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Unformatted text preview: agreement with the Mariners’ owners and took a short stay with the Houston Astros. But immediately he was grabbed by the Arizona Diamondbacks at 1.5 times his pre- vious salary Ultimately, he became the highest-paid pitcher in MLB. People are often surprised that the pattern of earnings (although not the level) over time for pitchers is similar to that of any other job. This pattern of earnings and experience, except for the level of pay, looks just like the experience—earnings profile of any other employee hired on the basis of MRP, from starting at minimum wage on through middle—earnings years and ultimately to peak years. The similarity of this profile with those working in other jobs adds another piece of evidence in favor of the MRP explanation of pay in pro sports. The MRP of Coaches and Managers The MRP explanation works for other pro sport talent as well. Red Auerbach, coach of the NBA Boston Celtics during the Bill Russell dynasty years, earned $10,000 for the 1950—1951 season, Whereas recent Celtics coach Rick Pitino was paid $7 million for the 1997—1998 season (Sports Illustrated, May 19, 1997, p. 57). That’s a 700-fold increase in 47 years (almost exactly 15% per year), well above the average rate of inflation. How can this tremendous increase be explained? In Chapter 4, the work of Porter and Scully (1982) and Scully (1989) on manage- rial efficiency was described. Essentially, managers become more efficient the closer they get to the theoretical best they can get out of their players in terms of winning. One would expect, by the MRP theory of pay, that better managers would make more. This work shows that there is some evidence that managers who make the most of their talent do get paid more. However, this dramatic increase in pay for Pitino over Auerbach was not due to the relative success of the two coaches. Auerbach was clearly the more successful of the two, with Auerbach having the NBA record for championships. Part of the difference is that Pitino's job description included executive responsibilities that Auerbach did not have as a coach. The rest of the difference, according to MRP theory, simply follows from the dramatic increase in fan willingness to pay for NBA basketball. Nowhere is there a better example that the value of an input has risen because the marginal revenue aspect of MRP has skyrocketed. We saw in Chapter 2 that the NBA is now a $2 to $3 billion industry. Even though today’s coaches may not he any better than their counterparts in the past, what they are doing has simply hecome much more valuable over time. EnuiLIBRIUM IN THE TALENT MARKET: GRAPHICAL ANALYSIS 3-Wm‘fim‘fifiwtwvwnzmwu 4;»,- w 3-; r.» m, t lur conclusion thus far is that MRP theory provides a general explanation of pay in pm sports. It may be hard to believe that the MRP of coaches and players can be so hiyli, hut it is. AH lone, as competition for coaches and players is brisk, they will be |'.tltl «lose to the value of what they produce (in Chapter 8, we will see what happens it hen the pluyerh' lnhur market mmpetitiun is limited). Owners are toreed to pay up ...
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