A couple months ago, I wrote about rookie salaries--whether or not they're "too high," and how the NFL's next labor agreement is certain to reduce them. With all the recent attention on NBA free agents, some are wondering why a backup point guard on the Orlando Magic is paid more money than NFL superstar Tom Brady. The issue of player salaries is an emotional one because it touches on our human instincts for fairness.
First, let's look at some facts. From USAToday's salary databases, here are the 2009 salaries for the three major professional sports leagues, plus something I'm told is called "hockey."
In economic terms, rent is a misnomer. It does not refer to money you pay a landlord for your apartment. It refers to the money above the minimum amount required to induce the employment of a resource. There is always rent claimed by both sides of all voluntary transactions, otherwise people wouldn't agree to the transaction in the first place. Similarly, there is always surplus value gained by purchasing something above its cost. When you buy something at the store, you enjoy the benefit of the good above its price, and the store enjoys the benefit of the cash above its cost to provide the good.
It seems to me almost all of the economic rent in professional sports goes to the players. It's hard to imagine any other multi-billion dollar company paying more than 60% of its revenue to a few hundred employees. It's not that the salaries are high in absolute terms, it's that the athletes should gladly play for far less. I think that's partly why so many people object to the high salaries for many professional athletes.
Thankfully for my fellow Americans, my personal opinion about how much money other people should make doesn't matter. The market is what matters--supply and demand. If teams thought that top draft picks were overpaid, they would simply offer less money and allow them to hold out, then they could use the money to sign free agents. I'm glad I don't have a committee of economists telling me I'm overpaid, and you probably are too.