Does It Makes More Sense To Pay Athletes Millions?



In an article on Tech Central Station, Professor Stephen Bainbridge (of UCLA) takes a look at Pay Without Performance, a new book discussing the problem of executive compensation. He notes that if people have a problem with the size of executive compensation, but not with the high salaries paid to professional athletes, that the two must be able to be distinguished in some way. Bainbridge notes the distinction made by the authors of the book, that while athletes bargain at arm's-length for their compensation, managers essentially set their own compensation.



I think this distinction makes sense, but it does not mean that there are not problems with the high salaries paid to professional athletes. While the market seems to tolerate the high amounts of executive compensation (after all, shareholders and companies still remain profitable), the NHL lock-out may be proving that the salaries of professional athletes are approaching (or have exceeded) the boundaries that the market will tolerate. Some owners will lose less money this season by not playing any games, which is a clear sign of economic trouble. Barring a miracle, it appears that the NHL season will be lost and I wonder if this labor war, perhaps the worst in the history of the Big 4 sports, will be repeated in the other sports. It seems clear that hockey needs a salary cap (despite some arguments to the contrary), and unless the players are willing to give in to that demand, hockey does not appear to be economically viable. Perhaps, too, there should be a "salary cap" of sorts on executive compensation, but at least for now, the market seems willing to tolerate the salaries paid to the leaders of corporate America.

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