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Superstar pay: the economics of Gareth Bale Superstar pay: the economics of Gareth Bale
(14 days later)
Every so often a news story comes along whose main function appears to be to elicit a collective gasp of surprise. Into this category fall skyscrapers that melt cars, anything to do with mating pandas, and footballers' transfer prices. Which must make this week's closure of the transfer window gasp-central. Marouane Fellaini (and his highly promising hair) off to Old Trafford for £27.5m! Mesut Ozil moving to the Emirates for £42m! And, most of all, Gareth Bale relocating to Real Madrid for €100m, or around £86m. When it comes to the 24-year-old former Spurs winger, the superlative sums just flow: pay of £256,000 a week and the likely prospect of £40m in sponsorship deals.Every so often a news story comes along whose main function appears to be to elicit a collective gasp of surprise. Into this category fall skyscrapers that melt cars, anything to do with mating pandas, and footballers' transfer prices. Which must make this week's closure of the transfer window gasp-central. Marouane Fellaini (and his highly promising hair) off to Old Trafford for £27.5m! Mesut Ozil moving to the Emirates for £42m! And, most of all, Gareth Bale relocating to Real Madrid for €100m, or around £86m. When it comes to the 24-year-old former Spurs winger, the superlative sums just flow: pay of £256,000 a week and the likely prospect of £40m in sponsorship deals.
Such figures provoke two main responses. The battalions of nostalgists hanker after simpler, lower-paid days when men presumably played with jumpers for goalposts (forgetting about earlier record signings, from Johan Cruyff to Barcelona in 1973, through Diego Maradona, Alan Shearer and so on). Others ask, as they did at Mr Bale's signing this week, how one 24-year-old can command such an eyepopping price from a club in a country where over half of young people are out of work. This question may be an obvious one to raise in crisis-hit Spain, but it is no less troubling for that.Such figures provoke two main responses. The battalions of nostalgists hanker after simpler, lower-paid days when men presumably played with jumpers for goalposts (forgetting about earlier record signings, from Johan Cruyff to Barcelona in 1973, through Diego Maradona, Alan Shearer and so on). Others ask, as they did at Mr Bale's signing this week, how one 24-year-old can command such an eyepopping price from a club in a country where over half of young people are out of work. This question may be an obvious one to raise in crisis-hit Spain, but it is no less troubling for that.
But there is a third response, which is to take together the fees commanded by top footballers, actors and bankers – and investigate the economics of "talent". The seminal paper in this area was published in 1981 by a Chicago economist. In The Economics of Superstars, Sherwin Rosen argued that even small differences in performance could produce huge gulfs in pay. "If a surgeon is 10% more successful in saving lives than his fellows, most people would be willing to pay more than a 10% premium for his services." Rosen also noted that the easier it was for audiences to see brilliant performances, the greater the rewards that would accrue to top performers. He thus neatly anticipated the coming of MTV, and DVDs of Hollywood films – although the money that has gone towards Premier League football has been a result of making the matches more difficult (ie expensive) to watch.But there is a third response, which is to take together the fees commanded by top footballers, actors and bankers – and investigate the economics of "talent". The seminal paper in this area was published in 1981 by a Chicago economist. In The Economics of Superstars, Sherwin Rosen argued that even small differences in performance could produce huge gulfs in pay. "If a surgeon is 10% more successful in saving lives than his fellows, most people would be willing to pay more than a 10% premium for his services." Rosen also noted that the easier it was for audiences to see brilliant performances, the greater the rewards that would accrue to top performers. He thus neatly anticipated the coming of MTV, and DVDs of Hollywood films – although the money that has gone towards Premier League football has been a result of making the matches more difficult (ie expensive) to watch.
Rosen's theory is probably the most widely cited in the entire field, yet it has a number of holes. For one, it takes little account of where the money to pay for these superstars comes from. This season, BT has joined BSkyB in the competition for screen rights – and this season's enhanced transfer fees reflect that. It is also worth bearing in mind that clubs like Real Madrid pay such high sums, and make such an attendant fuss over their players, precisely to make them stars and so increase audiences and revenues. Mad the sums may be, but there is a cold logic behind them – at least, as long as the cash can be found.Rosen's theory is probably the most widely cited in the entire field, yet it has a number of holes. For one, it takes little account of where the money to pay for these superstars comes from. This season, BT has joined BSkyB in the competition for screen rights – and this season's enhanced transfer fees reflect that. It is also worth bearing in mind that clubs like Real Madrid pay such high sums, and make such an attendant fuss over their players, precisely to make them stars and so increase audiences and revenues. Mad the sums may be, but there is a cold logic behind them – at least, as long as the cash can be found.
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