The Earnings of Professional Footballers
There is a rapid growth of earnings of the top professional football players. In the 1999s, the total wages and salaries of the 20 English
Premier League club was �391 million. In the 2000s, four clubs (Manchester United, Liverpool, Chelsea and Arsenal) each paid wages and salaries of
more than �25 million. A survey in the spring of 2000 found that about 100 Premier League players gained a wage above �1 million per year.
Football players' earnings have two proportions: one which has to do with the economic or competitive consequences for the football industry and the
other which demands the suitability of such high rewards resulting from participants in what is seen as an occupation.
The simple way to approach the wage determination is the marginal productivity theory. The highest wage a profit maximising club is prepared to pay, is
equal to player's marginal revenue product (MRP), what he would add to the club's revenue if he was employed.
Whether player's wages correspond to their MRPs, this depends partly on the rules on player mobility:
- under a reserve clause, wages are likely to be below MRPs.
- under free agency, players may be able to attract all of their own MRPs.
If the earnings of star players must be explained using marginal productivity theory within a traditional supply and demand framework, it is necessary to query
whether the MRPs of leading football players could be increased so as to justify annual wages of �1 million or more.
The Economics of Superstars
How sports stars can produce extremely high MRPs at the peak of their professions, this depends on two specific puzzles:
- The highly changed earnings allocations in some professions and
- The high levels of seller concentration.
There are two characteristics of consumer tastes and production technology:
- Imperfect substitution between sellers. The very best talent is in unique supply. Lesser talent is not perfectly substitutable for greater talent.
- External scale economies in joint consumption. Production technology permits many audiences to be serviced, with minimal additional effort/cost as the
audience size goes up.
However, there is some relationship between production costs and audience size.
As the audience grows, the marginal costs also rise because of:
- Internal diseconomies: In football, marginal costs increase when players get tired or injured as the number of matches rises or, because of rised stress or
psychological pressure in matches.
- External diseconomies: product quality may reduce, as audience size raises.
- There is loss of atmosphere if the stadium is too large.
- The television audience produces a product which may be inferior than 'live' spectators.
- Internal diseconomies, external economies and diseconomies:
If external economies are restricted by internal and external diseconomies, more than one seller can have a share of the market. Each seller's price is eliminated
by other sellers with less talent. The rent is based on the talent dissimilarity. Both audience share and selling price grow with talent, but audience share goes up
faster than price. The high earnings of the most talented sellers come from the audience share, rather than the price dissimilarity over the less talented.
Superstars succeed high wages:
- by working at 'high volume' (servicing very large audiences),
- at 'low margins' (charging each audience member only a modest mark-up relative to less talented suppliers).
For low wage and high utility the groups (doctors, nurses, teachers, police), the audience that can be serviced at any time is very constricted.
The Sports stars' 'high wage/low utility' configuration is explained by:
- imperfect substitution between sellers.
- The general audiences sports stars can reach at any one time, due to external scale economies in joint consumption.
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