Why Baseball Stars Make Millions While Teachers Struggle to Survive

Why Baseball Stars Make Millions While Teachers Struggle to Survive

This is a complaint I hear all the time. People from all walks of life complain about it. People from all political persuasions complain about it.

“It isn’t fair that some people make millions of dollars every year throwing a ball when those in charge of teaching our children are struggling to survive.”

Sometimes, the argument is about movie stars or rock stars instead of sports stars. Sometimes, the argument is about police officers, firefighters, military personnel, or veterans instead of teachers. Sometimes, the argument is about anybody who works hard to scratch out a living instead of public servants. But it’s the same argument. Why should entertainers get so much money for possessing unimportant skills when those who do the important and difficult work for us make so little?

And the correct answer is the same in each case. For the answer, we need to look in our collective mirror. That’s why this situation exists. That’s the ONLY reason this situation exists. The wage discrepancy between entertainers and those of us who work hard and barely get by exists because our collective social values have decided that this is the way it’s going to be. Follow the money. The money trail will always tell us what we value as a society.

If you think the solution is for those who pay entertainers big salaries to simply quit paying them so much, think again. The entertainment industry is huge, and expecting it to reallocate its revenue so that its members who happen to be in the public spotlight get less of it won’t give more money to teachers, soldiers, firefighters, construction workers, assembly workers, ditch-diggers, and the like. Paying entertainers less would only give more money to the billionaires who have chosen to pay entertainers out of their own pockets.

No, we need to look in the mirror. Our values have determined that this is what the situation is going to be. You might not personally like it. But before you plead innocence while blaming everybody else, you should probably think through this some more.

  1. Do you spend money on sports, movies, popular music, and other entertainment in which the stars make mega-bucks?
  2. Do you buy licensed merchandise or clothing featuring your favorite team, player, or entertainment figure?
  3. Do you support the freedom of other people to choose to spend their money on such things?
  4. Do you watch TV, or support other entertainment media which relies on advertising for revenue?
  5. Do you spend time discussing sports and entertainment with friends, family, and co-workers?
  6. Do you believe that business owners should be able to make their own business decisions?
  7. Do you complain about overpaid government workers?
  8. Are you unwilling to pay more in taxes so that public servants can earn a higher salary?
  9. Do you insist on voting for politicians who won’t raise taxes for higher teacher salaries, even if you aren’t personally opposed to such taxes?

That covers just about all of us. I can answer “yes” to several of them myself. Perhaps some Amish and a few hermits can be excluded, but they probably won’t be reading this. Just about everybody else is covered in this list.

If you answer “yes” to EVEN ONE of these points, then you should look in the mirror. Your values have helped to create this situation. You really shouldn’t find scapegoats.

Of course, there are people among us who don’t think this is a problem at all. They answer this complaint with praise for free-market economics, implying that this outcome has been determined by supply and demand and therefore it is a good outcome. In truth, supply and demand play a large role in this outcome, but not as large a role as some people think. There are features specific to the economics of the entertainment industry, and features specific to the economics of public service employment, which vary from the typical supply and demand model. What follows is a brief overview of these features. I’ll use baseball players and teachers for examples.

The Economics of Major League Baseball

One fact that people like to bring up about Major League Baseball (MLB) is that it is the ONLY business that has a specific exemption from the Sherman Antitrust Act. No other business, including similar leagues such as the National Football League (NFL), has such an exemption. This fact is not directly related to the financing of baseball vs. the financing of other sports or entertainment businesses. What the exemption means, from a practical standpoint, is that team owners must have permission from the rest of the league in order to move a franchise to a different city. It’s why owners of the Dodgers and Giants required permission from other owners to move their baseball teams from New York to California in 1957, but Baltimore Colts owner Robert Irsay was able to sneak his team out of town overnight in 1984 to become the Indianapolis Colts, without permission from the NFL. The ease with which football teams can move due to the fact that the NFL has no anti-trust exemption does mean that football teams have more leverage than baseball teams when it comes to extorting new stadiums and other concessions from local taxpayers. NFL team owners can (and often do) say “pay up or we’ll leave town,” and rely on sentiment from fans who also happen to be local taxpayers to agree to pay up. Sometimes it works, sometimes it doesn’t.

But back to baseball. The MLB sets the rules, but each individual team is owned by a corporation, a very rich individual, or a group of rich individuals with a majority owner calling the shots. Teams get revenue from fans going through the turnstiles to watch games in person, but long gone are the days when individual-game ticket sales are the primary source of revenue in baseball.

Many seats at baseball stadiums belong to season-ticket holders. Some season-ticket holders are rich individuals, but many are corporations. Teams put a lot of time and money into wooing corporations to purchase season tickets. Teams also receive revenue from television rights. They get more money if they include corporate-named features in the broadcasts (“and now for the State Farm pitching change”). A few decades ago, teams began fitting stadiums with luxury box suites which generate more money for the teams. A more recent trend has been for teams to sell corporate naming rights to the stadiums themselves. When I was a kid, major league stadiums had names like Candlestick Park, Connie Mack Stadium, Tiger Stadium, Forbes Field, Municipal Stadium, Metropolitan Stadium, and Comiskey Park. The teams which called these stadiums home now play in stadiums which are named AT&T Park, Citizens Bank Park, Comerica Park, PNC Park, Progressive Field, Target Field, and U.S. Cellular Field.

And then there is the shared revenue. Merchandise sales are a big source of revenue. Team logos and the MLB logo are trademarked, and nobody can legally use these logos without league and team permission. If you want a jersey that looks like one worn by your favorite major league player, including the team name and logo, you have to get one licensed by MLB. If you own any such item, take a look at it. It will have the MLB logo on it. You pay for this logo when you buy the merchandise.

The league office at MLB is concerned with competition. Without adequate competition, interest in the games on the field will fall, and so will revenue. This means that smaller-city teams must be able to compete with big-city teams and their much larger fan bases. Team owners have agreed to a rather complex set of revenue-sharing rules to address this issue.

Baseball players get paid according to individual contracts which are within negotiated guidelines. Players making the major league minimum are paid $507,500 per year, but most get paid much more than that. However, only the very best players have major league contracts. Before they are ready to become major-leaguers, players have to pay their dues toiling in the minor leagues. Minor league contracts are not lucrative at all – in fact, many potential stars take themselves out of baseball so that they can make a living in the “real” world.

Within these facts of baseball life, team owners are free to run their businesses just like businesses in any other industry. Except that it doesn’t always work that way. This is an important way that baseball differs from free market economics. For a “normal” business, the goal is to maximize profit. Profit is THE goal. In baseball, profit is only one of the considerations of team owners. It isn’t the only consideration. As you might expect, many baseball owners have big egos. Baseball owners might put winning on the field ahead of maximizing the bottom line in an income statement. Think of it this way: Rich people buy yachts. Super rich people buy yachts AND sports teams. Sports teams as well as yachts can be treated as toys by their owners, not necessarily as tools for maximizing profits. Team owners can also be motivated by civic pride.

Each team owner is different. They all respond a little differently to these various motivational factors. Some are very business-like and profit-motivated. Some just want to use the team as a way to get their own names in the media. But even the most business-like team owners know that in the long run, profit comes from the fan base, and the fan base is a result of the owners putting together a competitive team. In today’s era of free agency – resulting from the removal of baseball’s reserve clause which prohibited even unsigned players from negotiating to sell their services to competing teams (thank you, Curt Flood and other pioneers) – players who have fulfilled their contracts can negotiate with other teams, and sign with the highest bidder (within negotiated rules which govern free-agency). This process has driven up player salaries many times over. When a player becomes a free agent, it is said that he is finding his true market value. But is it really “market value” when the ultimate buyer of a player’s service is motivated by something other than profit? Yes, for the player, it is market value. But for the finances of baseball itself, it doesn’t have to work the same way that “normal” labor markets are supposed to work. The owners who are motivated by winning on the field have an advantage in the free-agent market over owners who just look at the bottom line. Player salaries skyrocketed with the introduction of free agency, but the rate of salary increase has slowed with the introduction of revenue-sharing rules (and in some cases, alleged collusion).


The Economics of Teacher Salaries

Teacher salaries are only marginally related to free market pricing. In order to avoid confusion, I’ll make a distinction here between public school teachers and private school teachers. I’ll also note that I am talking about K-12 only in this discussion.

Public school teachers are employees of local governments. In fact, teachers comprise more than half of all local government employees nationwide. Funding for local school districts, including funding for teacher salaries, comes from all level of government. Much of the burden for K-12 school funding falls on local – city, and in some cases, county – government. The local budget for schools includes various transfers of funds from other levels of government – mostly the state level, but some funds originate from federal sources. The amount of funds originating from local government sources comprises roughly 35% of all local government budgets nationwide. Funding earmarked for K-12 education is a small amount in the federal budget, a larger amount in the state budget (the states’ education budgets are mostly for higher education), and a much larger amount in the local budget.

Local government revenue for education purposes, including teacher salaries, is limited to only a few types of sources. Local governments raise revenue mostly through property taxes, local-option sales taxes, and municipal bonds. Municipal bonds are generally issued for one-time projects such as building construction, and don’t tend to figure into budgets for teacher salaries. Municipal bonds also represent a debt that must be repaid by taxpayers at the local level.

Those of us who believe that the teaching profession is underpaid need to ask where the money to correct this situation will come from. Taxpayers don’t want their taxes raised. Local budgets are strapped. State budgets are strapped and generally restrained by balanced-budget requirements. The federal government is somewhat distanced from local concerns and issues.

Government budgets are strapped. Education spending makes up the largest share of local government spending. Education makes up a large share of state government spending, although the amount that goes to K-12 is much smaller than the single budget item labeled “education” would indicate. Politicians promise to cut budgets wherever they can. This combination of education being a large budget item and politicians looking for budget cuts means that education is usually the first place that state and local governments look for cuts to make. They aren’t interested in adding even more money to the budget in order to give teachers more money.

A related side effect, an unfortunate one, is that teachers are victimized by the rhetoric which accompanies the budget-making process in government. Budget cuts are often justified using rhetoric which demeans government workers, and teachers are right at the top of the list in terms of a percentage of government workers. Some politicians demean public education altogether. We are told that teachers are overpaid. We are told that teachers make much more than the “average” employee in the private sector, even though the comparisons do not factor in the amount and type of education and training required for each profession. Teachers unions are blamed for the “high” cost of teacher salaries. Experienced teachers are being called “bad teachers” in attempts to replace them with younger and less experienced teachers – and to decrease the average salary of teachers. Real and perceived problems with the results of our education system are being blamed on individual teachers. Many education reform efforts are based on this rhetoric.

What about increasing funding at the federal level in order to take the burden off local property-tax payers as well as state and local governments? This shifting of tax burden means that somebody still has to pay, but it can be justified under the American principle of “equal opportunity” (do kids who live in school districts which include rich property owners deserve a better education than everybody else?) and the importance of education as a part of our infrastructure – even as a part of national interest. But there is a conflict between local control of education on the one hand, and the national interests on the other hand. How much control over school policy should be given to the federal government? This conflict cannot be resolved through the application of prevailing economic theory.

What about private education? If teacher salaries in the public sector depend on taxpayers, politicians, and government budgets, what about teachers in the private sector? Should education be privatized in order to eliminate education spending from government budgets altogether?

The answer to that last question is an emphatic “NO!” First of all, you can’t increase teacher salaries simply by adding in a profit motive to those who pay teachers, unless there is a way to structure education so that higher salary expenses will lead to higher profits.

But there is a much bigger reason why privatization of education is a very bad idea. Ask yourself these two questions:

  1. What is the purpose of education?
  2. What is the purpose of a private, for-profit company?

If you answer those two questions, you should be able to see very easily that the goals of education are not compatible with the goals of private industry. For a more detailed explanation of this, see my essay “Why a School System should not be Run Like a Business”.

One final reality which separates teacher salaries from other salaries in terms of supply and demand: The supply of workers for specific jobs outside the field of education depends on advantages which the job offers to potential employees – things like salary, benefits, working conditions, and opportunity. A ditch-digger isn’t normally someone who thinks his purpose in life, his God-given calling to serve, is to dig ditches. But many teachers do indeed feel such an obligation to teach. This means that in a comparison of the teaching profession to nearly every other profession, the supply of labor for teachers is artificially high, driving down wages. (If you disagree with that last statement because you think we have a shortage of teachers, perhaps you are confusing an artificially-high supply of teachers with a shortage of teachers at the current wage rate - those are two different things).

Is it “fair” that entertainers and sports stars get paid so much more than those who do society’s vital work? Our collective system of values says that this is the way it will be. If we are okay with the outcome, we probably will say that the system is fair. If we aren’t okay with the outcome, then perhaps we should reexamine our values. But in order to do that, each of us needs to look in the mirror instead of pointing fingers elsewhere.

A version of this essay is included as a chapter in the book Common Misconceptions of Economic Policy by Jerry Wyant. You can purchase this book in paperback form from Amazon and other online book distributors. The list price is $12.99 (only $9.99 using discount code TA9GTK7E when ordering, depending on the distribution channel). Or if you prefer, you can download a digital version on your device (Kindle, Nook, etc.) for $4.99.

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Jerry Wyant