very hard to get upset at the paychecks that the Mannings and Arods of this world is payed.

It really is all connected though.  If there were a federal law that prohibited any public money to be used to fund stadiums for private businesses, I doubt the end profits to the owners would be all that different.

They would have to pay for the stadiums themselves, and it would just leave much less money on the table for the players.  Guys like A-Rod would have to scrape by on maybe 15 million per year.  And an average regular might settle for 5 instead of 10.

fifth of/#5, that’s all fine and good, and your point is well taken, but I think we’re talking about two totally different things. I was talking from a strictly economic standpoint (I am an economist, after all). Baseball salaries are determined by supply and demand. That’s a fact.

You were talking from a sociological standpoint. The demand is “bad”. The demand shouldn’t be so high. Fine, I understand all that, and I agree, to an extent. But if MLB players shouldn’t make so much money then neither should ANY entertainer. All the money we spend on movies and music every year...that should all be going to charity! And companies that make “luxury goods” shouldn’t bring in so much money either! The $32.5 billion in revenues that Apple generated last year...we could have bought fewer iPods and iMacs and songs on iTunes, and so much more money could have been donated to charity! The total compensation of the top 750 employees at Apple probably vastly exceeded that of all combined MLB salaries. In fact, Steve Jobs made $646 million in 2006, according to Forbes!

The point I’m trying to make is that you’re taking a nationwide problem that is so much bigger than the game of baseball and applying some level of blame to major league baseball for contributing to that problem. I was simply saying how it makes economic sense for baseball players to make what they make (which is 100% true). I’m sorry if that’s too simple for you. Apparently it isn’t simple enough for the vast majority of people who bitch and complain about MLB salaries, those who complain not because of what they think that money can do for charity, but because they don’t think it’s “fair” that ballplayers make so much. But it IS fair.

Sorry to be the lone voice here, but what is wrong with luxury? I mean, unless you want to give your entire non-sustenance salary to charity and live on the bare minimum (I highly doubt any of you do this as you are likely posting from a pricey desktop that costs dozens of dollars a month to be connected to high-speed internet).

Let’s take, for instance, my trip to Bali in May. Were I to be unable to take that trip (as it is most certainly a luxury), I wouldn’t be working at my company half as hard. Why bother working for excess money if I can only give it to charity, after all? Why work hard if it nets you absolutely nothing?

Referring to high salaries as a ‘nationwide problem’, especially from an economist, boggles my mind. Am I missing something?

I seem to remember reading many years ago that the historical average % of revenues that went to players salaries was about 57%.  Now it is about $2.5B out of $6B revenue which is under 42%.  Of course almost all ballparks now were heavily subsidized in construction and are subsidized in operation.  So these are additional expenses the team owners don’t have, while they are getting additional revenue from many sources that were not available tears ago.  I think that it is almost impossible to not make a profit with a major league team. 

Anyway, given baseball revenues today, I think that players are underpaid.

"Referring to high salaries as a ‘nationwide problem’, especially from an economist, boggles my mind. Am I missing something?”

I wasn’t referring to high salaries as a problem. I was referring to fifth of’s statement that the priorities of consumers are misplaced. His belief is that it is wrong that we are willing to spend SO much money on sports, but not so much on improving our society. If that is, in fact, a problem (obviously, we can always do more to help those that are in need), then my argument was that it’s much bigger than the game of baseball.

Speaking from a strictly economic viewpoint, the high salaries of baseball players are justified. That’s not a problem.

Thank Goodness. I thought the economic situation had melted economist-brains.