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The Escalating Sports Salary: Showing what we really value

I chance upon this article with DOW down big yesterday night and its abit nostalgic given that i would be saying my goodbyes to one of my favorite club’s best players:Cristiano Ronaldo. Ronaldo will be going to Real Madrid in a 80 mil pound transfer. Its a mind boggling sum really.

What is more mind boggling is the way Real Madrid is snapping up big players as if their debts are not big enough. All together the big signings are:

  1. Ronaldo 80 mil
  2. Kaka 56 mil
  3. Benzema 30 mil

with more link to them. To quote my chelsea friend’s word: Now we know why we are in a recession, it all went to madrid!

The issue of escalating compensation and rising ticket prices in professional sports has been around for years. But next month it could reach a boiling point when 21-year-old Stephen Strasburg, the No. 1 pick in this year’s Major League Baseball draft, signs for at least $15 million. And that’s just a bonus before salary is even discussed.

The blogosphere and radio call-in shows are already buzzing, with people saying things like “Man, the [Washington] Nationals” — or whatever team ends up signing Mr. Strasburg — “are sure going to have to raise prices to pay for this guy. You’ll be lucky to afford a beer when you go out to the ballpark to see him pitch.”

Well, if you can’t afford to buy a beer at the ballpark then it didn’t do the team much good to sign the player, did it? Sportswriters and radio guys delight in reminding fans that every time a team acquires an expensive player the cost of everything goes up. But that’s just not the way economics works.

It certainly seems as if the prices of peanuts and Cracker Jack go up after they sign that new guy or build that new ballpark (always with a large chunk of taxpayer money). But that isn’t because the owners of sports team are greedy. They are greedy, but that’s not the point.

The point is that prices go up because the owners think that’s what you’re willing to pay. If you are willing to pay, the price stays high. If you aren’t — or at least if enough of you aren’t — then the price will come back down. It’s that simple.

The athletes and their agents don’t determine the price of tickets, souvenirs and food. Not even the owners determine them. Well, they sort of do when it comes to the food. The hamburger joint across the street from the park probably charges half of what you pay at the game, but that’s because the ball club has a monopoly. In general, though, you are the ones who set the prices for T-shirts and baseball hats.

It may take a while but eventually, if baseball management has overpriced its commodities, consumers — that’s you, the fans — will show them their error and the prices will come down. If you are willing to pay their prices that means they set the right prices after all.

Baseball analyst Bill James once wrote: “One of the unwritten laws of economics is that it is impossible, truly impossible, to prevent the values of society from manifesting themselves in dollars and cents. This is, ultimately, the reason why athletes are paid so much money.” The reason, Mr. James argued, that ballplayers make so much and medical researchers so relatively little is that, “[W]e are, as a nation, far more interested in having good baseball teams than we are in finding a cure for cancer.” He might have added that the principle applies as well to pop icons and movie stars.

It isn’t some vague indefinable “they” who pays the players. It really isn’t even the owners. It’s you, or rather, it’s us. If we put our money where our mouths are and support cancer, AIDS or Down syndrome research and then buy our tickets with what’s left over, athletes and rock stars will actually be paid what we pretend they should be paid.

The fault lies not in our All-Stars, but in ourselves.

Source: WallStreet Journal


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Friday 3rd of July 2009

The market has been flooded.I love watch all the foot ball matches. I love Ronaldo. I use buy all sports tickets before only. The prices of the sports tickets should be less because of the market position.

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