Major League Baseball Players: They May Just Be Underpaid
I am about to make a statement that many people think is absurd.
Major League Baseball players as a whole are underpaid.
Sure there are exceptions to this. Has Alex Rodriguez been delivering $25 million worth of production the last two seasons? You clearly can argue no. Will Albert Pujols be worth what the Angels pay him five years from now? I think we all agree that will be highly unlikely.
But the average salary for a player is $3.1 million. With so many top-heavy salaries skewing this number, it is probably reasonable to assume that the average player makes more along the lines of $2 million per year.
With that being said, the majority of baseball players aren’t compensated for the amount of revenue they generate.
Let us start this argument with making a point that we all can agree on. Professional baseball is a business just as much as Apple or WalMart.
Sure, owners truly want to win championships. But believe what I’m about to say: they are MUCH more concerned with staying in the black. Who can blame them? No one has become wealthy to the point of owning a professional sports franchise by losing money.
According to Forbes Magazine’s 2011 evaluation of Major League Baseball teams, the league generated $6.1 billion in revenue for the year, with $494 million listed as operating income, which measures profit for the organization.
Would you support your local team landing a big free agent if it meant ticket prices went up $5?
In simpler terms, each owner made an average of over $16 million last season by simply owning a team, not to mention that the resale value of each team grew an average of 7 percent last season to an all-time high team average of $523 million.
I think we can agree that owning a Major League Baseball team is a sound investment.
To further expand on our argument, let’s compare our baseball team to a printer company. Both businesses have similar type costs with labor, overhead, development, marketing, procurement of consumables, etc.
Both also generate revenue. For the printer company, revenue comes in through sales of printers, ink, and service contracts. For the baseball team, we see revenue in the form of ticket sales, merchandise sales, concessions, and media contracts.
We also need to understand that the amount of revenue is largely independent of costs. Whether it is printer costs or ticket prices, service contracts or TV deals, the prices of these things are MARKET DRIVEN.
Getting right to the point, printers are priced to make the most revenue possible, and the Braves charge $60 for a ticket to a ball game because that is what you are willing to pay to see Chipper Jones limp through one more season.
If they could generate more revenue based on $1000 per ticket, they would. It just so happens that $60 is where supply and demand is optimized in Atlanta, Georgia. This varies greatly from region to region. Try to get those same seats for $60 at Yankee stadium. It won’t happen.
The next point to understand is that the way any business makes money is by reducing costs, leaving more meat on the bone for profit from revenue. That’s just how the world works.
The printer company may streamline their process or layoff unneeded employees. The baseball team slashes resources to a minimum and keeps salaries as low as possible.
Let’s revisit our revenue and profit numbers from earlier. Just assume we have 25 players on each of the 30 teams. With $6.1 billion in revenue and $494 million in profit, each player is worth $8.1 million in revenue and accounts for $650,000 above their current average salary in cold, hard profit for the team owner.
Again, baseball is a business, and the owners are out to make money. They have the financial risk of running the team and should be entitled to make a buck. However, with profits at an all-time high for MLB organizations, it’s only fair that they give some of the gains back to their organization.
Should the scouts, hot dog vendors and parking attendants make a little more as well? They absolutely should. But let’s not kid ourselves; the revenue generators for a sports team are the players. After all, we show up and watch to see them.
So if you are one of many people who believe that it is just ludicrous to make the kind of money that athletes make for playing a game, step back and remember the business side of it all. Whether a company is selling printers or the American past time, revenue generating employees should and do make the largest salaries.
It is just their piece of that multi-billion dollar pie.
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