Sports Salaries: Is One Person Worth It?

Throughout history, men and women have competed against one another in sport and many have enjoyed watching these competitions for entertainment. In early history, most men competed for their lives. However, in modern times, men are paid large, prodigious sums of monetary salaries to compete in competitions and sports. In the past fifty years, the salaries of athletes in every sport have risen to disproportionate amounts in comparison to the public per capita. The monetary worth of these athletes exceeds the value that any one individual is actually worth. Athlete salaries in the sporting industry have grown extremely excessive and league officials need to control the outrageous payrolls by using salary caps, negotiations, and legal tactics.

Athletes' salaries are in increasing problem for the economy of our modern world. It is estimated that salaries for players and coaches comprise over half of every team's cost in every major sport today (Leeds 85). The millions of dollars that flow to athletes creates an improper balance in economic distributions because the amount of money athletes receive creates a huge variance between themselves and the normal household in America. Each major sport has its own even distribution of salaries, such as in the National Basketball Association, which has starting players that have salaries ranging from $500,000 to over $3 million (Rosentraub 14). Even the National Collegiate Athletic Association has major issues with salaries. On average in the NCAA, coaching salaries account for over twenty-six percent of athletic department expenses (Leeds 397). Although the sports have their own equal distributions, the overwhelming salaries of the leagues' highest paid players have made the average of salaries higher and higher each year. The discrepancy athletes and normal American workers concerns many economists who already feel the average per capita for American homes is too low.

Some may believe the reason for the drastic increase in athletic payrolls is due to America's own economic inflation over the past fifty years. However, the rise in payroll is too drastic for inflation to account for all of the increase. By 1990, player salaries represented forty percent of the total Major League Baseball costs, which is a one hundred percent increase from the 1970 costs (Rosentraub 14). Although the economic progress of our country is not the reason for higher salaries, it is the reason owners of teams can afford to pay for the high priced players. For example, in 1995 alone, the New York Yankees baseball team made $93.9 million in stadium revenues and $57 million in television contracts (389). These overwhelming profits allow the owners to pay the salaries of each player; however, this still does not answer the question of why have salaries soared recently. The real reason athletic payrolls are on the rise is the introduction of free agency to all of the major sports. Since the beginning of free agency, teams and owners have battled players and players' associations over the actual value of the athletes. The players argue that they generate revenue, and therefore, they should receive some of the benefits of those generated profits. However, owners in all of the major sports have argued that free agency has caused them to "overbid" for players and pay salaries greater than the actual market value of the athletes, which thereby tilts the balance of power in sports to the richer, larger market teams that can outbid everyone (Leeds 240). Statistically, players are paid on their performance, and those players who generate more wins and fan support are more likely to receive higher salaries (Fizel 179). This statistical trend is referred to by its Latin name, ceteris paribus (179). Also, on average, veterans of each of the sports receive higher contracts than other players due to the free agency market (Calhoun 163). As stats prove, owners and teams have a general pattern for bidding on players based on their market value; however, the argument they make is that free agency makes them pay higher than this value is actually worth. Therefore, the problem lies in finding a counterbalance to free agency.

One solution to eliminate the negative effects of free agency in the major sports is the introduction of a salary cap. Salary caps limit the amount of payroll that any given team can have during the course of one full season. Salary caps first began in the National Basketball Association in the early 1980's in an effort to "counter balance free agency" (Leeds 242). The National Football League and the National Hockey League also have salary caps, whereas Major League Baseball does not (243). The most prominent cap rule is in the NBA where the commissioner of the league capped teams' salaries at fifty-three percent following the 1982 season (Howard 17). The salary cap has somewhat slowed the rate of increase of salaries in the leagues that have the cap, although it continues to rise.

The addition of salary and payroll caps to three of the prominent leagues has slowed the rise of payrolls, but it has not given enough of a significant drop to prove that it is the solution. For example, despite salary caps, the NBA average salary rose from $246,000 to $1,350,000, whereas the NFL's rose from $104,000 to $645,000 from 1982 to 1993 (Howard 16). These values are rising significantly despite the rules limiting the addition of too much payroll. Therefore is safe to conclude that salary caps are not the solution to the problem.

Negotiations and legal methods are more ways that could help alleviate the problem. Almost all players in all of the major sports use agents. These agents are used to negotiate the contracts and values of each athlete and attain a contract in the best interest of their client. This also drives the prices of players higher than they should go because the teams with money to spend will outbid small market teams and give in to high salary requests. One solution that actually works is arbitration. Final Offer Arbitration is a method used to settle disputes between teams and players that cannot agree on a contract. Each side submits its final offer to an independent legal panel which selects either one or the other contract offer with no middle ground involved (Leeds 241). At this point, arbitration is the most effective solution available to limit the disproportioned salaries of the major sports because it involves a third party who can involve reason in the matter and not factor in the amount of money a team may have.

In conclusion, the salaries of players in each of the major sports have soared beyond the actual market value that they present. These drastic increases over the past fifty years have stemmed from the introduction of the free agent market. Athletes generate millions of dollars in revenue for their teams, and based on this value they feel they should receive high compensation. However, this is unreasonable because players have different values based on the size of their market, which leaves small market teams at a disadvantage if payrolls continue to soar. Most of the major sports have tried several solutions that include salary caps, negotiations, and arbitrations. These solutions have proven mostly unhelpful, and they cannot be depended on to end the rapid increase in payrolls among the major sports. The only feasible solution to stop the increase is to cap the salary of an individual player and to standardize that cap rather than basing it on the team's revenue. This would eliminate the struggle with negotiations and with larger market teams outbidding smaller market teams. Individual player caps would effectively relieve the increase in salaries and even increase the competition level in most of the major sports.

Works Cited:

Calhoun, Gorman. The Name of the Game: The Business of Sports. New York: John Wiley & Sons, 1994.

Fizel, John, Elizabeth Gustafson, and Lawrence Hadley. Sports Economics. Wesport, CT: Praeger Publishing, 1999.

Howard, Dennis R. and John L. Crompton. Financing Sport 1^st Ed. Morgantown, WV: Fitness Information Technologies, 1995.

Howard, Dennis R. and John L. Crompton. Financing Sport 2nd Ed. Morgantown, WV: Fitness Information Technologies, 1995.

Leeds, Michael. The Economics of Sports. Boston: Addison Wesley, 2002.

Rosentraub, Mark S. Major League Losers. New York: Basic Books, 1997.