Are NFL Players Overpaid?

Perhaps not, here's a counter-argument.

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?

G

I don't think Aaron Rodgers is looking for change. Source: Wikimedia Commons

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.

G

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.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.



Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers