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Are NFL Players Overpaid? Perhaps not, here's a counter-argument.

I DON'T THINK AARON RODGERS IS LOOKING FOR CHANGE. SOURCE: WIKIMEDIA COMMONS

Jamal Carnette (TMFJcar) Aug 10, 2014 at 11:55AM

NFL players are paid handsomely, no doubt about it. Those stratospheric figures we hear bandied about on ESPN may seem outrageous. But are the players who suit up on Sundays overcompensated?

Recently, Arizona Cardinals cornerback Patrick Peterson's new five-year/$70 million contract raised eyebrows, especially from a recently signed Richard Sherman – who now appears disrespected over his four-year/$56 million contract. And who can forget Aaron Rodgers' eye-popping five- year/$110 million contract a year prior?

It's easy to say that NFL athletes are overpaid. And while on absolute terms, NFL pay seems excessive, on a comparative basis, the numbers don't appear to bear that out.

A little background The NFL is a revenue-producing giant, pulling in roughly $9 billion a year through a combination of television rights, ticket sales, advertising rights, and merchandise sales.

The rules dictate that you can keep a 53-man roster, so on that basis, each one of those NFL athletes is worth $5.3 million a year. Obviously there are other employees of the National Football League, but when it comes to on-the-field talent -- what we pay for -- there are 53 eligible employees we pay to see on each team.

The collective bargaining agreement A few years back, the NFL engaged in an acrimonious collective bargaining negotiation with the NFL Players Association. At the heart of the matter was the revenue-sharing policy – and it appears that the NFL owners won. The revenue split went from nearly 50/50 to the NFL owners now taking 53% and the players taking 47%. The salary cap, or the figure NFL teams should stay below, now hovers around $133 million per year, or $4.25 billion on a total basis.

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RUSSELL WILSON, PERHAPS CONTEMPLATING HIS NEXT CONTRACT. SOURCE: WIKIMEDIA COMMONS

And while the big, splashy contracts tend to make the front page, there are a host of athletes that aren't paid as well. The rookie contract was dramatically curbed in favor of the owner -- so much so that Super- Bowl-winning Seattle Seahawks quarterback Russell Wilson is set to earn $3 million over four years.

About that 47% Even on a comparative basis, salaries eating up 47% of revenue doesn't seem out of the ballpark, and may even seem a little light. For comparison, education and health-care salaries can average above 50% of revenue.

The one rule in regard to salaries is that there really aren't any rules. However, as a percentage of revenue, two broad outlines seem to form: skill and scalability. Jobs that have a high degree of both tend to pay a larger percentage of revenue than ones that do not.

Jobs that can be easily replicated by another employee -- take fast food or retail -- tend to pay on the lower end of that scale. The Society for Human Resource Management estimates that only 18% of revenue goes toward salaries in retail. NFL players are highly skilled. Not too many individuals can throw a perfect 70-yard spiral or run at a 4.3/40 clip to catch it.

Scalability helps as well. The NFL is certainly capable of handling increased demand. To increase ticket sales, it only needs to build rather modest stadium additions -- some are even taxpayer- funded. TV contracts and advertising revenue don't depend on more product, but rather a higher- quality product.

Final thoughts On an absolute basis, NFL players appear overpaid – but that's not how you should view them. On a comparative basis, in many ways, they are underpaid. They are a highly skilled workforce putting out a product that many people pay top dollar to see. From a small base of nearly 1,700 on-the-field employees, they are able to drive nearly $9 billion in revenue. Keeping less than half seems reasonable.

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Inspired by the idea of "making your money work for you" at a young age, mostly because he was a lazy child, Jamal parlayed that inspiration into a love of the psychology of markets, competitive advantages, and thematic investing. He later shrug off that laziness, with a career that included stints as a mortgage trainer, a financial advisor, a Sr. Investments Communications Specialist, and a stockbroker. Jamal graduated from George Mason University with a bachelors of science in finance, American University with a masters in finance, and is a CFA charterholder.

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Aug 10, 2014 at 11:55AM

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