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Economics of the Sports Industry

I think many of us while looking any sports game on TV thought: why do they get so much money anyway? Of course, it’s all the sponsors and investors, and being a professional athlete is indeed hard, so they deserve the money, but some of the sums sound ridiculously high.

In this article, I want to discuss where the money in the sports industry comes from.

The first thing to notice is that not all athletes seem to be “overpaid”. There is a huge gap in salaries between players from the same team/same sport. It does depend on how experienced and good the athlete is. A good example of this can be a comparison of annual salaries of football players from the same team. In Real Madrid F. C. Christiano Ronaldo (forward) earned 32 million pounds in 2016, whereas Gareth Bale (forward) earned 15 million pounds that same year. The difference may come from experience and from how good they play during the season. As well as this, some teams earn more than the others in a certain sport because of the rank they have. The higher you are in the league the more annual pay you get.

One of the more interesting things that drives the salaries for athletes up are injuries. Not all of us constantly think how injuries affect athletes both during and after their career. The insurance companies will not necessarily accept athletes as clients, as it is not profitable for them, or will offer the coverage which does not help with paying the full cost of the needed surgery, for example.

Next reason is the short career of an athlete. Of course, some athletes, like David Beckham, for example, make their name a “brand” before finishing their career and can enjoy high salaries from commercials, tv-shows and nearly anything connected to the fashion business. However, only a small percentage of athletes can succeed in such things. Most of them do stop their career at a much younger age than the official retirement of 60-65 years.

With an understanding of why athletes deserve such high salaries, comes another question. How does the sports industry make so much money, so they can pay such high salaries?

One way the industry as a whole makes so much money are the fans themselves. Buying official merchandise, tickets and overpriced food and drinks at the stadiums – that drives the profits. If there was no demand – prices for tickets and wages of athletes will have to go down. However, people watch sports not only because it is a fun way to relax and entertain yourself, but also because many people actually get inspired by watching sports and might as well do greater things themselves. Both inspiration and pleasure are not the things that you can evaluate in terms of money.

Another reason for the profitability of the sports industry is the sponsors or investors. Large multinational companies sponsor the games, design and provide uniforms and make contracts with the most famous players for advertising campaigns.

Sports are watched all around the world and have millions of fans out there, so that is a nice marketing field for the companies to promote their product. Some of the largest contracts include Adidas cooperation with Leonel Messi. It pushed Adidas to the top of the sports apparel market. The company also sponsored two teams (Germany and Argentina) during the World Cup 2014 and had a right to design the tournament ball as well.

Another example of such cooperation is Reebok working with Conor McGregor (a UFC fighter). The company sponsors some of his fights and the athlete also receives 20-30% of all the sales made of his own merchandise for Reebok. The company became one of the main apparel suppliers to UFC.

The sports industry already makes a high revenue every year, but this number is expected to grow even further. The amount of money paid by TV channels to buy the rights to translate the games becomes higher and higher every year. Sponsorship money is expected to grow by 4.5% and the media revenues are expected to go from 14.6 billion in 2016 to 20.6 billion in 2019. Obviously, the profitability of the industry increases and that is why the salaries of professional athletes are going to grow as well. This does make a lot of sense, but some people still think that sportsmen are overpaid and do not deserve such high salaries. What is your opinion on this matter?


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