Age of the megadeal: Do athletes make too much money?

There were undoubtedly winter nights in the late 1950s when some of the patrons at Ruggeri’s, an Italian restaurant in St. Louis, did a double take at the sight of a short, squat man with jug-handle ears framing his familiar face bringing their meals to the table. It must have seemed terribly out of context, after all, to see him serving them dinner plates instead of crouching behind home plate. But there was no mistaking him, even out of his regular uniform. Their waiter for the evening was Yogi Berra, the All-Star catcher for the New York Yankees.

Legend has it that it was at Ruggeri’s, which has since been renamed Favazza’s, that Berra coined one of his famous malaprops in talking about a competing eatery: “Nobody goes there anymore. It’s too crowded.” But other than coming up with memorable quotes, the Yankees superstar wasn’t doing anything out of the ordinary by waiting tables. It was quite common for athletes of his era to work another job when their sport wasn’t in season. As difficult as it may be to believe now, when professional athletes’ contracts continue to skyrocket ever higher into the hundreds of millions of dollars, it wasn’t that long ago that players routinely needed a second income to help make ends meet.

Instead of spending their offseasons training or vacationing, professional baseball, football, and basketball players once tended to take their place in the traditional workforce. During the 1950s, Brooklyn Dodgers outfielder Carl Furillo ran a Queens deli in the winter, and Hall of Fame New York Giants quarterback Y.A. Tittle sold insurance in the summer. In the 1960s, Hall of Fame running back Jim Brown worked as a sales rep for Pepsi when he wasn’t breaking tackles. A few weeks after Baltimore Orioles pitcher Jim Palmer shut out the Los Angeles Dodgers in Game 2 of the 1966 World Series, he reported to his winter job selling suits at a men’s clothing store for $150 a week. He needed the paycheck, he told reporters, “to pay for groceries, hot water, and electricity.”

Their modern-day counterparts, of course, can afford to stick to their day jobs. Today’s pro athletes are walking corporations in many cases, multimillionaires with salaries that guarantee they will never need to work again after their playing days are over. It’s not exactly a news flash that many elite pros – and lots of not-so-elite ones – earn more money in a year than the average American worker makes in a lifetime. But even observers who had long since become numb to the number of zeros in sports stars’ contracts had to raise their eyebrows at the megadeals signed by a trio of baseball stars in late February and March, a monthlong span turned into a high-stakes game of “Can You Top This?”

On Feb. 21, infielder Manny Machado signed with the San Diego Padres for 10 years and $300 million, the most lucrative contract in terms of total dollars for a free agent in baseball history (Giancarlo Stanton signed a 13-year, $325 million deal with the Florida Marlins in 2014 but that was a contract extension). A week later, outfielder Bryce Harper surpassed Mr. Machado by agreeing to a deal with the Philadelphia Phillies for 12 years and $330 million. Mr. Harper’s record stood for only three weeks, until the Los Angeles Angels announced that their star center fielder, Mike Trout, had signed a contract extension that will pay him $426.5 million over 12 years, an average annual salary of more than $35.5 million. The sudden billion-dollar spending spree brought the debate about the economic system of American professional sports back to the forefront. Familiar questions were asked: Are those hefty paychecks simply the result of the supply-and-demand forces of capitalism determining what the market will bear? Or is the fact that athletes tend to be paid so much more handsomely than schoolteachers, nurses, firefighters, and others whose work is arguably of far greater benefit a sign of an economic system with its values out of whack?

There was a time when the players themselves might have agreed that they were overpaid. “No athlete is worth the money he’s getting,” National Basketball Association star Elvin Hayes said in 1978, “including me.” Mr. Hayes was making $7.7 million per year when he said that, a modest sum compared with what a player of his stature would earn today. 

But as salaries have grown, athletes have become more willing to defend the amount of money they earn. “I’ve always said that the ones who should be making millions are our military men and women, our first responders, our schoolteachers,” says TNT broadcaster Charles Barkley, a former NBA player and a member of the Basketball Hall of Fame. “But that’s not the system we live in. These athletes are the best in the world at what they do, and they generate so much money for these leagues that it’s only right that they get their fair share.”

It seems that the public and media have also become more accepting of – or perhaps resigned to – the staggering sums handed out to athletes. (To male athletes, that is. Most female sports stars are still fighting for what they consider to be salaries worthy of their skills while their male peers are becoming multimillionaires.) Though there are still plenty of callers to sports radio talk shows who will complain that players are overpaid – usually when the expensive free agent on their favorite team fails to perform up to expectations – it’s harder to locate unbiased experts who attempt to make the case that players aren’t “worth” their salaries. To them, and to most of the general public, it is not so much a philosophical question as an economic one.

“We need to keep in mind where sports fits into today’s society and how the industry has grown,” says Leland Faust, an investment adviser and founder of a firm, CSI Capital Management, that represents professional athletes. “They occupy unique cultural real estate and unify us in a way that nothing else does. No matter where we go, sports are inescapable. The industry gets exposure across all forms of media – 24/7 radio, TV, newspapers, and the internet. Given all that, in many cases you could make the argument that professional athletes are actually underpaid.”

Multimillionaire backup QBs

It’s not just the stars who are becoming wealthier than some developing nations. The three professional sports leagues in the U.S. with the highest revenues – the National Football League, the NBA, and Major League Baseball – generate so much money that even players with modest professional accomplishments often become multimillionaires. Consider NFL quarterback Chase Daniel, who has been exclusively a backup QB for all of his nine seasons in the league with the New Orleans Saints, Kansas City Chiefs, and Chicago Bears. Mr. Daniel has been his team’s starter in only four of the 144 games in which he’s been on an NFL roster, each time filling in for an injured player. In other words, Mr. Daniel almost never plays. Yet during those nine years of mostly standing on the sidelines he has earned a total of $28.3 million.

Together, the NFL, NBA, and MLB generated more than $30 billion in revenue last year, which means that it isn’t just the athletes who are making a fortune. Team owners are so flush with cash that their biggest problem is finding ways to spend it. Purchasing so-called superyachts, for example, appears to be the latest pricey hobby among NFL owners. Dallas Cowboys owner Jerry Jones recently bought a $250 million vessel that is the length of a football field and features two helipads. Daniel Snyder, owner of the Washington Redskins, unveiled a less expensive – merely $100 million – yacht in January that nevertheless contains what is believed to be the first certified Imax movie theater on a superyacht. Meanwhile, Atlanta Falcons owner Arthur Blank recently unveiled a $180 million yacht that features, among other luxurious amenities, a “golden dining room,” according to Business Insider.

But somehow owners’ excesses have never drawn the same scrutiny as players’, maybe because there is a far longer history of business owners amassing great wealth and spending wildly on luxuries than of athletes doing the same thing. In a span of just a few decades, the entire salary structure of professional sports has changed dramatically, transforming athletes from the middle class to the moneyed class. The occasional harmless fan grumbling notwithstanding, American sports leagues for the most part have escaped the major backlash over their income distribution that other institutions have faced, even as the U.S. is experiencing an era of rising income inequality.

In 2015, the top 1% of families in the U.S. made more than 25 times what families in the bottom 99% did, according to the Economic Policy Institute, a nonpartisan think tank. That represents a reversal of a trend that saw the income gap narrow from the time of the Depression until the 1970s. Given the populist pushback against other “one percenters” by movements such as Occupy Wall Street and the backlash against the U.S. banking system after the subprime mortgage crisis, it might seem logical for athletes to draw some of the public’s ire toward the superrich. 

Instead, most fans have not only made their peace with the players’ gargantuan salaries, they have even criticized owners for being too “cheap” to accede to players’ contract demands. Yankees fans, for instance, weren’t pleased that their team decided not to seriously consider paying Mr. Harper or Mr. Machado. In fact, the breaking of the $300 million barrier by that pair was considered a fait accompli. Fans and media grew impatient for them to be signed, and when only a few franchises showed interest, there was widespread suspicion that teams were unfairly colluding to keep their salaries down. 

There was a time when a huge contract signing would have brought hand-wringing about whether player salaries were rising out of control. This time, the flurry of signings brought stories with headlines such as “5 Reasons Bryce Harper’s $330 Million Contract is a Steal for the Phillies” and in reference to Mr. Trout, “Baseball’s Best Player Deserves More Than $430 Million.”

Testy with the media

Although there is more general acceptance of players being part of the 1%, the blessing of a big contract can be at least a small curse for athletes who complain about their situations in any way. NBA stars Kevin Durant and Kyrie Irving have both been testy with the media this season, complaining about the stress of constant speculation that they planned to leave their teams, the Golden State Warriors and Boston Celtics, in order to become free agents and perhaps join forces next season. Commissioner Adam Silver empathized with them, saying that in general many NBA players feel depressed and lonely despite their millions. 

“That’s the stupidest thing I might have heard any commissioner say,” Mr. Barkley told ESPN in March. “These guys are making 20, 30, $40 million a year, they work six or seven months a year, [they] stay at the best hotels in the world. They ain’t got no problems. That’s total bogus.”

It isn’t necessarily bogus, of course. Wealth isn’t a guaranteed shield against psychological or emotional issues. But one of the few drawbacks to earning so much money for players is that they get less empathy for any problems.

Few workforces in the U.S. have gone from being exploited to being so wildly enriched over the past 40 years. Part of the reason that athletes made relatively modest salaries for so long is that the system was weighted in favor of the owners. In baseball, for instance, players had no ability to become free agents. Even after their contracts expired they were considered the property of the team they had played for unless they were traded or released. That kept salaries depressed because players couldn’t offer their services on the open market. 

In 1972 St. Louis outfielder Curt Flood challenged that aspect of baseball’s system, the reserve clause, with a lawsuit. Flood paid a huge price, literally and figuratively, in fighting the system. He received hate mail from fans – “four or five death threats a day,” his teammate Bob Gibson said – and he was effectively blackballed from baseball, playing only 13 more games the rest of his career. Although he ultimately lost in the U.S. Supreme Court, the justices did recommend that free agency for players should be attained through collective bargaining between the owners and players.

A few years later, that’s exactly what happened. Because of the pressure that Flood’s suit brought to the baseball owners, the players’ union was able to bargain for binding arbitration on grievances. And, finally, in 1975, when pitchers Andy Messersmith and Dave McNally agreed to play a season without a contract, arbitrator Peter Seitz ruled them free agents – able to sell their talents to any team that wanted them. Overnight, the system was transformed in favor of the players. There were media predictions that free agency would ruin the game, but in the end, the players association worked out an agreement with management, and profits rose along with salaries as fans liked the exciting new era of free agency and the players it brought to their teams. 

Soaring TV revenue

Since then the pool of money that players and owners divide has grown exponentially, and the biggest reason for that increase can be expressed with two letters: TV. In 1961, CBS, the sole network that televised NFL games, paid the league $4.65 million for broadcast rights. Today, CBS, NBC, ABC, Fox, and ESPN all pay for the rights to broadcast part of the NFL’s schedule, and the league pulls in $3 billion in TV revenue alone each year. 

The NFL commands more TV revenue than any other league in American sports, but the NBA and MLB have also seen their television profits increase greatly. The notion of the owners and players splitting the pot no longer holds; the pot has turned into something closer to a bottomless vat, with both management and labor coming away with their bank accounts overflowing. 

The reason for the remarkable growth in what networks are willing to pay for the rights to broadcast sports lies in the generalized appeal that football, basketball, and baseball have to a wide viewership. The television audience has become increasingly compartmentalized thanks to the advent of more viewing options on cable TV and the internet. The public now divides itself into narrow groups, seeking out media that cater to specific interests – cooking, nature, politics, fashion, et al. In that landscape, the ability of sports to attract viewers across all demographic groups has become hugely valuable. 

Beyond that, sports are one of the few forms of television entertainment that are still viewed almost entirely live. The rise of the DVR has changed the way people watch most television, allowing them to record shows, watch them at their convenience, and, importantly, fast-forward through commercials. But the immediacy of sports is such that viewers want to watch games as they happen, which means that advertisers get much more exposure than they do on other types of shows. Sports deliver eyeballs to ads. “If we sat here today and had just done a 20-year NFL renewal, and you asked me what’s on the top of my mind, it would be renewing the NFL in 21 years,” Eric Shanks, head of Fox Sports, told Ad Age last December.

The money has to go somewhere

The bottom line, then, is that the national attraction to sports has created a multibillion-dollar industry and quite simply, all of that money has to go somewhere. Professional athletes generally are unapologetic about a lot of it ending up in their stretch-suit pockets. “It’s funny that people ask why players make so much money but they never ask that question about owners,” says Detroit Pistons forward Blake Griffin, who made $31.8 million this season. “All the players are getting is our fair share.”

The average fan might wonder why both owners and players couldn’t take smaller shares and charge lower ticket, concession, and parking prices at games, but of course they are not obligated to do that.

Another argument in defense of high player salaries is that NBA, NFL, and MLB players all have an average career span of fewer than seven years, which is a small window of time to earn a living at their chosen profession. That doesn’t mean players are entitled to be exempt from having to work once their careers are over, but except for the relatively small number who are able to find work related to their sport, such as in coaching or broadcasting, many ex-players find themselves having devoted their lives to one career and then having to start building another from scratch.

The simplest defense for the platinum salaries, and the one hardest to refute, is the capitalistic one – that players, like almost everyone else, make what the market will bear. But the market is created in part by the public’s demand, and does that demand signal a value system that needs recalibrating? Ethicist Shawn Klein, a lecturer at Arizona State University and author of The Sports Ethicist blog, thinks not. “We get a little bit of sticker shock because we see $430 million to play baseball and we think, ‘What the heck is that?’” Mr. Klein says. “But an individual’s salary is not a reflection or function of their social worth, or their value to humanity. It’s more a function of the relative scarcity of the service they provide.” For example, the total number of players in the NFL, MLB, and NBA is below 2,500, while there are 3.5 million to 4 million K-12 public school teachers in the U.S. “Teachers are more important, but they aren’t as scarce,” says Mr. Klein, “and that’s reflected in the price of their service.”

This isn’t to say that there is no downside to placing outsize value on professional athletes. To impressionable young people, especially economically disadvantaged ones, money is probably the clearest measure of success, and seeing players enjoying the trappings of great wealth can warp their priorities. In addition, the attitude of entitlement some athletes display is hardly the best model for children. In 2004, Minnesota Timberwolves guard Latrell Sprewell, who had made more than $97 million during his 13-year NBA career, turned down a three-year, $21 million contract offer because he felt the team was low-balling him. “I have my family to feed,” Mr. Sprewell said. 

Despite occasional tone-deaf comments like that, most players recognize that the public considers them incredibly fortunate to be paid so much to play a child’s game, and they agree. “We’re not comparing ourselves to teachers or nurses or people like that in terms of what we do for the community,” says NFL quarterback Derek Carr, who will earn $19.9 million this season. “The reason you see players starting charities or donating money to different causes is because we know there are more important things than football or other sports. It’s a way of trying to correct that imbalance a little bit.”

Still, those monstrous salaries and the luxuries they provide might very well suggest that aspiring to be an athlete is preferable to dreaming of becoming, say, an astrophysicist or an emergency room nurse. But there is little reason to worry that society is in decline as long as there are those who aspire to careers whose value isn’t limited to the amount of money they make. “A cynic,” Oscar Wilde said, “is someone who knows the price of everything, but the value of nothing.” A society need not feel guilty over highly paid athletes as long as it recognizes that how much a ballplayer – or anyone else – earns is not the truest measure of how much he or she is worth.