The wages of football players are astonishingly high and we do not precisely know why. In this tentative post I explore a few possible explanations. The main argument is that we have a market inefficiency and it is built on a simple intuition: you do not have to pay unschooled labour very much to make them hit a ball all day. Yes, the talent is rare, and the very best will not refuse more money if you throw it at them. And yes, you will loose the bidding process if you don't show the money, so the exchange value of elite football players may be very high, but no, there are no efficiencies gained during the wage escalation that justify the wages.
The standard way of thinking is that it is all propensity to pay, and due to a superstar effect of millions of people watching just one team that has the world's most famous player, there is enough at stake to raise wages sky-high. However, what profits does such a team make? Not a lot, as there is a finite capacity in the stadion, and you cannot ever have enough markups on some letters printed on a shirt. Let's discard that road. Broadcasting rights then, yes, amount to many millions that are injected in the world of sports. Again, if the broadcasting rights were cheapish, or non-existing, would that be a game-changer? My guess is no: I was watching all games in any league in the 80s when broadcasting rights were negligible, and players were equally motivated as today. The main difference is that back then there were no ads during the games, so we actually got more sports for less money, in fact for free. Broadcasting rights are very similar to the author's rights in the music and movie industry. They are actually bad calculations. To have your actors, players, musicians, show up and do all the necessary recording, training, and coaching, a known sum of money has to be paid. You can then figure the audience and the expected returns at any price level. At some equilibrium price level, welfare is optimal, and a monopolist will go above that equilibrium, restricting the quantity and increasing prices. But what is more: long after all wages and input costs have been paid, the intellectual (well...) rights still generate returns. As a consumer, you get no value for your money, because production is at zero marginal costs. Now it could be me, but paying more for nothing extra seems very ... inflationary.
What is worse is that the price effects may be endogenous. Say the market for sports products is not very competitive, a paradox indeed, but probably true. Marketing defines what brands are in the market, and multiple brands have the same shareholder structure. I'm no specialist in the field, but I read for instance that Puma and Adidas come from the same family business, and they largely avoid competition, with Puma focussing on the expensive stylish segment of the market, and Adidas on more specialized sportswear. Suppose also that there is a fairly inelastic demands for those fashionable goods, in fact the goods from the companies that decide what's fashionable. Then they can bid whatever amount of money to sponsor the teams that pay the players, and likewise, any other sponsor can further inflate prices by sponsoring the television channels for the broadcasting rights. It is an orgy of inelastic demand and price raises. Interestingly, in Belgium there are many ads for cheese and ham with a local label of origin. By law, these companies have no competitors in the same market. So these companies cause inflation, with a peculiar consequence: inflation leaves room for inequality. The first to benefit are the players, of course, and the last are the spectators that need to ask for a pay rise to their bosses. With some luck, when working at one of the sponsoring companies, that is not too hard, but others will lag behind.
If this sounds like a bubble, that is what it is. It is remarkable that organizations that pay extraordinary salaries, like football clubs, have equally high debts. This means the banks recognize the value of the players as real assets. This is foolish, as everyone know that one tackle suffices to end a player's career, but probably they insure against this. Anyway, it certainly is economically dangerous and also suspicious. A lot of money is flowing in from Arabic states, from oil sheiks and the like. Yes, they produce inelastic goods, but they also excel in money laundering, as do the teams they employ.
In sum, football is inflationary, very literally: thin air blowing up a bubble.
