Roger G. Noll
Volume 6.2
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Economic Perspectives on the Athlete's Body

The athlete's body is the product of years of dedicated, purposeful effort. The motives a person might have for creating and maintaining an athlete's body are complex, but among them are the financial incentives that now affect most sports. The purpose of my contribution to this compendium is to set forth how the economics of sports affects athletes and modern society.

The economics of sports is a study in extremes. In the aggregate, the sports industry is remarkably insignificant. The four major professional sports in the United States account for about one-tenth of one percent of national economic activity (as measured by gross domestic product, or GDP). All college sports taken together are roughly as significant financially as one major professional league. Add in horse racing, auto racing, high school sports, and all the professional individual sports and the total rises to only about two-tenths of one percent of GDP.

To use more homely examples, consider sports in the San Francisco metropolitan area. In an average year, the professional football and baseball teams will take in revenues roughly equal to a major department store. All the Bay Area professional teams taken together are less significant financially than the Stanford shopping center. Stanford University itself has a larger budget than the entire National Basketball Association (NBA), and the budget of the University of California is substantially larger than that of the entire National Football League (NFL).

Likewise, while most anyone probably can carry on a coherent conversation about some sport, relatively few people have a sufficiently intense interest to buy a ticket or even to watch games regularly on television. Although each season professional sports franchises draw anywhere from 300,000 (a weak team in the National Hockey League) to four million (the most successful team in baseball), these attendance figures are accounted for by a small number of fans who attend regularly. More than half of the attendance in major league team sports is accounted for by season ticket holders. In baseball, which attracts by far the largest number of fans, a team that sells two million tickets will draw fewer than 200,000 separate individuals. Thus, in the Bay Area, only about one person in seventeen will attend a professional baseball game during a normal year. This figure is high compared to the entire nation, where in a year about one person in 25 will attend a professional baseball game. Indeed, more individual people will attend baseball games than all other pro team sports combined.

Televised sports are more popular, but not by a great deal. By far the most popular regular sports program is "Monday Night Football," but in most years it does not rank among the top-rated television programs. Only about one household in eight watches an average regular season Monday game. More people watch "Sixty Minutes," let alone the mindless situation comedies that occupy most of the top ratings positions. Even the premier event, the Super Bowl, is watched by fewer than half of all American households. Other top sporting events, such as the World Series, the NBA playoffs, the NCAA basketball championship game, and the year's best college football bowl games usually are viewed by fewer than twenty percent of all households.

The point of this recitation of facts is to put sports in proper perspective. Whereas many people have a passing interest in sports, few have sufficiently intense interests that they are willing to devote very much of their time and money to be spectators. Some English soccer fans will riot if their team loses, and some Americans will use winning a World Series as an excuse for looting some liquor stores, but most people simply do not care that much. For most people, sports is a pleasant diversion, not a focus of intense interest.

At the other extreme, for participants, the aggregate financial insignificance of sports translates into extremely high per capita stakes. The one-tenth of one percent of GDP that is accounted for by the four professional team sports is almost entirely shared by fewer than 5,000 athletes, coaches, and team owners. In 1996, the average income of these 5,000 people easily exceeded $1 million. At the top of the heap, the best professional athletes have annual earnings of tens of millions, more than half of which comes from product endorsements.

Consider the difference between two $75 million enterprises: an NFL football team and a small manufacturer. An average manufacturing company will employ, directly or indirectly (through suppliers and distributors), about 1,600 full time workers. The football team will employ about 2,000 people at the stadium for five hours a day, ten days per year (the equivalent of about 50 full-time jobs), plus another 100 players, coaches, and front-office personnel–or about ten percent as many full-time jobs. The manufacturing facility will cost less to build: about $100 million in land and physical capital, on average, compared to about $300 million for the football stadium. Moreover, the fraction of these investments that is paid for by government, directly through subsidies or indirectly through tax forgiveness, is far higher for the football stadium.1  Because taxes are used to pay part of the costs of football, the act of investing in a stadium has a lower multiplier effect on the local economy than an investment in a manufacturing facility.2

Sports, like other areas of popular entertainment, are a prototypical example of what economists Robert Frank and Philip Cook have called a "Winner-Take-All Society." Hundreds of thousands of high school seniors play varsity sports; about two percent of these will receive athletic scholarships for college. Of those who play Division I college sports, only a very small percentage will be able to make a living as professionals. For example, about 2,500 Division I football players exhaust their college eligibility each year. Of these, 300 will play in the NFL. In basketball, about 1,000 Division I seniors compete to be one of the 60 players who are drafted by the NBA or the approximately 100 players in their age cohort who will ever play an NBA game.

The key characteristic of a winner-take-all occupation is that an enormous amount of effort is wasted in the attempt to be one of the few who succeed. When contemplating devoting years of effort to becoming a successful professional athlete, a youngster faces a very small probability of a very large payoff. Whereas a fifteen year old is unlikely to make the same detailed calculation that is taught in introductory economics, the calculation is nevertheless instructive. Suppose a fifteen year old is a good prospect to be a football player, and becomes one of the 100,000 or so of his peers to make the high school football team. Our athlete has about a three percent shot at a college scholarship that will be worth about $200,000 (in additional lifetime earnings, discounted to present value), and another one-fourth of one percent shot at an NFL career (with an average present value of an additional $2 million). Thus, the present expected value (multiplying the probabilities by the expected values) is about $11,000.

To have a chance at this career path, our fifteen year old must devote time to producing an athlete's body: about 20 hours per week during the season, plus another ten hours per week for the rest of the year. Over a three-year high-school career, this effort will consume about 2,000 hours. Dividing the expected present value by the time devoted to the effort, the returns per hour invested are about $5.50. By contrast, our fifteen year old can make about the minimum wage ($5.25) in a part-time job.

The implication of these calculations is the heart of the tragedy of the winner-take-all occupation. If our fifteen year old football player derives no joy at all from football, but views it purely as a job like washing dishes at a fast food restaurant, taking a shot at becoming a professional athlete is financially worthwhile. In particular, teenagers who give first priority to developing their athletic skills as a career investment, especially teenagers from poor families, are not behaving irrationally. The payoff to the few who succeed is so overwhelmingly great that even a tiny chance of success is worth the risk!

Nevertheless, from a societal standpoint, having hundreds of thousands of teenagers dedicate their lives to a career in athletics is a massive waste of resources. The financial payoff to the best basketball player, the best figure skater, the best quarterback, or the best golfer would be every bit as large if tens of thousands, rather than hundreds of thousands, took their shot, while the others devoted the same amount of time to learning another marketable skill. Spectators value relative quality, not absolute quality, as long as the absolute quality is high compared to ordinary skill. Among excellent athletes, the differences in their skills are very slight, especially in comparison to ordinary skills. The late Bill Veeck, owner of several baseball teams and certainly among the most able sports entrepreneurs of all time, once opined that only the most devoted baseball aficionado could tell the difference between a major leaguer and a minor leaguer, and admitted that at his team's spring training workouts, where players do not wear identifying uniforms, he could not detect the difference. If many fewer teenagers attempted to become athletes, world records in measured individual sports would advance more slowly, but little else would be observable. Hence, as far as a career investment is concerned, hundreds of thousands of teenagers are devoting tens of millions of hours annually with zero incremental value to society.

Of course, the causes and effects of dedication to sports are far more complex than the financial returns. Participating in amateur sports is enjoyable, and literally millions of adults do so solely for that reason. Even I, in my fifties, try to play basketball several times a week, even though my expectations of NBA stardom faded a while ago. Some, though not I, participate with sufficient intensity that they maintain the athlete's body through middle age, with not the remotest chance for financial reward. But there is also a darker side.

As athletes approach the time when a professional career will be made or broken, the chance of success grows, and the potential financial reward looms larger. Not only does this induce greater time and effort to developing athletic abilities, but it leads to a growing financial incentive to engage in risky behavior that, in the short run, improves athletic performance. Likewise, a coach, whose success depends on the short-run performance of athletes, faces a powerful incentive to impose risks on athletes. Examples are demanding that football lineman "beef up" to over 300 pounds (thereby shortening their expected life), encouraging the use of unhealthful performance-enhancing drugs, asking injured athletes to play (thereby risking more damaging injuries), or engaging in the borderline child abuse of world class women's gymnastics.

Just like normal, healthful methods of developing skills, risky activities can be perfectly rational for an individual. The risks borne by the athlete can be more than offset by the expected benefits. But for society as a whole, risky behavior increases the social cost of sports without increasing the aggregate social benefit.

The upshot of the economics of sports is that the winner-take-all nature of sports induces socially excessive investments in the development of athletic skills. In short, we have too many youngsters who seek to develop the athlete's body, however noble and aesthetically pleasing that body may appear to some of us. In addition to those who develop their skills because they love sport and physical fitness, society encourages youngsters to devote time and effort beyond that which is justified by athletics as an end in itself. For the most part, because of the winner-take-all feature of sports, nearly all of the effort of the athletes who devote themselves to developing their skills, beyond that done for love of sports, is a social waste. They, and society, would be better off if there were fewer people with a silky-smooth jump shot and more automobile mechanics and engineers.

Roger G. Noll3

 

Notes

(1) To take a concrete example, the public subsidy per job created for all recent urban renewal projects in Baltimore was approximately $6,000, but for the new Orioles' Park at Camden Yards, the subsidy was over $100,000 per job created. See Bruce Hamilton and Peter Kahn, "Baltimore's Camden Yards Ballparks," Sports, Jobs and Taxes, eds. Roger G. Noll and Andrew Zimbalist (Washington: Brookings Institution, 1997).

(2)  The interest income from the part of stadiums that is financed by municipal bonds is exempt from federal income taxes. The annual federal subsidy from this tax exemption exceeds $1 million for each of the following facilities that are ten years old or more: Arrowhead Stadium in Kansas City; the Louisiana Superdome in New Orleans; the Silverdome in Pontiac, Michigan; the Kingdome in Seattle (which will soon be torn down); Giants Stadium and Byrne Arena in Jersey Meadowlands; the Metrodome in Minneapolis; the Hoosier Dome in Indianapolis; the Charlotte Coliseum and the Orlando Arena. See James P. Quirk and Rodney Fort, Pay Dirt (Princeton: Princeton UP, 1992). Of course, stadiums built since 1988 are even more expensive, and so receive even larger subsidies. The interest subsidy for a $225 million, 30-year municipal bond that is used to help finance a stadium has an average discounted present value of about $75 million (or $2.5 million per year). See Dennis Zimmerman, "Local and Federal Subsidy of Professional Sports Stadiums: Who Benefits, Who Pays?" in Noll and Zimbalist.

(3)  Morris M. Doyle Professor of Public Policy, Department of Economics, Stanford University.

© 1998 Stanford Humanities Review unless otherwise noted.