NBA and Fair Pay

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While baseball is supposed to be the American sport, we Yankees are also rather fond of basketball. As might be imagined, the ongoing NBA strike has caused dismay to the loyal fans (a group I do not, in fact, belong to).

The strike, like most strikes, is the result of a dispute between the employees (in this case the NBA players) and the owners As the players see it, they are not being fairly compensated for their efforts. The owners disagree. Because of this impasse, basketball fans will not be seeing any NBA games for a while.

On the face of it, this sort of strike might strike most people as rather absurd. After all, the mean average salary in the NBA is $5.15 million and the median average salary is $2.33 million. The low end salary is about $300,000. Given that the average household income in the US is $50,000 it would seem that the players have nothing at all to complain about. After all, the lowest paid player is still vastly better paid than the average American household.

On one hand, it is easy to dismiss the NBA players as being greedy. After all, almost anyone in the world would be very happy to make that sort of money working hard, let alone playing a game. These players are, obviously enough, extremely well paid and it would be rather odd to say that they are suffering an injustice because of their salaries.

On the other hand, the fairness of a salary is not simply a matter of the amount being paid.  To be specific, the fairness of a salary cannot be judged simply by the dollars being paid.  Other factors must be considered as well, such as the value and amount of the work being done. For example, if I said that someone was paid $12,000 a year it might be tempting to say that she is underpaid. However, if you then learn that the person only works one hour each month, then you might change your mind and think that she is actually overpaid. But, if your learn that each hour of work she does generates $5,000 in profit for her employer, then you might change your mind again and think that she is actually being underpaid for what she does.

In the case of the NBA players, it is not simply a matter that they want more money. Rather, they want a larger percentage of the profits (which, of course, means more money). The NBA players are able to command such high salaries because their play generates massive profits and they believe that they deserve a greater share of the profits that they generate. The owners, who generally do not get out on the court to play in the games, believe that they are (as owners) entitled to a significant share of the profits.

While the NBA players are coached and trained, people obviously pay the rather steep ticket prices to go see the players play. They do not go to see the owners count money. As such, the players are the main source of profits and, it could thus be argued, should be paid based on this contribution to the profits. The owners, in turn, should receive compensation based on the value that they contribute (that is, to the degree that their actions generate profit).

Thus, while the NBA players enjoy rather hefty salaries, the dispute is still the classic dispute between the workers and the owners over who is entitled to what percentage of the income.  As noted above, the theoretical solution is easy enough: the workers are entitled to the value they create through their actions and the owners are also entitled to the value they create. Anything else would seem to be theft. As might be imagined, sorting out this division can be rather tricky. In the case of the NBA, people come to see the players. But, of course, the owners also play a role in making the professional games a possibility. After all, if the players just played on a public court and passed the hat for money, they would obviously not make the money they do now.

This same question arises in other cases of employment. For example, FAMU charges $124.01 per credit hour for in state students, and out of state tuition is $552.03 per credit hour. This does not include other fees. I have 193 students taking three credit hours this semester and will have at least 160 in the spring.  As such, my labor does bring in a fair amount of money for the school. This, of course, only includes my teaching and excludes my administrative work (which is 20% of my assigned work-my four classes per semester are only 80% of my assigned work). As you might guess, my salary is way, way less than what the university charges my students to suffer through my classes. Naturally, there are various expenses involved with the students being in my class-the cost of the buildings, administrative costs and so on. As such, perhaps my salary is fair-that is, when all the legitimate costs are subtracted from what I bring in to the school what is left is what I am, in fact, paid.  However, if what I am paid is less than what I generate (minus the other legitimate costs) then my salary would seem to be unfair to the degree I am underpaid for my efforts.

Of course, my university is not aimed at making a profit and hence this almost certainly changes things. When a for-profit business is considered, one rather effective way to make a profit is to pay workers less than the value they actually create through their labors. As many other have argued, a profit tends to require that someone is either being paid less than the value they provide or is paying more than the value they receive (on the customer end). The stock counter is, of course, that the people who get less or pay more value what they get (either the paycheck or the product/service) more than the other party.  To use a made up example, imagine that my workers value the time they put into making one of my widgets at $1, but they actually contribute $2 to the value of the widget. That would enable me to (at least) make $1 profit per widget with no one feeling they have been treated unfairly. Of course, if they knew that their work was worth $2 rather than $1, they would no doubt see me as acting unfairly. Of course, I could also profit from the customer. If it cost me $5 to make and sell a widget and my customers valued it at $6, then I would make $1 profit per widget at the expense of the customer. Of course, if they knew that the widget could be bought for $5, they would probably feel cheated as well. Of course, if I could convince them that I have a right to a profit (that is, money for nothing and perhaps some chicks for free) then they would think that it was fair. The challenge is, of course, justifying that profit-after all, it does seem to be by its very nature money for nothing. If it was money for something, then there would seem to be no profit left over for that money would have to go to something.

But, one might object, my brief discussion is simplistic and naive and fails to properly capture the reality of the financial situation. That is, profit can be generated without anyone being treated unfairly and without concealing any facts.

Going back to the NBA players, it is obvious that they are very well paid. But it is not obvious that they are actually being treated fairly by the owners.

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13 Comments.

  1. s. wallerstein (aka amos)

    Maybe the NBA players could generate a bit more sympathy of their “cause”, if they offered to donate a sizeable percentage of their new earnings to sports programs for poor children.

    Otherwise, their cause does not seem to be much of a cause, just a struggle between two groups of rich people over who gets richer.

    I’d feel more sympathy for a strike by Walmart employees.

  2. S.Wallerstein,

    True-it is hard to really feel sympathy for millionaires when they say they are being exploited by other millionaires. However, the exploitation of a rich person is just as much exploitation as the exploitation of a poor person. After all, it is not the amount of money stolen or the wealth of the victim that makes a theft a theft, it is the act of stealing.

    However, as you suggest, the exploitation of the poor does the poor more harm. In the case of the NBA players, playing for X million per year rather than X million +Y just means that they might have to do without one extra Rolex watch or sports car that year. In stark contrast, some people go without adequate food because of how little they are paid. As you note, the players could generate a lot more sympathy if they said they would use their gains to help poor children.

    Interestingly, the NBA players’ union has been a solid supporter of other unions.

  3. There are a couple of facts to correct.

    First, the reports describe the event as a lockout, and not a strike. That is, the owners are refusing to pay the players, the players are not refusing to play.

    Second, Mike incorrectly claims that “In the case of the NBA players, it is not simply a matter that they want more money. Rather, they want a larger percentage of the profits.” On the contrary, the players are being offered a reduction in salary by the owners at a time when ticket prices are being increased.
    See the Wall Street Journal for a report: “The owners’ latest proposal revolved around what is essentially a 50/50 split. The last contract, which expired in July, gave players 57% of the revenue.”
    http://online.wsj.com/article/SB10001424052970204323904577038271970329612.htm

  4. If this case is being tried by the public, I could understand the need for either party to appeal to the sympathy of the public. If it is being tried in court, the sympathy of the court is all that would seem to be needed. That is of course unless the court were to succumb to the ever changing whims of the public.

  5. Since your example was simplistic, so shall my rebuttal be:

    Value is subjective, as is what is ‘fair’. To get closest to ‘fair’ we need an open exchange of information and then people can come to an agreement on what they are willing to do for how much. Such voluntary arrangements are the basis of a stable society and would minimise such things as strikes.

  6. s. wallerstein (aka amos)

    Mike:

    I agree that theft is theft, although I don’t see that anyone is stealing from anyone in the dispute between the players and the club owners.

    Rather than a case of theft, there seems to be a power struggle over how the earnings from the basketball games are divided up.

    Both sides want a bigger share of the earnings and pressure to get it. No one is stealing.

    For reasons of compassion, sympathy for the underdog, when there is a struggle for the share of wealth between the rich and poor, I generally side with the poor.

    I guess that behind my siding with the poor, there is a sense that the wealth of the world should be fairly shared, maybe in accordance with a principle like that of Rawls’ difference principle.

    However, my being on the side of the poor in such cases dates back long before I had heard of Rawls’ name, so actually I use Rawls merely to justify my prior commitment.

    So it’s better to say that I side with the poor because of my sympathy for their cause or compassion for their plight.

    However, when the rich battle the rich, I don’t care who wins. It’s like when I see gangs fighting in the street: I look to see if anyone innocent is in danger and if not, I walk on by.

  7. Mike your arguement regarding compensation based on labor would work well if ownership and labor are equally valuable. They are not, never will be, and socialist philosophy incorporated mixed with american sports is like oil and water. Go write for fidel castro lefty.

  8. Regarding Vic: Why not present arguments instead of assertions and name calling? And Mike is not a lefty…check him out.

  9. Interesting article Mike and it raises topics such as Justice/Fairness.

    The ideal solution, may be to consider all the stakeholders involved, including owners, shareholders, debtholders employees, suppliers, supporters, sponsors, TV(cable)etc.

    Be transparent. Work out the income and outgoings. Measure the value the players and all the other stakeholder add. Benchmark it against all the competing sports, including basketball itself. And deduce what each stakeholder is worth and should be paid consumrate to their contribution to the profits. Deduct the amount needed to invest to maintain the long term value of the support and share the spoills consumerate with the value added by each stakeholder that has a claim on the earnings (again including employees etc)

    The truth is, greed always gets the better of some stakeholders and distorts justice or fairness.

  10. Vic,

    You do raise a point worth considering, namely that the owners are morally entitled to more value than those who engage in the labor for them. The challenge would be to argue for this rather than merely say it.

    Fidel Castro pays his writers in cigars and baseballs, neither of which really interest me (although I could probably get some good money and jail time for those cigars).

  11. s.wallerstein,

    I am sympathetic to the notion that when the rich squabble with each other, the rest of us should only be worried that we might be dragged into their squabbles (drafted into a war, for example).

    That said, I do think that the players should be paid based on their contribution. However, I also think that they are overpaid for what they do and this is sustained by overcharging the fans for tickets, merchandise and so on. But, of course, the fans are free to pay or not pay as they see fit-so if they are willing to do so, perhaps that is their right.

  12. Value might be subjective-but this requires some supporting evidence. It is true that how much value people place on things can be subjective and, as you note, people can sort out such matters by agreement or by force.

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