In praise of sports stars leaving money on the table

Pro athletes accepting sub-market value contracts are making a business judgment

Lots of big salary news out of the National Basketball Association the past couple of weeks:

Stephen Curry of the league-champion Golden State Warriors just signed a deal that will pay him $40 million a year for the next five seasons. James Harden of the Houston Rockets is guaranteed $228 million over the next six years. Everybody’s getting paid. Otto Porter Jr, the third-best player for the good-but-not-great Washington Wizards, will make $25 million a year.

As long as professional sports have existed, fans have complained that players make too much money. But in an era when many disappointed Democrats still wish their most recent presidential ticket had been headed by a socialist, we should scarcely be surprised that vitriol is nowadays being directed against the team owners.

Consider a recent article posted at The Ringer entitled “The Empty Nobility of ‘Taking Less’”. The author, Michael Baumann, is concerned about the accolades that sports writers bestow upon players who agree to accept contracts paying them less than market value. The rationale for such deals is that the money saved helps the team sign other players and enhances the odds of a championship. Tom Brady, quarterback of the New England Patriots, is famous for accepting such deals. The five-time Super Bowl victor’s most recent contract ranks only 27th when measured against the National Football League’s salary cap. Sports writers credit Brady’s unselfishness with helping win all those championships. 

Similarly, Kevin Durant, the Warriors’ star, just signed a two-year contract that will pay him around $53 million, about $10 million less than he could have earned under the collective bargaining agreement. Management used the savings to keep the core of the team together. At least that’s the official story.

But Baumann, a very fine sports writer, is concerned about all of this cheerleading. Durant’s action, he argues, writes, did not make the other contracts possible — “it made them cheaper, both in terms of the Warriors’ overall salary outlay and in terms of their luxury tax bill”. Management could have paid Durant his full $62 million or so and also paid to extend its other veterans; the team simply would have faced a big tax bill from the league for exceeding the salary cap.

But this is unpersuasive. A professional basketball team is a business for profit. The product is the game that is sold to advertisers and fans. The players’ labour is certainly the most important input. But it does not follow that the cost of the labour is irrelevant. As labour becomes more expensive, the team will cut elsewhere. Elsewhere can include the salaries of other players. No matter how wealthy the owner may be, the $10 million that the Warriors are saving over two years because Durant agreed to take less is not Monopoly money. If the savings makes signing other players cheaper, the team is more likely to make that investment. If by contrast Durant insists on the full amount to which he is entitled, the labour of the other players the team wants becomes more expensive (because of the league’s luxury tax on teams whose payrolls are too high), and the team is less likely to make that investment. 

Moreover, compensation comes in forms other than money. Durant has accurately calculated that his chances of winning another title over the next two seasons are maximised if the Warriors are able to retain their core players. At 28 years old, he has already earned over $130 million dollars in his career and is willing to take a part of his reward in championships rather than cash. This might not be the same calculation every player would make but there is every reason to grant that it is entirely rational. (Also, Durant will be eligible in 2019 for a deal that will be likely to pay him over $40 million per year. So shed no tears.)

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