Working out the marginal revenue product of a football player and economic rent

Just completed this topic with my A2 Economics classes. Marginal Revenue Product (MRPL) measures the change in total output revenue for a firm as a result of selling the extra output produced by additional workers employed – the theory behind it is in the mindmap below. A straightforward way of calculating the marginal revenue product of labour is as follows:

MRPL = Marginal Physical Product x Price of Output per unit

For a football player whether it be in the Premier League, La Liga or the Bundesliga it is very difficult to work out their marginal revenue product. They provide services both on and off the field over the period of their employment contract and it involves estimating the expected additional revenue that they generate. There are basically two streams of revenue:

• The on-the-field contribution to team performance. Teams that are winning attract more spectators and media coverage which generates more revenue. MWR – marginal win revenue. Sometimes referred to win-elastic – more wins = more revenue.

• The image of the player off the field is important as star players can generate greater revenues by virtue of being star players – think of Erling Haaland (Man City) and Mohamed Salah (Liverpool). Shirt sales with their name on it would be part of this revenue. PIV – player image value.

So from an economic perspective the fundamental value of a professional footballer can be stated as: MRP = (MPC x MWR) + PIV

MPC is the (expected) marginal playing contribution, MWR is the marginal win revenue and PIV is the player image value.

Calculating a player’s value requires an estimate of the incremental impact of the player on the team performance, an estimate of the sensitivity of the team’s revenues to team performance and an estimate of the off-the-field marketing value of the player. The most skilled footballers are in inelastic supply because of their innate talent and ability. This coupled with high marginal revenue helps to explain why they should command high wages.

Economic rent and football players For most footballers their wages are divided between economic rent and transfer earnings. In the case of superstars their talent is unique and their labour supply curve is completely inelastic which means their earnings consist entirely of economic rent – see graph below.

Sources: Cambridge International AS and A Level Economics – extra student resources. Hodder Education https://www.learn-economics.co.uk/Economic-rent-and-transfer-earnings.html

For more on the labour market and economic rent/transfer earnings view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.