Professional Sports Dilemma


Professional Sports’ Dilemma

Why do some sports leagues pay their athletes so much? Leagues like the NFL and NBA need top talent to draw viewers. So you might think that it’s essential for leagues to offer high wages to attract the best players. The problem with this argument is that while it might justify paying an athlete $100,000 per year, it doesn’t justify giving him a multimillion-dollar contract. A professional basketball player, for example, has very specialized talent. His skill in basketball can’t transfer to other sports or professions. As a result, a professional basketball player probably won’t make anywhere near his basketball salary in another job.[5] Though a high salary may be needed to attract a player to a particular team, a much lower salary, however, would be needed to ensure that this same person becomes a professional basketball player.

If all basketball teams offered much lower salaries, they would still attract the top talent since this talent would have no other place to go. Indeed, giving athletes multimillion-dollar salaries might even shorten their careers because such large salaries make it easy for players to retire early.[6]

Individual teams face a prisoners’ dilemma with respect to their players’ salaries. If all other teams offered very low salaries, your team could greatly benefit by paying high wages. Then you would get the best players, win all the championships, and always have sellout crowds. If all the other teams offered high salaries, you would have to also, because if you didn’t, your team would have the worst players, and you would consequently sell few tickets. Thus, offering a high salary is a dominant strategy for each team. Unfortunately for the teams, they are all worse off if they all offer high salaries than if they were all to pay low wages.

Professional sports leagues realize the game they’re in and try to limit athletes’ salaries. The teams attempt to enforce salary caps that limit the total amount a team can spend on wages. Players, of course, benefit from their teams’ prisoners’ dilemma and so players’ unions fight against salary caps.

Colleges have succeeded at eliminating the prisoners’ dilemma that causes professional athletes’ salaries to be so high. College athletes can get free room, board, and tuition, but not cash. Most college athletes don’t deserve to be paid as they bring their school little extra revenue. A college with a nationally ranked team in a popular sport, however, can make a lot of money from ticket sales, merchandising rights, and increased alumni contributions. Top college athletes are very valuable assets to their schools. Nevertheless, colleges manage to avoid giving their best players cash payments. Prisoners’ dilemma would normally compel colleges to pay these players because schools that did pay would have an enormous advantage over those that didn’t. College sports leagues overcome their prisoners’ dilemma by forbidding teams in the league to pay their athletes. If any college started paying its players, then it would presumably be kicked out of its league. No one school could benefit by paying its athletes, because it wouldn’t be able to play against any other team. Even with an official ban on salaries, however, prisoners’ dilemma manifests itself by creating incentives for colleges to cheat and secretly pay athletes or give athletes benefits that are as good as cash. These incentives to cheat cause periodic scandals involving colleges using improper recruiting tactics to acquire the best athletes. Overall, though, colleges seem to do an excellent job at overcoming their prisoners’ dilemma and getting the services of their top athletes almost for free.

I have a suggestion for how colleges with mediocre teams could benefit from prisoners’ dilemma. If around ten of these colleges started paying athletes, they could attract the best players. These schools would be kicked out of the traditional leagues, but then they could play against each other. Since these schools would attract the top players they would have the most interesting games so their sports revenues would significantly increase. Prisoners’ dilemma would then force other colleges to pay their athletes. These first schools, however, would probably have a few glory years where only they would get the best amateur athletes money could buy.

Reputation is the most important recruiting tool colleges have. The top athletes want to go to schools with the best programs. Normally, it’s nearly impossible for schools with mediocre teams to recruit the best players because these players eventually want to play professionally, so they want to get practice playing on teams which also have excellent athletes. If a few schools started paying students, they could attract a large number of top players, and so they could overcome the barriers to recruiting that their mediocre reputations create. Once other schools start paying, however, these schools would still benefit from having a good reputation and so they might be able to continue recruiting top talent. Of course, the colleges that currently have the best players would be devastated if the schools with mediocre teams started paying players.

[5]It’s true that some professional basketball players can make large salaries through endorsements. But they are able to do this only because of their prior success in their sport. As a result, endorsement money can be seen as part of an athlete’s basketball salary, although a part not paid by his team.

[6]In economics such a phenomenon is called a “backward-bending supply curve.” As people get richer they usually desire greater leisure time. Paying someone a higher salary makes a person richer and consequently could cause him to work less.




Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
ISBN: N/A
EAN: N/A
Year: 2005
Pages: 260

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