In just the past few months, NFL quarterbacks have been signed to contracts that pay them a jarring amount of money. Justin Herbert of the Los Angeles Chargers just signed a contract for 5 years that is worth a total of $262.5 million ($52.5 million per year); former NFL MVP Lamar Jackson signed with the Ravens for 5 years, $260 million; and Jalen Hurts of the Philadelphia Eagles reached a contract agreement for 5 years and $255 million. Go back a few years and you see even more examples, including Aaron Rodgers (4 years, $200 million) and Patrick Mahomes (10 years, $450 million).
At face value, this seems like an incredibly large salary for tossing a pigskin. These figures are especially shocking when you consider that the current running back market is such that the top players at the position are struggling to sign for even $12 million a year. What explains this insane amount of money being spent on great quarterbacks?
Economics can.
I was listening to Nick Wright on his podcast “What’s Wright? With Nick Wright”, my favorite sports podcast. Despite not having an economic background (as he points out), he understands key economic concepts like “thinking on the margin” and “opportunity cost” that we preach to our undergraduates.
Employers, acting as rational economic agents, pay salaries based on a variety of factors, but most notably: the employee’s opportunity cost, the player’s marginal product of labor, and the employers’ opportunity cost. The employee’s opportunity cost is the opportunity cost of their time, so what else they could be doing with their time other than being an NFL quarterback for their specific team. (There’s also the alternative of not being an NFL quarterback, but the salary earned from playing in the NFL is almost always higher than any other alternative). The marginal product of labor for an NFL quarterback is how much extra value (in terms of points, number of wins, likelihood of success, etc.) this player brings to the team. This is why it doesn’t really pay to have two highly paid quarterbacks on your team, since the second one does not add much marginal value to the team, even though they are highly skilled in their own right. For NFL teams, their opportunity cost of signing their quarterback (player X) is who else they could sign to play the position if not for player X. This is where marginal analysis can really come into play.
Is the cost of signing Justin Herbert really $52.5 million a year? Well, in pure monetary terms, yes. However, compared to an average quarterback, the Chargers are only paying him an extra $20 million. Let me explain.
The opportunity cost of paying a top-tier quarterback (assuming you want at least some baseline level of performance) is the salary you pay the top-tier quarterback minus the cost of a competent quarterback.
So, what is the going rate for basic competency in the NFL?
Derek Carr recently signed with the New Orleans Saints for 4 years/$150 million. (In reality with not-fully guaranteed contracts that are often used in the NFL, it’s really guaranteed to be 3-years for $100 million dollars, or $33.33 million per year). Derek Carr is the epitome of a baseline competent quarterback. According to Mike Sando of the Athletic, who yearly polls 50 NFL coaches and front office personnel, Carr ranked 14th in the NFL.
Daniel Jones also recently signed a large contract with the New York Giants for 4 years and $160 million. (Taking the whole contract in mind, it’s really 3-years for $112.5 million, or $37.5 million per year). In the same aforementioned poll, Jones ranked 20th among starting NFL quarterbacks, putting him right around average to just below average.
So, it costs anywhere between $33.34-37.5 million per year just to have a basic, competent quarterback in the NFL. The real cost that NFL teams like the Chargers, Ravens, and Eagles face with their superstars is not the $50ish million, but instead the $50 million minus $33.33 million (or, $16.67 million). At the margin, that’s not too bad! You are facing a cost roughly the same for a superstar quarterback (compared to the counterfactual competent one) about as much as you would pay for a high-quality wide receiver or offensive linemen.
In short, don’t be fooled by the headlines. Top-level superstar quarterbacks are not being paid that much money relative to other quarterbacks. If anything, they are paid too little (due to the artificial constraints imposed by the NFL by way of a salary cap); but, alas, another point to be made a different day.
Justin Callais is an Assistant Professor of Economics at the University of Louisiana at Lafayette and a Research Fellow with the Archbridge Institute.
READER COMMENTS
BC
Sep 16 2023 at 5:38am
What’s the economic argument for why baseline QBs earn about 30M/yr while top running backs earn about 12M/yr? I guess one would have to look at wins above replacement (WAR) for a top RB compared to that top RB’s 12M vs. the cost of a baseline RB. Then, compare that to WAR lost by hiring a below baseline QB to pay for the top RB.
For example, suppose a baseline RB costs 60% of a top RB, similar to the baseline-to-top ratio for QBs. Then, a baseline RB would cost about 7M. So, the incremental cost of a top RB would be only 5M. How many WAR does one gain from a top RB compared to WAR lost by hiring a 25M QB instead of a 30M baseline QB? I would be surprised that there would be a big difference between a 25M and 30M QB. So, I guess the implication is that the WAR of a top RB is just not that much?
Dave Bossman
Sep 16 2023 at 12:26pm
Good question. In the (good) old days, a top running back would likely be paid equal to or more than a top quarterback, and for the reason you cite: the WAR for a top running back was worth the money. As you also point out, that’s no longer the case, and the reason probably has to do with rule changes that have made it easier to score by passing than by rushing. (The ostensible purpose behind many of these changes was to make the game “safer,” but higher scoring games are generally seen as more exciting, which makes for higher ratings, which makes for more lucrative media deals, which makes for richer players, owners, and league executives.) As a result, the WAR for top quarterbacks now exceeds that for top running backs, as evidenced by the difference in salaries. Of course, the increased effectiveness of the passing game means a higher WAR for top receivers as well, and indeed they make a lot more money now too. In short, there is an on-field opportunity cost: teams can score by running, but they can score more by passing, and so they put more resources into the latter.
Jim Glass
Sep 17 2023 at 8:14pm
About 15 years ago I was into a big-time hobby of applying the “moneyball” quant metrics developed for baseball to the NFL. Even published some articles on the subject. From my aging memory…
An interesting thing is that while the QB certainly is the most valuable player on an NFL football team, fans (and sometimes owners and GMs) hugely misunderstand why. Reality is not so much that good QB play wins games as that bad QB play loses them.
Vince Lombardi nailed this 50 years ago in the pre-data era, saying: The QB plays a “linchpin” role that is unique in team sports. As the linchpin, excellent mistake-free play maximizes the use of the other 10 players on the offence, and the QB adds his own 1/11th to the offensive performance. But with bad play — misreading the D, wonton throws, stupid turnovers — a bad QB can destroy an otherwise superior offensive 11, and sink an entire team for a full season, all by himself. (Zach Wilson, last year.)
This is an excellent if counter-intuitive example of the economic principle of diminishing returns. As QB quality increases from league-bottom to league-top, each marginal step up contributes more to team success when leaving the bottom than when closing in to the top. Of course fans think differently – that the great QB is the one who towers above the rest at completing great throws downfield. But the list of infamous NFL QB busts is full of guys who made great throws downfield. (Zack Wilson, last year.)
How much is a QB worth to a team overall? Channeling my former self, I just checked the USA Today data for median salary at each starting position. At QB, #16, Jared Goff, $33.5 million. At the 21 other positions, average $8.2 million. Punter and kicker, $7 million together. Add say 6 situation subs getting half starter pay, $4 million each. That’s $211 million overall.
So it seems the NFL values an average starting QB as being worth four average starting players, which is a lot — but only at 16% of the value of all these players (less, considering the full roster) … which is maybe not so much for all the fans who think QBs win and lose all the games, and who buy all the marketing of games as QB v QB mano-v-mano matchups, like singles tennis, and cite individual QB “won lost” records.
E.g, that 16% is a lot less than the impact a starting MLB pitcher has on a game. MLB team results are basically 40% pitching, 40% batting, and 20% everything else. By that measure, a starting pitcher who goes 6 or 7 innings can have an about 25%-30% impact on the team’s total performance, a lot more than the QB’s 16%. Football is a team game – as Lombardi said, the *most team* of games. Every time I see some expert cite a QB’s personal W-L record I want to kick a puppy.
My files say that back then the stat mavens figured the difference between an average starting and average backup QB was worth 2 points per game. Many fans objected that was far too little. But 2 points a game averaged about 2 wins per season, which could be the difference between sitting home being castigated at 7-9 or 8-8 and in the playoffs at 9-7 or 10-6. And once in the playoffs, each game being a weighted coin flip (one-game sample) a team can always win out. See Eli’s 10-6 Gints beating Tom’s 16-0 Pats, somehow lifting Eli to elite status next to his brother with probably a niche at Canton coming to him. Just two points can make a big difference.
In the NFL, as in life, there is a tremendous amount of chance and contingency. Near half of all NFL game outcomes are random chance. And in the NFL as in life, you never hear any of the experts ever comment on the fact. (Too busy tallying up personal Ws and Ls.) But I digress….
steve
Sep 18 2023 at 9:04am
Nice analysis. I would just note that the 2 point difference between starting and back up QB sounds like it was done a while back. With the current emphasis on the passing game plus the running QB I suspect the difference is now more than 2 points.
Steve
Jim Glass
Sep 19 2023 at 2:29am
…As you also point out, that’s no longer the case, and the reason probably has to do with rule changes that have made it easier to score by passing than by rushing…
If you want to see how dramatic the effects of the rule changes been, just compare the league stats for 1972, when the Dolphins went 17-0, to last year’s.
https://www.pro-football-reference.com/years/1972/index.htm
https://www.pro-football-reference.com/years/2022/
The intent of the changes was to increase scoring, but they didn’t accomplish much there. Scoring was only 1.6 points per game more in 2022 than in 1972 (and that’s after a recent uptick.)
But they really changed the way the game is played. NFL teams have always won with passing, but back then the top teams set up the passing with power running to control the game. Then they’d go deep strike over the top.
Those Dolphins ran 44 times a game for a 211-yd average, and passed only 19 times a game, nobody runs like that today — but their passing had the highest yards-per attempt in the league. That was the formula.
As to passing, not just its amount but its nature has changed. Back then there were fewer attempts — but they were much more aggressive on average, more big-play deep strikes.
In 1972, Namath led the NFL in passing with only 217 yards/game, which in 2022 would have been 18th, and looks piddling to today’s fans. But his average completion was 17.4 yards. When Mahomes led the league in passing last year his average completion was only 12.1 yards (which looks piddling to some of us old-timers). The league average completion in 1972 was 13.2 yards — last year it was 10.9 yards, and no team averaged even 13.
So the effects of the rule changes have been to (1) not increase scoring significantly, (2) replace ball control running with high-percentage ball control short passing, greatly reducing the value of running backs, (3) greatly increase the volume of passing while making it on average much safer and less aggressive (average completion percentage 64.2% last year, 51.7% in 1972).
I’ll gratuitously mention another effect. MLB fans know the greats of the past – Musial, Williams, Babe – were great. But all this ‘passing numbers inflation’ makes many NFL fans think the great QBs of the past — Unitas, Bradshaw, Starr — sucked. Look at their terrible completion % and TD-Pick ratios! A while back I saw an article naming Brian (not Bob) Griese as one of the 20 best QBs of all-time by passer rating — 18 of the 20 played post-2000. Jeebus.
Namath seems to get picked on most, I guess for his celebrity. I’ve seen many media pundits and article writers dismiss him as a lucky mediocrity. So for fun I took his 1972 numbers compared to the league average and set them in the same proportion to the 2022 averages. The result was 5,698 yards (400 more than Mahomes), 32 TDs and a 102 rating. Respect your elders!
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