Reprinted from Yellowhammer
The reborn United States Football League has completed its first regular season. USFL players have earned 4,500 per game or $ 45,000 per season.
In contrast, the top NFL players do a thousand times more than that. How can such a pay gap exist in the same profession?
Professional athletes earn what economists call rent, an idea first detailed by 19th-century British economist David Ricardo. Rent is a payment that exceeds the minimum amount a person needs to work in a job. Any factor of production in the economy can realize rent.
The need to play football for reasons that affect the minimum, the salary (or wages) of the reserve, explains how the USFL can pay such a low salary. The most important consideration for the USFL is whether a player plays in the NFL. With an NFL minimum wage of $ 610,000, no current NFL player should choose to play in the USFL.
Top college players earn more than $ 45,000 from names, images and licensing deals and shouldn’t be rushing to the USFL. Lots of skill differences exist between potential professionals. Players better than the “replacement” level will order higher salaries.
Some USFL players may get an NFL tryout based on their game. The opportunity to advance to the NFL is part of the USFL’s compensation. Original USFL “discovered” players who later played in the NFL, such as the undersized linebacker and 2022 Hall of Famer Sam Mills.
The attraction of work is also important. People will work less in the desired job or in the desired place. Fame and popularity make it very desirable to be a professional athlete before considering money.
Past salaries and expectations also affect conservation salaries. Green Bay’s Aaron Rogers has made a few million dollars in his career and will probably not play another year at 1 million. It will be very difficult to reduce the salary if the players expect to get millions of rupees.
The salary of NFL reserves for talented young players, if we can erase all expectations of millions of games, is close to zero. So why do NFL teams pay an average salary of $ 2.8 million? Two forces explain it. The first is revenue; The NFL earns more than 10 10 billion annually. These fans need talented players to play and earn at a level to generate interest, who earn millions for their team.
Thus, teams can carry an eight-figure salary. But why do owners, who like money, pay more than they save? Competition for talent, like all labor markets, drives wages to a fair level by revenue. Successful teams generate more revenue and owners often value the win. And the best players needed to win.
Sports salaries are almost entirely rent. Owners and players will strategize to capture this rent for themselves. Competition is greatest when players can negotiate and sign with any team or free agency whose owners oppose it.
For almost 100 years, the base clause of baseball has prevented free agency. The reserve clause allows teams to automatically renew a player’s contract for the next season for the same or higher pay. Teams always renew the contracts of good players.
Sport explains how it is sometimes necessary to take concerted action to advance one’s personal interests. Absent free agency, denial of a player’s only bargaining game.
While losing a star player can cripple a team, the league can be shut down when players go on a joint strike and shut down their services. The union helps to organize the collective action by the workers. Owners also need to cooperate to prevent bidding for players.
The reserve clause only worked because no owner tried to keep players away from other teams with higher salaries. After establishing a baseball free agency, players periodically accuse the owners of colluding, or agree not to bid aggressively for free agents.
Like all activities in the market economy, everyone involved in pro sports must participate voluntarily. Since many children dream of becoming professional athletes and earn billions from sports, voluntary participation is not a problem.
But sports generate huge rents and the competition to capture these rents ensures a permanent conflict between labor and management.