The Myth of the Overpaid Player

With all of the negative publicity surrounding the National Football League in the past year, the sale of the Buffalo Bills went largely unnoticed. Fans and non-fans alike have been clamoring about the hefty salaries of NFL players, but megadeals like this can fly under the radar.  J.J. Watt was given a $100 million contract earlier this year, which was deemed preposterous by couch analysts everywhere who were perplexed at the amount of money a player could demand. Meanwhile, Terry Pegula shelled out 1.4 billion to purchase the Bills. While many critics of the NFL may accuse players of being vastly overpaid, the argument can be made that these players are actually underpaid in relation to their value and that their employers, the owners of these NFL franchises, are the truly overpaid party.

Americans these days have an average household income of $44,888.16, a stark contrast to the $1.9 million average salary afforded to NFL players. This disparity is enough to make the average American question how our system works. Over time, NFL salaries appear to increase at an exponential rate in relation to that of the average household. While household income has increased marginally, this increase pales in comparison to the expansive increase in NFL salaries. The graph below exemplifies the opinion voiced by Americans everywhere, that participants in this game make entirely too much money.

Average Salary final3

While this disparity does show a strong disconnect in salary values, this graph is not an entirely fair comparison as it puts NFL players and the average American on a level playing field in terms of their worth to an industry. If observers put aside the fact that these players are being paid to participate in a game and instead look at them as employees to a business, a more objective analysis of this dynamic will take place.

Employees are facets of a business that contribute to the overall worth of the corporation at hand. Any rational employee would want to be paid in relation to their added value to a business. NFL players happen to add significant value to an extremely lucrative business. This concept alone makes “employees” of the NFL more valuable than the average American employee. There are not many players in the NFL at a given time, around 1700, and they are generating around $10 billion in revenue, according to a recent estimation by Business Week. While the coaches and front office officials do undoubtedly generate some value through putting players and teams in the best situations, the players are the product of the industry. The NFL is unique in that the employees or performers are the actual product, similar to a circus or zoo. Fans pay to watch and emulate these employees, (through the purchase of jerseys and other equipment), making the players the central revenue generators of the NFL. To be a relatively central component of a business generating $10 billion dollars carries a lot of weight. This is value added that few others can create. Fans are not going to pay to watch inferior performers, and therefore a replacement player has very little value in relation to what current players are bringing to the table.  Most Americans are not major contributors to businesses of this degree, and therefore cannot expect to be compensated as such.

Fans pay to watch NFL players display their physical and mental skills. These are the top 0.08% of people who have played football in the world, according to a recent estimation by the NCAA. Even the top 1% of performers in any field can expect to be paid more than the average performer. However, these players are contributing to a multibillion dollar industry, generating much more value, and therefore money, for the industry than the average replacement signed off the street could. This is comparable to the CEO of a large corporation in that they are a top performer in their industry. They are being paid so much for they are adding significantly more value to the company than a fresh college graduate could. This is why comparing the average American salary to the average NFL salary is unfair, as NFL players are top performing employees adding value to a much more lucrative business than the average American participates in.

A much more reasonable comparison in judging NFL salaries would be to compare the value of NFL franchises to NFL player salaries. These are two figures within the same industry, so theoretically there should be a correlation between these two numbers. However, this has not been the case in recent years. While NFL franchise values have skyrocketed, NFL salaries have remained relatively stagnant in comparison. As the employees of the NFL, players could begin to feel underpaid as their contributions are now earning less as a percentage of total income of the NFL brand.

Percent Increase

This graph of percent increase over time can give us a sense of the disparity in the gap between these two values. While monetary values will always be different, percent increase should be relative when dealing with an isolated field. As shown by this graph, NFL franchises are increasing in value at a consistently higher rate than NFL salaries are.

The 94% increase in franchise valuations (as seen from 2000-2005), are the result of colossal profits being amassed by NFL owners. These profits are not translating to relative salary increases for the players, who are mainly generating the value increase in the first place. As NFL salary caps are increasing by a few million dollars each year, NFL owners are raking in hundreds of millions more in profits.  The owners are keeping most of this new revenue, and public perception should match this revelation.

There is no basis in calling players overpaid, as the value of the NFL is dictated by its consumers. They are purchasers of the product on and off the field, turning the NFL into a multibillion-dollar industry. Players are paid as contributors to these billions, with each player earning money relative to their performance and popularity. However, NFL owners are keeping more and more of the profits generated by these players, leading to players being potentially underplayed in relation to the profits that they are generating for the industry.

About kylejankowski

Junior at Elon University majoring in Management and Finance