Brian Burke opines on NFL salaries:
Personally, I think they’re all overpaid, rookies and veterans. If you ask most football players if they would still play football for $80,000 per year instead of $800,000 or $8 million, they’d say yes. It’s almost certainly a better proposition than whatever else they’d be able to do in the labor market. If Sam Bradford had the choice between playing in the NFL for $80k/yr or looking for an entry level job in Oklahoma City, what do you think he’d do? Every dollar above $80k is icing on the cake. Technically, it could be considered economic rent.
In economic terms, rent is a misnomer. It does not refer to money you pay a landlord for your apartment. It refers to the money above the minimum amount required to induce the employment of a resource. There is always rent claimed by both sides of all voluntary transactions, otherwise people wouldn’t agree to the transaction in the first place. . . .
It seems to me almost all of the economic rent in professional sports goes to the players. It’s hard to imagine any other multi-billion dollar company paying more than 60% of its revenue to a few hundred employees. It’s not that the salaries are high in absolute terms, it’s that the athletes should gladly play for far less.
I tend to agree… or do I? I am conflicted. It is a plausible account, but there is a lot of uncertainty there as well. One, the NFL and other sports leagues are already incredibly distorted markets, aided as they are by exceptions to anti-trade law and a general public (to say nothing of lawmakers and judges) who are fine giving the NFL monopoly power over professional football (which may be a perfectly rational and fine choice). Second, and more importantly, the lifespan of an NFL player is blisteringly short. I’ve heard a variety of estimates, but most often the estimate is put at around 2-3 years; never have I heard even five seasons.
This skews the incentives. Were Sam Bradford to have taken the $80,000 a year job, he would be giving up a lot now, but it’s much more likely that his other career would last far longer, and as a result his income would be much smoother. And of course the number one pick is not really the appropriate metric; it’s not evident that, from a financial perspective at least, making around $400,000 a year for three or even four years and then having no career prospects at all is better than starting in a $70,000/year job with growth potential and stability. (I know in this economy nothing is certain.)
Two points flow from this. The first is that it cannot be accurate to compare an NFL player’s salary with the salary of Joe Schmo, office manager. Their income stream is more like that of an artist, or even an entrepreneur — variable with their success, with great opportunity to be set for life, with also a high likelihood of bust. As I’ve pointed out, 78% of NFL players file for bankruptcy. As this NY Times article points out, it’s not easy to manage your money if it comes in irregular, large chunks, followed by long dry-spells.
And second, if you make your money at once you end up paying more in taxes than someone who earned the same total amount, in smoother fashion, over the same period. To use an example of an entrepreneur, imagine the there are only two tax rates: 40% if you make over $200,000 and 20% if you make over $45,000. If two neighbors both make $500,000 over five years, with neighbor 1 making $100,000 every year while neighbor 2 making $250,000 twice and zero in the other years, neighbor 1 will have paid $100,000 in taxes while neighbor 2 will have paid $200,000.
Is any of this determinative of whether or not football players make too much? No, but I think it all adds a significant layer of uncertainty to their ability to make a living that, particularly when coupled with the well documented health issues that come from playing football, including brain injuries, make high incomes somewhat more understandable, even if they could be characterized as raw economic rents.