Rodney Fort's Sports Economics

Rodney Fort's Sports Economics Chapter 7 The Value of Sports Talent

Table 7-1Details of 50 Top Athletes and Earnings, 2008 Notes: Salary/Winnings include bonuses. Total earnings includes endorsement income.

Figure 7-1Randy Johnson’s Experience-Earnings Profile Legend: Charting salary against experience for Randy Johnson (the data are in Table 7-4) generates his experience-earnings profile. It is common for all such profiles increase slowly at first, then rise quite rapidly, tailing off toward the end of a worker’s earning years.

Table 7-2Average and Median Salaries in Pro Sports Leagues (2009 dollars) (slide 1 of 2)

Table 7-2Average and Median Salaries in Pro Sports Leagues (2009 dollars) (slide 2 of 2) Notes: Averages assume total payroll reports are for the 25 man MLB roster, 15 man NBA roster, 53 man NFL roster, and 23 man NHL roster.

Figure 7-2Market Equilibrium Legend: In a two-team league, equilibrium in the talent market occurs where marginal revenues are equal and determine the price of talent. It is easy to see that the imbalance of revenues between the two teams ( for all levels of winning percent) generates competitive imbalance since the larger market team has a higher winning percent in equilibrium, that is,. Further imbalance in revenues also generates payroll imbalance. Spending on talent by the large market owner is larger than spending on talent by the smaller market owner.

Table 7-3Celebrity Pay, 2008(slide 1 of 2)

Table 7-3Celebrity Pay, 2008(slide 2 of 2)

Figure 7-3Ticket Prices and Payrolls, Boston Red Sox (2009 dollars) Legend: Adjusted for inflation, the average salary paid by the owner of the Boston Red Sox shows two significant episodes of decline. But ticket prices increased over nearly the entire period in the figure. The idea that rising salaries can cause rising ticket prices is not supported.

Table 7-4Randy Johnson’s Pay and Performance (slide 1 of 2)

Table 7-4Randy Johnson’s Pay and Performance (slide 2 of 2) Notes: ERA is averaged across teams in 1989 and 1998. Lifetime includes partial 2009 performance not shown.

Figure 7-4Ticket Prices and Payrolls, Boston Celtics ($2009). Adjusted for inflation, the average salary paid by the owner of the Boston Celtics had some significant ups and downs early on. But ticket prices increased steadily over that time. The idea that rising salaries can cause rising ticket prices is not supported. Notes and Sources: See Figure 7.3.

Table 7-5Major League Payrolls, 2008 ($Millions) (slide 1 of 3)

Figure 7-5Ticket Prices and Payrolls, New England Patriots ($2009). Adjusted for inflation, the average salary paid by the owner of the New England Patriots showed a number of periods of decline. But during those, there always was at least one significant increase in ticket prices. The idea that rising salaries can cause rising ticket prices is not supported. Notes and Sources: See Figure 7.3.

Figure 7-6Ticket Prices and Payrolls, Boston Bruins ($2009). Adjusted for inflation, the average salary paid by the owner of the Boston Bruins almost continually increased over time. But ticket prices did not. The idea that rising salaries can cause rising ticket prices is not supported.

Table 7-6Compensation Packages for First-Round NFL Draft Picks, 2009 (slide 1 of 2)

Table 7-6Compensation Packages for First-Round NFL Draft Picks, 2009 (slide 2 of 2) Notes: Includes total package signing bonuses.

Figure 7-7Hypothetical Demands for Teaching and Athlete Services Legend: Even though society is willing to pay more for teachers than for sports stars, as revealed by the higher demand for the former, supply also matters. Equilibrium in the market for teachers occurs with ST units of teaching services hired at a wage equal to WT. In the market for stars, the result is SS units of star services hired at WS. Since so many more teachers than stars are available at each possible wage, earnings by teachers are lower, that is, WT > WS.

Table 7.7Matthew Stafford Contract Details Notes: The option bonus must be paid in any event. If Stafford fails to take 35 percent of the snaps in 2009, the “No Option” case holds. If he does, the “Option” case represents the highest pay to Stafford.

Figure 7-8Men’s and Women’s Golf Lorenz Curve Legend: The farther the actual Lorenz Curve bows away from the 45-degree line, the more unequally shared is the purse. The Gini Coefficient is the ratio of the area between the 45-degree line and the Lorenz Curve to the area under the 45-degree line. The closer the Gini Coefficient is to one, the more unequal the outcome. Gini Coefficients of 0.620 and 0.656 are very high, indicating unequal outcomes in both women’s and men’s golf purses.Notes: Men’s tournament is the Players’ Championship, 2004. Women’s tournament is the 2004 U.S. Open.

Table 7-8Purses and Shares in Tennis and Golf Majors Notes: Tennis purses for U.S. Open and Australian Open are the total for both men and women; separate amounts not reported. The French Open purses do not include mixed doubles, men's seniors, or per diem. Total: $17.6 million. Currency converted at current rates.

Figure 7-9Fan Discrimination Legend: Favored race players have an MRP that includes the race premium put on them by fans. As a result, relative to their MRP in the absence of such favored status, more of their services are hired in the presence of fan discrimination, SR > SA, and they are paid more, WR > WA.

Figure 7-10Employer/Teammate Discrimination Legend: Favored race players have an MRP that includes the race premium put on them by employers or teammates. As a result, relative to their MRP in the absence of such favored status, more of their services are hired in the presence of employer/teammate discrimination, SR > SA, and they are paid more, WR > WA. However, in this case, the employer bears the cost of the premium since fans do not share their preference and will only pay according to the actual MRP. In order to have favored race players, the owner pays a wage, WR, in excess of the value to fans give by Actual MRP. The owner’s excess payment is equal to the shaded area

Rodney Fort's Sports Economics