Are Athletes Overpaid or Well Paid?
At the heart of this debate is marginal revenue produced. If the marginal revenue produced by an athlete is greater than the cost of his services, everyone wins. Prior to the fall of the reserve clause, which essentially forced indentured servitude on professional athletes, owners kept the revenue produced by athletes. Since free agency was implemented in the 1976 Collective Bargaining Agreement, baseball players have been able to demand a greater percentage of the revenue they produce, as evidenced by the recent signing of Albert Pujols.
There are several reasons why Pujols’ marginal revenue produced for the Angels easily justify his overall cost.
1. Pujols’ performance. The more successful a team is in wins, the more fans they attract. And the further up the win curve a team rises, the greater the value of each additional win. In the case of the Angels, who won 86 games last year, adding Pujols to last year’s roster would have pushed them into a wild card tie with Tampa, despite the fact that Pujols missed a portion of the season because of an injury. Vince Gennaro’s Book Diamond Dollar$ indicates that moving from 86 to 91 wins would be worth $11.8 million to the Angels, which ironically is less than the projected $13.9 it would be worth to Pujols’ former team, the St. Louis Cardinals. If a healthy Albert Pujols moves the Angels even further up the win curve and to a championship, it will increase his performance value even higher. An example of this was seen in 2003 when the Angels actually increased attendance the following year by 755,529 following their 2002 championship—never-mind that the team finished in third place that year with only 77 wins.
2. Pujols’ marquee value. According to Gennaro’s book, a player like Pujols is worth $2.77 million/year of the Angels overall value of $554 million (Forbes 2011).
3. Pujol’s pursuit of Barry Bonds all time home run record. With 445 career home runs, Pujols has averaged one home run for every 3.83 games played. To reach the all time home run mark of 756, he needs 311 to tie Bonds or average one home run for every 4.82 games played over the next 10 years (taken into consideration 1,500 games played). In the seven years prior to Barry Bonds retirement, the San Francisco Giants averaged 3,237,632 in attendance. In 2007 with Barry Bonds in pursuit of the all time home run record, the 71-win Giants drew 3,223,202–or 359,365 more than the following year’s 72-win team minus Barry Bonds.
The Angels invested approximately $206 million in today’s dollars over the next 10 years (discounted at 4%) signing Pujols. Because the contract is reportedly backloaded with a larger percentage of his salary coming in later years, the amount is actually lower.
How will Pujols’ marginal revenue produced compare to the investment? Consider this:
• Pujols moves the Angels up the win curve into a perennial championship contender, thereby increasing attendance
• His marquee value and pursuit of the all time home run record also draws more people to games
• He provides increased brand power and total overall value of the team
Clearly, a player’s potential marginal revenue produced is speculative in nature and based on many variables. In the case of Albert Pujols, only the Angels and inevitably the future will know whether the contract was a smart investment.
ALAN POGROSZEWSKI is an Assistant Professor of Sports Studies at St. John Fisher College and the President of his own tax consulting business whose clientele include professional athletes performing services on three separate continents. Prior to accepting his position at St. John Fisher College, Mr. Pogroszewski was the Vice President of Business Operations for Sports Consulting Group, a firm that specializes in the representation of professional hockey players. Mr. Pogroszewski received his M.B.A. from Rochester Institute of Technology in 1996 and his M.S. in Taxation from St. John Fisher in 2003
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