In my youth, relatively speaking, I had intended to become a high school English teacher. I love studying literature and have written regularly since I was ten years old, so teaching seemed like a fantastic outlet. By my sophomore year, I was assigned a local high school to which I would go and shadow a teacher for an assigned number of days. A week in a public school turned me off to the prospect of teaching in such a capacity, but it did confirm that I greatly enjoyed conveying new information and discussing new ideas with others. In short, I loved teaching, but preferred teaching in my own way, rather than a way dictated to me.

Professional Athletes and High Salaries

During one of the classes that I shadowed, the discussion took an odd turn as the students and teacher were discussing the Phillies game later that night. One of the students piped up and said that they believed that professional athletes were overpaid. At the time, the highest paid American athletes were commanding salaries of at least ten or even fifteen million per year. The other thirty high school seniors murmured assent and then the class broke down as everyone began speaking at once, suggesting that salaries should be restricted.

“They are,” I said. Everyone turned to look at me, as I had not spoken more than a few times that day and they seemed surprised to hear my voice. When everyone had quieted down, I explained.

Outside of Major League Baseball, all professional leagues in the United States employ a salary cap; an annual limit on salaries, agreed upon by the leagues and their respective player unions. Players that demand high salaries are ultimately limited, as teams must be able to pay their entire rosters enough to ensure that their players will perform at their best. Despite not having a cap, Major League Baseball employs a “Luxury Tax,” penalizing teams for spending excessively on players. Of course, baseball’s Luxury Tax is almost five times as high as the salary caps of other leagues.

“It just doesn’t seem fair,” one student said. “They get millions to play a game.” Sure, a football player can make millions each year to play a game. But they are not playing at the same level that we play at in our backyards on Thanksgiving. The necessary level of preparation and training, as well as the physical toll that players willingly incur, puts these athletes above and beyond the average person. It is a skillset and an incurred risk that nearly all persons do not possess.

Fans Give Athletes Their Perceived Value

“Do you go to games?” Everyone nodded. The Phillies are only a two-hour drive from Scranton, so every student attends a game at some point during the season.

“Do you watch on TV?” Every night. Sure, it’s easy to watch, so long as you do not mind the commercials and product plugs during the broadcast. I watch the Phillies every night as well.

“If you don’t want to see athletes get paid so much, stop watching.” Blank stares. Consider how professional teams make money. They provide a product on the field, a nightly exhibition between the best players in the world for our entertainment. We respond positively by attending games, watching on TV, and purchasing merchandise. Through attendance and TV viewership, the teams are then able to leverage their popularity in the form of sponsorships. Naming rights for stadiums can cost a sponsor twenty million a year, for as long as twenty years. The broadcast rights for the Phillies alone netted $2.5 BILLION over twenty-five years. Signage and billboards decorate the outfield walls. Even the ATMs that fans use in ballparks are supplied by banking sponsors, who pay for the opportunity. Add it all up, and even low performing teams can be worth hundreds of millions of dollars. And it is all thanks to the players on the field who draw fans and viewers to the games.

Analyzing a Player’s Worth

Just before the beginning of the 2019 MLB season, fans watched three mega deals; Bryce Harper, Manny Machado, and Mike Trout each signed nine-figure contracts with three separate clubs. How does one justify such money for individual players? Well, if you have ever attended a Society for American Baseball Research or “SABR” conference (this author has), you will find that baseball is an economist’s dream. Every possible statistic is calculated, even for players that have had only one major league at-bat. Individual plays from single games from fifty years ago are dissected for hours as the pinnacle plays from one player’s career. I have never met an economist who does not enjoy baseball.

One statistic that stands out for baseball players is “Wins Above Replacement” or “WAR.” This statistic measures how many wins a team would be projected to get from the performance of a single player, over any other player being in his position. The higher a player’s WAR number, the greater their value to the team.

Manny Machado has a career WAR rating of 35.2; Bryce Harper has a career WAR rating of 28.1; Mike Trout has a career WAR rating of 68.8. In 2019, they signed contracts worth $300 Million, $330 Million, and $430 Million, respectively. Each of these contracts stretches at least ten years and includes several bonuses and performance incentives.

Each of these contracts was made possible by the perceived value of the team and the fans’ experience of attending a game. Between gate receipts, sponsorships, broadcast rights, and MLB’s revenue sharing structure, the teams were able to put such money on the table to entice three of the best players in the league to sign for the rest of their careers.

Intangibles

One interesting note is that Harper’s contract is worth more than Machado’s, which may seem odd, if solely looking at each player’s WAR number. But there are other factors at play. Both are young and extremely talented, but Machado has earned a reputation for slowing down when a game seems lost or if his head is not in it. He was widely criticized for failing to run hard during the playoffs with the Dodgers in 2018, which many suspect hurt his value in free agency before the start of the season. His new team, the San Diego Padres, needed that young talent, however, to drive fans to games. Ordinarily a frugal team, the Padres have been spending more over the last two years to build a winning team and to signal to the fans that the ownership is committed to creating a worthwhile product on the field.

Harper earned a little more in the end; his contract stretches thirteen years with the potential for $33 Million per year, whereas Machado is earning $30 Million per year over ten years. Machado may have an opportunity to sign one last contract before retirement, while Harper will most likely retire, since he will be pushing forty years old. The key difference between the two is Harper’s style of play; he is regarded as a hard-nosed player who gives each play his all, yells at himself for grounding out, but still runs hard to first, and is extremely vocal in the dugout. He’s a young leader on a young team that will push everyone to play their best, no matter where the season currently sits. He is what Philadelphians would call a “blue collar player who brings his lunch pail to work every day.” That is a factor that speaks to the City of Brotherly Love, driving excitement and ticket sales.

Trout is a no-brainer. His glowing career statistics make him one of the best players currently active and guarantees his place in the Hall of Fame. He is young, plays with the same passion as Harper and has a warm attitude towards the fans, particularly children. Even the casual fan sees value in Trout, which the Angles capitalized on in 2019.

The Faithful Justify High Player Pay

There is a passion in sports unlike anything else; between the fans, players, and front office staff, nothing can compare to the desire to win on the field. But it is also a business, designed to generate profit. Ultimately, that profit is driven by the fans. Our attendance generates revenue through ticket sales, concessions, merchandise, and parking. Our attendance and viewership on television establishes the value of sponsorship and broadcast rights.

In order to compete with other forms of entertainment, professional teams must create a competitive product on the field, as well as a fantastic fan experience at the stadium. While Moneyball has convinced many that the use of sabermetrics (yes, it’s a real term) is a surefire way to build a championship team at lower costs, teams will still pursue high-caliber and high-cost talent, to create excitement for the next season.

Wages Are Based on Assumed Value

If one genuinely believes that professional athletes should not receive such high salaries in exchange for their services, you will need to refrain from attending games, watching on television, purchasing merchandise, and any other forms of interaction with the team. Conversely, if one genuinely believes that professional athletes should be compensated more, you will need to increase their value by attending games, watching on television, and purchasing merchandise.

Wages are ultimately driven by the perceived value one brings to an employer, who is assuming the risk when making a new hire. Mandating pay restrictions or increases will dilute the talent pool that makes professional sports so entertaining for fans. If a star player is paid the same wage as a rookie then there is little incentive to play at the highest level possible, only enough to maintain employment. Salaries based on actual and perceived value create the necessary incentives for high levels of performance. Like most things, it is in the hands of the consumer.