Never Saw a Football Game

When I was young, my father was a police officer in New York City and, as such, instead of going into little league or the like, I was sent to the local Police Athletic Center, Rasmussen Center, to learn how to box. Boxing is a sport which is not really a team sport, it is survival, and as the only blue eyed heavy weight, I ended up with nose reformations and restructurings about three times until it was clear that I would not become the Great Irish Hope, or whatever.

Now I have never watched a football game, or basketball, and at best watch the Red Sox game only in World Series since my wonderful wife is from Boston. Thus, I have no interest in any spectator sports. So where is this going? Worthwhile Canadian Initiative had a piece regarding salary to sports figures which frankly blew my mind for its lack of understanding of the economics of the industry.

You see, I also ran a cable system, and have kept close to the industry's machinations. Now take sports channels. As I stated I have never watched any of them, never. Yet my $70.00 per month Basic Cable, you see I have Cablevision, pays the likes as ESPN and YES a cumulative of up to $20 per month per sub even if the customer never watches the channel! That is 100 million or more homes paying $250 per year, or $25 billion per year!

Now how does that relate to sports figures. Revenue less expense equals profit. The revenue here is as close to extortion as one can imagine, you want off the air TV then you must pay for stuff you never watch. The game then moves to the players and their unions and the games they play. If the game were paid for by attendees one suspects the players would be paid from the proceeds available. It is not paid that way. Everyone is taxed for these income transfer to these players. I pay despite the fact that I never benefit. It is income redistribution, but in this case from the less financially well off to the more so.

The article states: 

Just what is the difference between an athlete that ends up earning millions and one that never makes the big leagues? Luck is a part of it, but even if getting an extra hit in a given week may be a matter of chance, the law of large numbers says that you can't count on that kind of luck for long. But what this clip suggests is that the while the differences in skill between those playing in Yankee Stadium and those in the minor leagues may be small - one hit a week - they are at least measurable, and that's what counts.

To the extent that professional athletes' salaries can be explained by the tournament model, then those high salaries aren't so much a measure of the marginal product of top performers as an incentive dangled before everyone in the industry. Curiously enough, this is also the story that is often told to explain why CEOs' salaries are huge multiples of other executives.

So maybe we shouldn't be making the distinction between the millions that athletes earn and the millions earned by CEOs.

The actual point is to first understand how the revenue is generated. The CEO gets customers to buy the product made. The sports figure lives off the taxes collected from those who may have no interest in that they are doing or who frankly find their behavior reprehensible, such as Penn State and so many other sports figures. CEOs create value, sports stations redistribute incomes.

At least the movies types make money from people watching and paying. There is a one to one correspondence between what an actor gets and what is paid by a customer, akin to the CEO model. But sports figures get payments from people who have no interest, like me. Why should I pay $250 per year for nothing. And on top of it having some now over paid sports figure get involved in anti social activities resulting in negative externalities.

Perhaps it would help the economists to understand the true economic model rather than try to compare apples to mushrooms, or whatever.

Then Nick Rowe, tongue in cheek I suspect, responded: 

Baseball players are workers; CEO's are bosses, and therefore must be capitalists. Those who earn wages are poor and those who earn "profits" are rich. It's that old set of economic theories that conflate the distribution of managerial authority with the functional distribution of income with the personal distribution of income. Zombie ideas, that have been undead since 1871.


No, they are not workers, these figures are instruments, instruments of facilitation, like machines, since workers are transformers of raw materials to finished goods, well sports figures are the Gladiators and are necessary evils.The CEOs in this case have through the FCC and other Government agencies managed a taxation without representation scheme to get money for nothing. 

Another comment made was:

A classic example of not seeing the forest for the trees. What is more important is wealth inequality and the power inequality it breeds. While salaries are a factor in that, they aren't necessarily a major factor simply because many people who are paid high salaries don't often receive them long enough to accumulate a lot of wealth. Professional athletes are a perfect example of this. While a certain percentage do have lengthy careers at the top, the majority only last a couple of years.

 Where is John Galt when you really need him! Wealth inequality is due to the fact that some of us took substantial risks and were successful in those opportunities and created value for others and there was a return resulting therefrom. In what remains of a free society you have the opportunity to seek such a return. Instead whenever I hear this socialist retort I rebel. Since my grandmother was the head of the Socialist Party in New York a century ago, I understand better than most what that means, and it did not work then and will most certainly not work now. What power? There are many much less powerful people who are wealthy, they just want to continue to see their efforts prosper. Thus we in the State have fortunately put out capitol city outside of business cities.

Now for professional athletes, if someone gets $10 million a year then even at 3 to 5 years this is wealth creating. So the sop of it being for a short time is just that, a sop. 

Thus my argument is quite simple:

1. A CEO may become one of the 1% because he/she managed to create value by having products or services that people saw value in and thus purchased, aka Steve Jobs.

2. A sports figure gets rich because there is income transfer, mandatory and without the consent of the person whose income it is, to the sports figure. The sports figure creates nothing of value. 

3. An entertainment individual obtains wealth by having customers come a pay to see them perform.

4. The issue of how long one makes a certain income is irrelevant. A CEO may have his/her wealth tied up in options, and thus at risk. A sports figure can make extraordinary sums for as long as they can facilitate the creation of wealth for their owners.

Thus the posting mentioned above I believe misses the point totally. In fact, the old adage, follow the money, must be used in all such circumstances, and I believe that perhaps economists should keep that in mind.