Cecilia Machado: The economics of superstars

Pelé, one of the greatest soccer players of all time, fits into what Sherwin Rosen —an important economist at the University of Chicago who was a member of the National Academy of Sciences of the United States— classified as a superstar.

In Sherwin’s words, “The phenomenon of superstars, where a small group of people make enormous amounts of money and dominate the field in which they operate, has become increasingly important in the modern world… there is a concentration of results among a few individuals and high rewards at the top of the talent distribution.”

In sports, Forbes ranking of the best paid athletes in 2022 reveals Messi, the big star of this World Cup, in the lead, earning US$ 130 million a year, followed by LeBron James, the American basketball star, with US$ 121 million.

Of course, the total compensation of superstars is inextricably linked to changes in the entertainment world, with returns that also come from sponsorships, advertising and image rights in everything that bears their names. But the great forces behind these super salaries, identified more than 40 years ago by Rosen, show that as important as talent is the structure of the market where these professionals operate, or the size of the market that is controlled (or dominated) by them .

The ability to attract a large audience —by talent, but also by charisma— and generate a large number of transactions determines a person’s scale in the market. In addition, an imperfect substitution between talents guarantees that the property rights over what is marketed are attributed solely and exclusively to the person who the product refers to or who announces it. It is this imperfect replacement and the ability to serve a huge market that ensures that earnings are largely appropriated by superstars.

Although Pelé was unique in his performances, his remuneration as an athlete differs greatly from the figures practiced today. According to Forbes, Pelé would be the highest paid player if he played today, receiving the equivalent of US$ 223 million. But in 1961, at the height of his career and playing for Santos, his salary would be roughly equivalent to R$70,000 in current values, as reported in newspapers at the time. Would the comparison of salaries between Messi and Pelé be a good way to infer which of the two would be the best of all time? Obviously not.

In Brazil in 1958, the year in which we won the first World Cup, and in which Pelé made his debut at the age of 17 for the Brazilian national team, there were only a few hundred thousand televisions in the country. Today, around 95% of households have a TV, and it is present in 70 million homes.

The technological advances we have experienced in recent decades —with real-time streaming of games and reproductions that allow the same play to be seen by several people at the same time and anywhere in the world— have further increased the scope of the market where athletes operate . These innovations, which amplify economies of scale, and allow the same entertainment to reach more people at the same time and at the same cost, truly explain why superstar salaries have grown so dramatically in recent decades.

The phenomenon of superstars, quite evident in sports, is also manifested in other activities, such as music, arts and literature, but also in the high salaries of CEOs in the corporate world, since the large scale of the largest companies in the world makes that each managerial decision becomes all the more relevant.

If capitalism depends on inequality —that is, paying higher salaries for the greatest talent— to reveal superstars, such as Messi, Pelé, but also corporate executives, the question remains: how much inequality can we tolerate in order to be able to attract and allocate talent where it belongs? are more productive?

For Pelé, no remuneration seems to do justice to the brilliance of his plays. There are, fortunately, the numerous records of his performance, whose scope reaches generations.