Before I can address the issue of player’s salaries, a background basis of the business of professional sports must be touched upon. Professional sports clubs are monopsomies. A monopsomy is a market with only one buyer or employer (Sharp, Register and Grimes 262). There are two major factors that create monopsomy power for professional sports clubs. The first factor is the immobility of new players (those who were just drafted). New players who want to play pro sports must sign a contract that binds them to their teams for a certain number of years. Once a player signs the contract, he or she does not have the option of negotiating with other clubs. The second factor is the specialized athletic talents (skills) each player possesses. The athletic abilities and skills of most athletes are very specific to their sport, and aren’t readily transferrable to other sports. Players who have only extremely specialized skills have opportunities for employment limited to the employers who require those skills (263). For example, a basketball player with an uncanny ability to shoot a basketball would not be offered employment in the NFL (unless he had football talent). He would only be offered employment by the NBA as a basketball player.
Wages and Employment for A Monopsomist (ex: Los Angeles Lakers -professional NBA team):
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As a single employer, the Lakers face the market supply S. S is positively sloped because the Lakers is a single buyer, and thus, must increase its wage offers to hire additional workers. The marginal cost of labor curve (MFC) reflects the additional costs the firm experiences by hiring an additional worker. The Lakers will hire employees up until the point where the marginal cost of hiring an additional player does not exceed the marginal benefit of hiring the player. The Lakers will hire workers up to the point where MFC equals MRP (marginal revenue product of labor). At this point, profit is maximized. It should be noted that MFC and MRP cross above the point where WM and Lm cross. However, according to the market supply schedule (S), the Lakers can hire employees for a wage where WM and LM cross. Thus, even though a player’s contribution to the clubs revenues occurs where MFC and MRP cross, each player will only receive a salary at the point where WM and LM cross (264).
Because monopsomies are able to hire fewer workers than a competitive firm and pay lower wages to their employees, they are said to exploit their workers. For a long time, professional sports players earned a lot less money than they could have been earning (266). This was due to the various monopsomistic powers stated above. In recent years though, professional sports clubs have been forced to give up some of their monopsomistic powers. This has caused dramatic increases in player’s salaries. Free agency is one form of power pro sports clubs lost and one form of power players gained. In past years, player’s contracts had reserve clauses reserving the right of the employing sports club to hold exclusive rights to the player’s services. A player could only change teams if his or her sports club traded or sold the rights to his or her contract to another club. After many years of fighting between the players and the sports clubs, the two reached an agreement in which the employing sports club could hold the rights to its players for only a specified number of years. Once these years were up, the player could declare “free agency”. A free agent is a player whose contract is no longer exclusively held by one sports club. Free agents could roam the market looking for the highest prices individual clubs were willing to pay. Thus, player’s salaries drastically increased (267). According to Major League Baseball, in 1976, players were earning $52,300 per year. After free agency was introduced, player’s salaries spiked to $2,866,500 per year (in 2006).
This brings me to the final question. Do professional sports players deserve to earn the money they receive? Well, from an economic standpoint, they most surely do. As long as sports clubs experience increases in revenue greater than the increases in costs from hiring additional players, the sports clubs can increase profits with every new hire. Thus, if a sports club’s players are paid millions of dollars, but those players are generating even more millions of dollars in revenues, than sports clubs should pay their players millions of dollars because the clubs are still making a profit. Professional sports players salaries reflect their contribution to their club’s revenue. This is the reason doctors and construction workers do not make millions of dollars. Doctors and workers do not generate millions of dollars in revenues for their employees (269). So, who is to blame? The general public is to blame. The people who watch the games on T.V and pay thousands of dollars for season tickets to watch their favorite players are to blame. People who buy thousands of dollars worth of sports merchandise are to blame. These people are directly funding the professional sports market. Thus, if people stopped watching games, stopped buying tickets and stopped buying jerseys, then there would be no professional sports market. Professional sports clubs wouldn’t make nearly as much revenue, and thus players salaries would drastically decrease. From an economic standpoint, players and sports franchises are not to blame. The people who are fans of professional sports are to blame. These are the people who fund the player’s outrageous salaries.
--Matthew Kavalek—
References
Sharp, Ansel M., Charles A. Register, and Paul W. Grimes. Economics of Social Issues. 18th ed. New York: McGraw Hill/Irwin, 2008. Print.
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