The Puzzling Economics of Sports

Allen R. Sanderson*
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"Why is it that we seem to be concerned that some baseball players may gain an unfair advantage by turning to pharmacists while at the same time we don't blanch at people getting cosmetic surgery to improve their competitive advantage?"
Why is it that no one complains when Ray Romano ("Raymond") gets $50 million a year—$1.8 million per episode—which takes about the same time to film as a baseball game; Kelsey Grammer signs a two-year deal for $37 million—1.6 million per episode—for his sitcom "Frasier," or each of the cast members on "Friends" brings home $1 million per show (or over $20 million annually, with Jennifer Aniston pulling down another $20 million on the side)? Or when news anchors—a.k.a. teleprompter readers—and talk-show hosts ink eight-figure contracts? But let Alex Rodriguez sign for $25 million a year or let the mean baseball salary hit $2.5 million and commentators and the sports-talk-radio crowd get in a dither?

Top professional athletes earn no more per annum than superstars in similar industries, and they receive it for far fewer years. And Oprah Winfrey, Stephen King and Shania Twain are in leagues of their own. NBA players have higher salaries than baseball players—almost $5 million a year; ice hockey and football players earn considerably less. (Medians are better than means when thinking about incomes and distributions; in baseball the median is "only" $800,000.)

And why is it that movie fans don't blame Tom Cruise, Russell Crowe or Julia Roberts for driving up the cost of going to a movie, or John Grisham's healthy royalties for the price of our beach books, while we blame A-Rod or Sammy for increasing the price of baseball tickets? Of course, none is correct: the demand for players, or actors or writers, is a derived demand and thus their salaries stem from higher demands on the part of fans for the final good or service they produce. (If Randy Johnson were to bring the heat for free or Shaq were to clank free throws off the rim for no charge, it would have no more than a negligible effect on Diamondback or Laker tickets; club owners would simply pocket the savings.) At least we ought to be consistent in our errors and hostility.

Why is it that we say we can't afford to take our family to a baseball game but don't whine about shelling out for a Britney Spears concert, David Copperfield show, or a day at Six Flags, all of which have substantially higher admission prices? And why do we add in the cost of souvenirs, parking, food and drink, all of which are either discretionary purchases or substitutes for eating at home, when we calculate the cost of sporting events but not other entertainment options?

Adjusted for inflation and the growth in personal income, baseball ticket prices are one of the best entertainment values around. To some extent, higher prices in recent years are the result of higher incomes in fans' pockets demanding more amenities in ballparks coupled with a cartel—Major League Baseball—that has been quite effective at limiting its own supply and stifling competition.

Why is it that we seem to be concerned that some baseball players may gain an unfair advantage by turning to pharmacists while at the same time we don't blanch at people getting cosmetic surgery—or employing other "performance-enhancing substances" now advertised constantly on television and in daily newspapers—to improve their competitive advantage in landing (or keeping) a mate or a job? If Barry Bonds has to "test clean" before we will applaud him, why not insist on the same "natural" performances from rock or rap stars? (How long would Keith Richards or Courtney Love last under such conditions?)

When the gains to finishing first in business or pleasure increase dramatically, as they have for professional athletes in the era of free agency and television, it is not at all surprising that competitors reach for the medicine chest and phone book, even if it could entail some risks and long-term consequences. Others of us choose to work long hours, lead stressful lives and follow unhealthy dietary routines to further our careers—and force our colleagues and competitors to match us hour for hour and calorie for calorie or fall behind. When the stakes get high enough, cutting corners and taking chances become more appealing. (If the NFL were really concerned about steroids and the impact these substances could have on athletes' health and longevity, in addition to having their players provide a urine sample, why don't the coaches weigh them before every game and not let anyone over the 300-pound mark suit up? A hundred extra pounds has to be far more injurious to a lineman's longer term health than anything he might ingest.)

Why is it that we were not crushed when Reese Witherspoon dropped out of Stanford after one year but we are bummed when a college basketball player leaves after a year (Carmelo Anthony) or doesn't go at all (LeBron Jemes, NBA Rookie of the Year for 2003-2004)? Can one make a meaningful distinction between Whoopi Goldberg, who dropped out of high school, Nicholas Cage, who passed a GED so he could escape high school in Beverly Hills and get on with his acting ambitions, high school graduates Sean Penn and Sarah Jessica Parker, and Ashley Judd, who graduated phi beta kappa from Kentucky (where her fellow Wildcat, George Clooney, dropped out)? Bill Gates and Michael Dell seem to have managed just fine without a BA.

In each instance, the person weighed benefits and costs associated with the alternative uses of his or her time and chose an option thought to be more career-enhancing, just as Mick Jagger did when continuing his study of economics at the London School of Economics interfered with rehearsals and performances of a start-up musical group. My selfish interest in having athletes put in their four years of indentured servitude so that I can watch high quality intercollegiate sports, at a cost to them of half their productive earning years and several million dollars, should be laughed out of court and sports bars.

Why is it that Freddy Adu, at 14, is allowed between Nike and MLS to pull down a seven-figure income kicking soccer balls, figure skaters and tennis players can hit the ice or court professionally at similar ages, Keisha Castle-Hughes and Dakota Fanning can become movie stars, Charlotte Church can sing professionally, but Maurice Clarett, with a year of college and several years behind him, can't? (And if NBA commissioner David Stern had his way, LeBron James would be hitting the books not the boards until he turned 20.) My own institution recently admitted a thirteen-year-old medical student; he can't drive to campus or have a beer with his classmates after a hard day, but the kid is extraordinarily gifted in science.

 

Adam Smith's quote can be found in An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter 10 (paragraph I.10.82).

Are professional sports leagues more interested in the health of their athletes or the costs associated with training them? Aided and abetted by universities that sponsor semi-professional football and basketball teams, while at the same time depriving players on these high-profile squads of any chance to get any real semblance of a college education, the collusion between these two levels of competition goes virtually unchecked. As Adam Smith wrote, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy...".

Why is it that newspaper accounts and politicians decry the cost of textbooks—and indict college bookstores and professors for driving up the cost of education—but remain silent when head coaches receive seven-figure contracts and are the highest paid employees on campus, exceeding the salaries of any professor (including brain surgeons) or the institution's president, or universities create training facilities that are the envy of most professional franchises?

Why is it that the U.S. Justice Department frowned on 51 private colleges and universities discussing students' financial situations and then making similar aid awards to admitted applicants, because that would represent collusion and restraint of trade, but it could not but it could not care less that the NCAA, with the full collusive cooperation of more than 300 universities, dictates the financial aid award for every scholarship athlete in the country?

At least the colleges, following Robin Hood's example, are redistributing money from the relatively rich to the less well-heeled, while the NCAA takes money from financially poor African-American athletes—Division I football and men's basketball players, who generate millions of dollars for the parent cartel and member institutions every year—and redistributes it to middle and upper-income white students (who have grants-in-aid to play on non-revenue sports teams, which are funded largely by football and basketball receipts and are overwhelmingly non-black in composition)?

Why is it that college students hold protests and sit in their presidents' offices to demand that logo apparel sold in their campus bookstores not be stitched by any exploited labor, but then on Saturdays they wear their non-sweatshop gear to the stadium and field house to watch what have to be the most exploited workers in the entire American economy? In terms of orders of magnitude, if students want to fight oppression they should sit down on the fifty-yard line or center court until their universities put into actual practice the high moral values they claim with regard to all other aspects of their operations.

As a percentage of what they are worth to their bosses, these "student-athletes" receive less than anyone else in the country. And universities and networks, who can avoid having to pay "overtime" as well, have contrived to expand the number of regular-season contests as well as post-season tournaments and bowl games, which in many instances only make "bottom line" sense if you don't have to compensate the principal input—the athletes. Of course, the universities—and the coaches—reap extra financial rewards from these add-ons; the players just get t-shirts and watches.

With apologies to F. Scott Fitzgerald and Ernest Hemingway, why is it that sports are apparently so different from the rest of society and the economy?

I have no idea.


* Allen R. Sanderson, associate chair of the Department of Economics at the University of Chicago, teaches a course on the economics of sports and does research on competitive balance, sports labor markets, and economic impact analyses.

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