How Athletes Make Money

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Watching sports is a common pastime in many countries. Some athletes can make great sums of money from different sources.

Contracts

When a pro athlete gets drafted or signs with a team, they sign a contract. The contracts have many different factors and get complicated.

When an athlete signs a $100 million contract, they do not get $100 million. In a contract, a player gets guaranteed money and incentives. The guaranteed money is the amount they will get. The incentive-based money an athlete will receive if they reach goals set in the contract. A team might offer $10 million to a player if they win the championship. That means there is $90 million guaranteed for the player if that is the only incentive.

The athlete does not get the $90 million right away. An athlete gets the contract money over time, during the length of the contract. If the contract is 5 years, they will get $18 million a year.

Many leagues have a salary cap, which is a maximum of the amount of money they can spend on player's contracts. Several factors get considered when determining a player's cap. Some include how long they've played, how long they've played for their team, and their age. Being traded gets factored in. A sports contract is an employment contract between the player and the league. If a player gets traded, the contract with the previous team carries over. The player gets the benefits of being with the team for 2 to 3 years.

Licensing

A company might approach an athlete to use their name for a product. The athlete will have their name on the product and help to grow the product. This might include being in commercials and showing up to sales events. In exchange, an athlete might get a percentage of sales or become an owner in the business.

Some athletes might sell their autographs to fans. This is not licensing, per se. But athletes are making money from their name.

Endorsement Deals

An endorsement is an athlete getting paid to promote a product or company. Similar to licensing, but the athlete's name is not on the product. An athlete might be making more from endorsements than from their contract. They might have 5 endorsement deals with five different companies. These endorsements might get valued at $6 million each, and their contract is worth $20 million a year. There is no cap on the number of endorsements and no cap on the amount of money that can get made with an endorsement.

These deals are less work than training and playing in games. An athlete has to train for 8 hours a day, 6 days a week. Then they play the best athletes in the country. Compared to being in the commercial or going to an event.

The endorsement deals might continue after the retirement of the athlete. An athlete can continue to promote products after they retire. Athletes promote a range of products, from sporting goods to credit cards.

Investments

An athlete can invest in stocks like any other person. The amount of money they make gives them the privilege to make other investments. An athlete can become accredited and invest with a VC fund. Or start their own fund to invest in early-stage companies.

Some athletes might start their own companies. During their playing career, they might have a partner. To manage the day to day activities at the company for them.

Appearances

Some athletes might make an appearance in movies. They will get paid for that appearance.

Other athletes might get paid by companies to appear at an event. The company pays them to take pictures with people at the event.

My Opinion

Some people think that athletes get paid too much. Those people need to look at the bigger picture. The owners are willing to pay athletes hundreds of millions of dollars. These owners consider the contracts investments. What's their return, 20%, 50%, 200% per year? The owners overcharge the fans to get their return. They will lower the prices if people stop paying their current prices. Owners would find other revenue sources, like businesses. If fans stopped going to the games or buying $80 jerseys.

The real money for an athlete is in endorsements, but there are some problems. The unknown players will not exceed their contract with endorsements. For every Steph Curry, there are 50 no-name league minimum players. Players that do well in small-market teams have that problem. They might get 20 points a game and never make the playoffs. Then, they do not get the attention of a player from LA with the same stats. The same market player will go to one of the popular teams to get more attention. The scenario leads to one team with 3 stars and dominating the league.

At the same time, the superstars need to maintain a public image. Companies will not pay players money if the public does not enjoy seeing them. If anything happens to them, the company will stop working with them. In this era of technology, athletes need to wear an invisibility cloak when they go out to maintain privacy.

Eventually, all the athletes will get replaced by robots. Robots can go at 100% energy 100% of the time. Which will make watching them more interesting to watch. Although my content will become irrelevant when they start playing sports.

Conclusion

The amount of money a player makes depends on their value add. If the team is in a city with a small population, then the potential revenue has a limit. Which makes me wonder why Ohio had 2 NFL teams, and LA had no team in the early 2000s.