High Salaries of Players – the Good, the Bad and the Ugly

Sport became a fundamental part in people’s life and created an enormous profitable business environment. A study of the sport industry indicated that the industry revenue generation exceeds $213B. Furthermore corporate sponsorship of sports properties in 2005 estimated to be in excess of $7.7B. The NFL franchise was worth of $755M which showed a 17% increase over 2003) (http://www.slideserve.com/osmond/sport-the-economy). All these indicators suggest that the sport industry is on the raise and in fact through this lucrative business job opportunities are developed.

In this blog I discuss mainly the high salaries of professional athletes and the positive and negative outcomes of these salaries to the sport teams. There are lots of different businesses and companies involved in the sport industry; therefore in order to be specific, I will concentrate on the sport teams which are an essential part of the sport performance segment.

 “The industry also contributes 456,000 jobs with an average salary of $39,000 per job.”

http://www.economicmodeling.com/2013/07/09/not-just-a-game-the-impact-of-sports-on-u-s-economy/

Two major winners of this profitable business are the athletes and the owners. Through the action of the rise in NFL salaries, player salaries continuing to rise, and therefore sport managers are “facing the challenges of generating sufficient revenue to match those increased costs” (Pedersen et al, 2011). Certain NFL teams, which are a part of the sport performance industry, are concerned with the high salaries of athletes in order to maintain their goal of being a profitable organization.

     “I’ve got partners out there right now whose teams are making less money than their linebackers,” Bisciotti said. ” I think we’ve got an acute problem here with the general profitability of the teams. We always knew this was not a big cash-flow business, but when you’ve got guys like Jacksonville tarping up 10,000 seats to stop blackouts, when you’ve got teams that are voluntarily staying at the minimum of what they have to spend on the salary cap in order to not go upside down financially, then we already have a structural problem.”

http://www.nfl.com/news/story/09000d5d8162e7da/article/bisciotti-many-nfl-teams-struggling-financially-lockout-possible

These words of Ravens owner Scott Bisciotti in 2010 indicate that NFL teams are facing the lack of having no significant cash flow. Thus teams have problems of generating a profit and long-term problems are created in order to have a healthy and stable business. Tremendously high salaries of professional athletes are not helping to create a cash-flow business. Furthermore the heightened power of the players unions in the professional sport leagues plays a significant role in increasing the salaries and raising the salary caps. Furthermore the players unions contributed to an increase in labor stoppages, which also effects negatively the financial situation of the teams.

Screen shot 2011-04-24 at 8_31_42 PM

 

Nevertheless there are also positive economic results for teams regarding giving professional athletes a high salary. For example the Los Angeles Lakers has a 5-year average profit of $38M (http://www.forbes.com/pictures/emdm45hle/2-los-angeles-lakers/). Kobe Bryant probably has a major influence as a player and a brand in the profit of the Lakers. He is by far on the top of the Lakers’ salary list with $30.45M in 2013-2014; the second one is Pau Gasol with $19M (http://www.hoopsworld.com/los-angeles-lakers-team-salary). In my opinion one cause of the high salaries of professional athletes is that clubs and their owners are dependent on these athletes. The thought of “we need you more than you need us” is a reason why owners pay their players so much money. As mentioned in the YouTube video below, which discusses reasons of the inequality of salaries between people. It is discussed that capital used to keep talent in place, because capital was scarce. Now a day’s talent keeps capital/money, the reason for that is that talent is what scarce, and thereby athletes demand a higher salary from their employers’ because they realize their unique and in demand talent.

http://www.youtube.com/watch?v=EZ83YOptIZ8

All in all high salaries of professional athletes definitely help to keep talented and high skilled players, who generate profits for their teams because of their unique performances. Never the less high salaries can be a burden for club owners in order to generate profit and to create cash flow. The players unions are a major issue of clubs because of their constant demand of higher salaries. Fact is that not every single team has a Kobe Bryant who generates a ton of money. Smaller clubs are facing major problems in order to keep up with the payment of high salaries.

Tags:

Leave a Reply