Thanks to Richard Reinsch here at Liberty Fund for pointing me to an excellent essay by Steven Malanga at Real Clear Markets, "Income Inequality in the NFL." Malanga looked at payrolls in the NFL and found that the highest payroll team last year (Redskins, boooo) paid out $123 million to 59 players and the top quintile of players (basically half the starters) got 63 percent of the total. Other top payroll teams like the Patriots (62%) and Saints (60%) were not much different. Perhaps surprisingly, the lowest payroll team, the football Giants, paid 59 percent to the top quintile. Interesting enough on its own, I think. But Malanga wants to take it somewhere.

Is this fair? I suppose that depends on your definition of fairness. But by way of comparison, I took a look at how this income structure compares with household incomes in the United States. According to U.S. Census data, the top quintile, or 20 percent of households, captured about 51 percent of total family income, while the second quintile earned about 23 percent off all family income. Together, that amounts to about 74 percent of all household income. In other words, income is actually slightly more concentrated in the NFL than it is within our larger society, and there is a bigger gap between the richest and everyone else in football.

What makes this so astonishing is that the NFL has all sorts of mechanisms in place that we lack in our general labor market which are supposed to smooth out income inequality. For one thing, the NFL is entirely unionized, and we keep hearing (most recently from Barack Obama) that income inequality in America is in part a function of the decline in unions. The NFL also distributes talent to teams through a draft, which minimizes competition among employers for entry-level workers. No such check on bidding wars for the most talented exists within our general economy. The NFL has a cap on the amount of salaries it allows teams to pay, which presumably acts as a curb on salaries at the top of the wage scale. And players cannot jump to other teams until they have been in the league for four years, meaning that their employment mobility is far more limited than within our labor markets in general.

[...]

Still, it’s not as if the top players are capturing all of the rewards of the growth in professional sports, to the exclusion of everyone else. As MLB and especially the NFL have cashed in over the years, everyone’s share has grown. The total payroll of the Washington Redskins has doubled in the past five years. While the top players (who’ve changed over time) got a chunk of that gain, the median salary on the team also increased 85 percent to $855,000.

Something similar is going on in the rest of society, where the premium paid for talent has been rising, pushing up salaries fastest among those at the top even as everyone gains.

He goes on to discuss the returns to developing human capital through education.

Couple of points. First, we have much thinner markets in pro sports than in life, so you'd expect greater variance in abilities. Second, human capital in sports is far more connected to physical endowment and dedication to training, not so much to education as in the world. Third, it's not clear what teams are maximizing in a given season, wins or revenues (exhibit a: trading Pau Gasol for Kwame Brown). My former colleagues Todd Jewell and Dave Molina have a couple of papers showing that MLB teams with greater payroll inequality don't win as much. Finally, income inequality in the world is far less than the Census data show, after adjusting for taxes & transfers, household size, and hours worked (Heritage study here).

Even so, it's a really interesting article, and a great example of how the economics of sports is an important window through which to view the world.