By Daniel Adler
Today, we will examine two industries. Neither produces a tangible product. Both have close ties to the government and receive billions of dollars in government assistance. Both pay their top performers millions of dollars.
Wall Street firms such as AIG, which received $90 billion in government funds, and sports teams such as the Dallas Cowboys, who received roughly $325 million to build the monument to excess that is Cowboys Stadium, have more in common than being run by white males. Employees in both industries reap huge benefits due to government assistance.
Recently, Goldman Sachs has come under fire for paying lucrative year-end bonuses to their employees. They plan to pay $16.7 billion, an average of $700,000 per employee. Of course, this comes not many months after the US government, by way of AIG, paid Goldman $12.9 billion. Predictably, there has been much populist outrage and Goldman has taken steps to quell public anger and (far more worrisome to them) government regulation. Goldman should not be expected to spurn the government funds, but it seems quite inappropriate for the government to clean up someone else’s (in this case, AIG’s) mess. The government is essentially funding those high salaries. Why is a company that receives billions in government support paying their top employees far more than the usual rate for labor in other industries?
In the sports world, let us consider the example of the Cowboys. This season, they opened what may be the most impressive stadium in history. To pay for the $1.2 billion palace, they received $325 million in government funds. Last season, the Cowboys spent $146 million on players. Why is a company that receives hundreds of millions in government support paying their top employees far more than the usual rate for labor in other industries?
The Cowboys are not the only team to receive government funding for their stadium. The Yankees and Mets each opened new stadiums this year and received plenty of government assistance; through some creative bond financing, the Yankees will save $787 million and the Mets $513 million. The New York teams ranked first and second in total payroll last season. The savings on the stadium and high spending on players is not necessarily directly connected, but it is certain the Cowboys, Yankees, and Mets were not exactly in dire need of government money.
It’s not just the high spending clubs that receive government subsidies for their stadiums. In an article in the Journal of Economic Perspectives, Siegfried and Zimbalist state that during the 1990s, $21.7 billion was spent (or planned to be spent) on 95 stadiums in the four major sports (MLB, NFL, NBA, and NHL). Of this massive figure, roughly two thirds came from public funds. Without government funding for stadiums, payrolls across the league could not be nearly as high as they are today.
Certainly, there are many advantages to a city having a professional sports team, some of which are not easily measurable. How do you quantify the value of a winning team to a region? I know surly Bostonians are more pleasant after a Red Sox victory. Siegfried and Zimbalist do find that new stadiums provide an economic boost to the area around the stadium, but generally come at the expense of other forms of entertainment and nearby neighborhoods, so the funds spent do not increase the tax base.
Sports salaries are at ludicrous levels because the entire system is predicated on a large portion of team costs being covered by the government. Why do we as fans accept this transfer of taxpayer funds to players (with the owners taking a little for themselves along the way)? In the UK, the government has taken action to limit bankers’ pay by taxing their bonuses at a very high rate. I am not advocating that for athletes (or bankers). However, to say that athletes are deserving of high pay because, “that’s what the market supports,” is a little misleading. The market for pro athletes, like most markets, is heavily impacted by government activity. As long as the government is funding some stadiums, even those teams that do pay for their own stadiums (such as the San Francisco Giants and New England Patriots) are forced to pay more for players.
In both sports and finance, salaries are artificially high due to government support. Wall Street may not get large bailouts every year, but it seems likely that salaries are higher due to repeated government actions that signal to the banks that they are unlikely to fail. Neither the teams nor banks are really at fault; we cannot blame them for asking. If someone offered me billions, millions, or even tens of dollars, I would also accept. It seems ridiculous that in both industries, government funds subsidize salaries that are far higher than necessary to keep the top talent.