Marginal Revenue Productivity and Premiership Player Wages

21Oct08

Why is it that it seems average Premiership footballers can get paid over twenty thousand pounds a week, an annual wage of just under one million pounds a year? The top players can command salaries closer to one hundred and fifty thousand pounds a week, a staggering seven point two million pounds a year.

Would these players be willing to play football for only two thousand pounds a week, a paltry annual salary just under one hundred thousand pounds? It is important to consider that it is only a small percentage of footballers that ply their trade in the Premiership and receive these astronomical wages.

It can be argued that these wages are determined by the two basic factors of supply and demand. The supply of talented players able to perform at the highest level is very limited. If a club wishes to acquire one of the best players in the world then due to the lack of supply and, more importantly, the high demand for the player, the players value as a commodity will rise. The supply curve for this commodity (world class player) is perfectly inelastic. When you have a supply curve that is perfectly inelastic, the wage will be determined by the demand curve; any increase in demand for that player will result in an increase in price.

The demand for the top players is extremely competitive. It is an open market where Premiership clubs not only face competition from each other, but also clubs from the other top European leagues. The competitive nature of the bidding means that the clubs often have to bid the maximum that they are willing to pay in order to acquire the player. It would not be correct to state that it is just the supply curve that affects player wages as the supply of the best cricket players is similarly inelastic, but not many cricket players could boast an annual salary of nearly a million pounds.

The theory of Marginal Revenue Productivity (MRP) suggests that demand for labour depends on two things. Marginal revenue (MR) of the last good sold and the marginal product of labour (MP). The MR is the price people are willing to pay to consume the good. In the case of the Premiership this would be the price people are willing to pay to watch the game, either live or on television. This also includes sponsorship and prize money.

The Premiership boom has seen an unprecedented amount of money flow into the sport, mainly due to the influx of revenue from selling the rights to broadcast live games. Considering the amount of money coming into the game, there is a relatively small number of workers (players) who need paying. For example, Manchester United and Arsenal can generate over one million pounds per game on gate receipts alone, yet the number of people they have to employ is relatively low. Therefore, it could be suggested that there is a high amount of money available to attract the best players.

It is difficult, if not impossible, to accurately measure the MP of players. However, if one player is good enough to make the difference between a team finishing 5th and 4th in the Premiership then it can be worth millions of pounds to their club. This is due to additional prize money and potentially qualifying for the lucrative UEFA Champions League tournament. A saved penalty, a clearance off the line or an unstoppable strike has the potential to be worth millions of pounds. This gives footballers a potentially very high productivity. This could be why clubs are willing to pay so much on transfer fees and player wages.

If we were to examine the sport lower down the Football League, the money in the game is much lower. For example, prize money and television rights is a incomparable to the amounts on offer in the Premiership. Effectively, this would lead to the MRP of lower division players being much lower, explaining why the lower league players earn considerably less than players performing three leagues above them.

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