Are Professional Athletes Over-Paid or Justly Compensated?

June 29, 2010  |  

by Khalid Salaam

As it pertains to most inquiries, accusations and declarations, the key variable is usually context. To be able to discern the true from the false often requires an understanding dependent upon an individual’s ability to judge things in relation to other equal things. Otherwise, thinking is often clouded by misconceptions where opinions and status updates are rendered impotent of credibility. So if you’re asking if the salaries of professional athletes are too exorbitant then first you must consider your frame of context. Otherwise, what exactly are you doing?

The 1st mistake people make is grouping all pro athletes together. Are we talking about anglers? Bowlers? Stock car drivers? Pool players? Pokers players? volleyball players? Cyclists? What do people mean when they say pro athletes?

The 2nd mistake is making the issue emotional. The anti-athlete credo has a populist tilt to it, born out of a hatred of privilege. The perception that athletes are paid unreasonable amounts of money for kicking or throwing a ball is an antiquated and ignorant mentality. They’re not paid for what they do; they are paid because people want to watch what they do. So to answer the question, are pro athletes overpaid? Yes and No.

Principles of market demand dictate business decisions and explain where money comes from and where it goes. Television networks pay for sporting event broadcast rights and then sell airtime to advertisers. If people demand to see a particular sport, then the network can charge companies (like Mercedes Benz or Apple) who want to buy ad space as much as that market can bear. High ratings translate into high demand and if the rates are high, the salaries are high. It’s literally that simple.

For example, Denver Nuggets forward Kenyon Martin made $13 million this past season. That’s the number his team and agent decided was fair based on what he provides on the court (defensive positioning, rebounding, some scoring and lots of intensity) and in relation to how that impacts his team.

The Nuggets have been a playoff team for 7 consecutive years and last season nearly made the NBA Finals. They are a fairly popular franchise and thus are shown on national television frequently. Between TV rights, merchandising and ticket sales, money for Nuggets games are generated at a higher rate than say New Jersey Net games. When Martin signed his current deal, his market worth was decided to be 13 mil. While he is a solid and occasionally good player he generally misses a lot of games due to injury. When he can’t play he can’t contribute and if the Nuggets could renegotiate I’m sure they would. However his contract is guaranteed per the duration of the deal. In the context of what he gives the team, he probably is overpaid.

CBS News anchorwoman Katie Couric makes approx $15 milion a year to represent CBS news programming. She also occasionally submits pieces to other programs such as newsmagazine 60 Minutes. Her evening broadcast is not the ratings leader it should be in order to justify her salary (CBS Evening News regularly comes in at 3rd behind ABC and NBC). If a company wants to get the most visibility out of showing a product, CBS would not be the 1st option. In order to compete they must sell companies a lower rate because of their standing. Couric was hired to make CBS number #1 and for whatever reason they remain at #3 so in this context she is overpaid.

Contracts, by their very nature, are dependent upon the strength of the individual. The more coveted you are, the more you can demand. That’s for all industries, not just sports. Here’s another example. Kobe Bryant is making $23 million this year. His on court abilities plus his talent in attracting viewer ship justifies his money. He is arguably the best basketball player in the world and has won his 5th championship. NY Yankees third baseman Alex Rodriquez made $33 million this year and is a perennial all-star yet only has 1 title to his name.  Now is A-Rod overpaid in regards to Kobe?  I would say yes, but it doesn’t matter. Baseball has a different financial structure and that’s what their market can bear. (Conversely the NHL has less money and their best two players—Alex Ovechkin and Sidney Crosby both make 9 million respectively). The aforementioned players all make a ton of money yet none are close to Yahoo CEO Carol Bartz, who made 47 million in 2009. Now is she overpaid?  Obviously not because she deserves what her company can bear. It’s all relative.

The biggest complaint people have about pro athletes is that their salaries don’t match what they contribute to society. If it seems unfair that’s because it is. But that’s a reflection of what we value in society. How is it fair to criticize those for taking the money someone’s offering them to do their jobs?

Hotel bartenders are unionized in NYC and they make anywhere from $50 – $70,000 per year pouring fancy drinks into fancy glasses. Now, 70K is obviously not 47 million but its still a really respectable amount. This in not a job that requires a unique skill-set – are they overpaid?

Louis Camilleri is the CEO of tobacco giant Philip Morris International. His salary last year was 24 million for selling cigarettes of all things. Is he overpaid?

Comedian Larry the Cable Guy made $13 million in fiscal year 2009. His comedy tour, DVD sales and merchandising brought him more money last year than most people make in a lifetime. Whether you think his act about rural American culture is funny or not is irrelevant because the market already gave its opinion on the subject. Is he overpaid?

There are people under and overpaid in every occupation yet sports bears the brunt of many people’s anger. Far too many people romanticize sports and connect them to long lost memories of their youth. They want players to “play for the love” when in actuality it’s a business and making as much money as possible is the goal. It’s not a moral calling, it’s a job. It would be nice if people did more than add to the cacophony of voices that resent athletes for exactly what they would do in the same situation.

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