Reprinted from yellowhammer
The revived United States Football League has completed its first regular season. USFL players earned $4,500 per game, or $45,000 per season.
In contrast, the best NFL players earn a thousand times more. How can there be such differences in wages within the same profession?
Professional athletes earn what economists call rent, a concept first described by the 19th-century British economist David Ricardo. Rent is a payment in excess of the minimum required for a person to work at a job. Any factor of production in an economy can generate rent.
Factors affecting the minimum amount needed to play football, the reserve salary (or wage), illustrate how the USFL can pay such lower salaries. The most important factor for the USFL is whether a player plays in the NFL. With the NFL minimum wage of $610,000, no current NFL player is required to play in the UFL instead.
Top college players are making over $45,000 in name, picture, and license deals and shouldn’t be leaving early for the USFL. There are huge differences in skills between would-be professionals. Players above the “replacement” level will receive a higher salary.
Some USFL players may qualify for NFL tryouts depending on their performance. The opportunity to move to the NFL is part of the USFL compensation. The original USFL “discovered” players who later played in the NFL, such as undersized linebacker and 2022 Hall of Famer Sam Mills.
The attractiveness of the job also matters. People will work for less pay in the jobs they want or the places they want. Fame and popularity make a professional athlete highly desirable before thinking about money.
Past payments and expectations also affect reservation wages. Green Bay’s Aaron Rodgers has made hundreds of millions of dollars in his career and likely won’t play another year for a million dollars. Taking a pay cut after players expect to be paid millions will be extremely difficult.
The NFL reserve salary for talented young players, if we could erase all expectations of playing for millions, is close to zero. Why, then, do NFL teams pay an average salary of $2.8 million? Two forces explain this. First, it is income; The NFL generates over $10 billion annually. Play at a level that will generate interest from fans and generate income, you need talented players who bring tens of millions of dollars to their teams.
This way teams can afford eight-figure salaries. But why do owners who love money pay more than their salary? Competition for talent, as in all labor markets, raises wages to levels justified by income. Successful teams generate more revenue and owners often value winning. And it takes the best players to win.
Sports salaries are almost entirely made up of rent. Owners and players will maneuver to get this rent for themselves. The competition is at its highest when players can negotiate and sign with any team or free agency that the owners oppose.
For nearly 100 years, baseball’s reserve clause has prevented free rein. A reserve clause allows teams to automatically renew a player’s contract for the next season at the same or higher salary. Teams have always extended contracts with good players.
Sports illustrate how the promotion of individual interests sometimes requires collective action. In the absence of free rein, the player’s only leverage on a trade is to refuse to play.
While the loss of a star player can be detrimental to a team, when players collectively withdraw their services, going on strike can close the league. Trade unions help to organize the collective action of workers. Owners must also cooperate to prevent bidding for players.
The reserve clause only worked because no owner tried to sell players from other teams with higher salaries. After baseball established free agency, players periodically accused owners of colluding or agreeing not to aggressively bet on free agents.
As with all activities in a market economy, everyone involved in professional sports must participate voluntarily. Since many children dream of becoming professional athletes and sports generate billions of dollars, voluntary participation is not a problem.
But sport generates huge rents, and competition for these rents ensures an ongoing struggle between workers and managers.