4/15/2009

Is Lebron James Overpaid??

I have often heard people talking about the salaries of professional athletes. It's no secret that most professional athletes make more in one year than most of us will ever make in our life times. And I can see how people might think that paying people millions of dollars to run around playing like they were still in kindergarten could seem a little ridiculous. Just as an example, Lebron James plays for the Cleveland Caveliers. He came straight out of high school and is already making the individual salary cap of 20 million per year. That's some serious dough for just playing a game of basketball!! Most people see those kinds of numbers and are just disgusted. I used to think the same thing until I took a class on sports economics. There are certainly cases where players are overpaid for what they actually do in their profession. This is not the case for Lebron James.

It seems logical that a worker in his field should be paid what he is worth. For Example, I work in a factory driving a large fork lift doing very skill based maneuvers. It is not an easy job to do for most people. If I were to apply to work somewhere else, I know that I am at least worth what I am making. If an offer were less than what I am making now, why would I ever accept it? The only problem with most jobs, is that there is no effective way of measuring productivity. It is a very hard thing to do in most cases. In basketball however, productivity is perfectly measured. It is a very simple thing to see what a player contributes to his team. And it would make sense that a player should be payed according to his productivity.

Lebron James is one case where his productivity can be measured very well. In his profession, he would expect to make what he is worth compared to other players in the league, just like any other industry. If we use the stats to determine how much money James should be payed, there is very clear data showing that he is actually underpaid! If he were paid for the amount of money that he alone generates for the Caveliers, he would make a lot more money than he does. He brings in a lot more revenue than he is paid. This is determined by looking at the number of wins that he himself produces and the revenue that is made from the gate, merchandise, and other factors. So despite common belief, some professional players are not being payed what they should.

9 comments:

Julian said...

It is fascinating to think that many professional athletes are in fact underpaid due to the monopsonies that exist in professional sports. An employee like Labron James is extremely hard to come by, there is a definite shortage of people that are capable of the things that he does. As stated, the display of his skills generates massive amounts of revenue and makes him very deserving of his large salary.

anthony said...
This comment has been removed by the author.
Tristan said...

Calvin is absolutely right, Lebron is severely underpaid, and one might even say his labor is being exploited. Any other firm outside the realm of sports would be forced to compensate their workers by paying them their Marginal Revenue Product which leaves to wonder if perhaps the players have justified complaints of exploitation against owners. I like what Anthony brings up, we don't flip out when people make tons of money the "conventional" way, so why make a big deal about these athletes. Sure they get to play a game for their profession but it certainly is work and I certainly couldn't compete in that job market.

anthony said...

That's interesting, I hear that class is a lot of fun. You could say the same thing with portfolio managers though. If a manager makes 10 billion dollars a year, is it okay to pay him 10 million a year?

Landon said...

I understand what is being said here, but it would seem to me that the numbers are somewhat incomplete. So Lebron James brings in x amount of money and that means that he should make x amount of money? More than ever with the current course we are taking that there is more to consider than just revenue (x). The one thing I would consider is Alpha, how much return on the revenue is going to the owners of the team. Is that being excluded from his worth, because if not, then how would he be employed if not by a team owner? Also, one other factor that I am sure is costing Cleveland a small fortune is marketing him, not all these contracts are paying Lebron. Some contracts, example shoes, can be paid for by the team to drum up attention to one athlete. Like I said I understand the factors that could be making him under paid, but who is looking at the factors that are making him paid correctly?

Alexander said...

While it may appear clear through the statistics presented like how many wins Lebron creates, measuring a player's worth is hardly a perfect science. While Lebron James is a fun example, there are many other high profile athletes who by the same statistics are grossly overpaid. Lebron is really a special case and that is the only thing that is really clear in this instance. Also, it is incorrect to say that his labor is being exploited. There is no market for Lebron James at a salary above what he makes because he makes the league maximum. If he is, in fact, the best or most profitable player in the league, then by the league's collective bargaining agreement his salary is perfect.

chase said...

It doesn't matter what the profession is, if you are the best at what you do then skies the limit when it comes to payday. The funny thing I have come acrossed when talking about this subject is there are alot of people that think athletes get over paid for what they do. They think it's just a stupid game of basketball or football but yet they support the athlete by watching him each week.

Jason said...

I don't know what the owners of these basketball teams are making each year. I would be interested to know. I would think that they deserve a ridiculously large salary above that of the players on their team. That just makes sense when you think about bosses or owners of any company. I think the argument for exploitation of labor is weak, not least of all because nobody is going to feel sorry for someone that is making over a million dollars each year. If anybody is being exploited it is college basketball players. I would imagine many people are making a whole lot of money during the month of march.

Dr. Tufte said...

What does this have to do with macro?