Gareth Bale & value theory

The question of whether Gareth Bale is worth €100m raises questions about the validity of marginal productivity theory.

Eamonn Butler writes:

In free markets, people pay us for the goods and services we produce because they value those products. So market rewards do depend, very directly, on the value that we deliver to other members of our society.

This ignores a crucial distinction - between actual, observable value and expected value. It's possible that Bale's value to Madrid will match his cost: for example, if he makes the difference between winning the Champions League and a quarter-final place in a single year, he'll be worth around £15m (pdf). But most of his transfer fee and salary, is determined by Madrid's expectation of his value. And it's quite possible that this will exceed Bale's actual value.

So how can Eamonn say that "rewards depend...on the value that we deliver"? One possibility is that he's talking about averages over the long-term. This is reasonable for many professions. If a company were to hire, say, electricians at £200,000 a year it would go bust because electricians don't create that much value. The excess supply of electricians would then bid their wages down to levels compatible with their value.

But this reasoning cannot apply in our case. When Sp*rs fans sang "there's only one Gareth Bale" they were - uniquely in their miserable lives - correct. It makes no sense to speak of the average fee of all Bales; Madrid are paying a fortune for him precisely because he's unique*. It might be that, averaged over all possible futures, Bale will be worth £30m a year - his fee and salary amortized over his six year contract. But this is unobservable and hence unscientific.

A more promising interpretation of Eamonn's comment is that, averaged across all footballers, wages equal value. Sure, some are overpriced and overpaid, but others - by the standards of the average footballer - are underpaid.

This claim, though, runs into an obvious problem. In aggregate, football clubs lose millions of pounds. Which is surely evidence that footballers, on average, are paid more than their average revenue product.

The objection to this is that revenue product is only part of value. We must add owners' non-pecuniary valuations - such as the gratification of their ego or the escaping of Russian politics.

But if we regard value in this sense, then Eamonn's claim becomes an untestable tautology. Whenever we see any worker or product changing hands at fancy prices, we can attribute it to some kind of "value." Sure, value's subjective. But it might be so subjective as to be unmeasurable. In fact, it's quite possible that the much-maligned labour theory of value is more scientific (pdf) than marginal productivity theory - insofar is it is both testable and, better still, compatible (pdf) with the evidence (pdf).

Here, though, we must draw a distinction between the validity of marginal productivity theory and the legitimacy of free market transactions**. It's quite coherent to argue that marginal productivity theory is silly, and yet defend market exchanges on Nozickean grounds that what consenting adults do should be their own business. Markets don't need to be value-maximizing to be legitimate.

* Bale is, in a sense a (near) monopoly, and monopolies charge a price above marginal product.

** I shall avoid the question of whether Madrid is operating in a free market.

Another thing: There are many complications here. One is that, in football, value is to a large degree zero-sum. Bale could justify his fee and salary by winning Madrid trophies. But if he does this, he's reducing the value of Barcelona players. Another is that, in team sports, an individual's marginal product  depends upon complementarities with his team-mates; if these are favourable, his marginal product might seem big, and if their not it won't. This raises all sorts of issues.

Comments

[Luis Enrique]

I don't know what point Eamonn is trying to make.

In a free market, a billionaire dying of thirst will pay billions for the only available water supply, assuming the owner of said water wants to maximize the sale price. In another situation, water is sold for pennies.

what do we learn about the value of water to society, from this?

my guess is that you need some pretty hefty assumptions about market structure (competition etc.) to move from observed prices to utility, but I am too ignorant of economic theory to know.

it's quite possible that to explain transfers prices you have to include the gratification of billionaire club owners - I am not sure that is an untestable truism, perhaps we could conceive of an experiment to test it?

[Luis Enrique]

[we should get this guy to come an explain why "testability" isn't as important for science as everybody seems to think: http://tinyurl.com/os9ws4r ]

[Elmo's Revenge]

I always suspected you are a Woolwich Wanderers fan Chris.

[chris]

Another thing I'd add here is the importance of arms races. Any individual team has to spend to match its rivals - look at the flak Wenger took over the summer - the result of which is that aggregate spending can be far more than is collectively rational for all teams considered together. This is another way in which Eamonn is wrong.

[Ibexsalad]

Only part of the story. Beckham was a loser in the football sense for RM but made huge amounts for the club in paraphernalia sales.

[Keith]

I think you hit the proverbial nail on its head when you talk about teams. All economic production requires cooperation and much of the "Value" comes from the synergy of the collective. Marginal value theory is pants. In reality football players are substitutable despite the romantic day dreams of footie fans.

Market value is not moral value either. Right wing or mainstream economics suffers from the fallacy that you can go from the economic value of things to the moral value. These must be kept separate in our calculation. The use of the word value is loaded and creates mental associations that are unwarranted.

[aragon]

As usual there is a government sponsored monopoly at the root and all talk of a market is a fiction.

In this case copyright is the monopoly along with broadcasting licences, and numerous other rights (restrictions) for the distributors etc.

Everyone might wish to watch the best, TV makes this possible, but copyright stops the price from falling to the marginal cost (i.e. zero) and facilitates vast concentrations of wealth.

[Boffy]

"But most of his transfer fee and salary, is determined by Madrid's expectation of his value. And it's quite possible that this will exceed Bale's actual value."

From a Marxist perspective, this statement is wrong. What they are prepared to pay here surely depends not on the value of Gareth Bale. They are not buying him as a slave after all. They are not purchasing him as a commodity. They are purchasing his labour-power for a limited period of time.

There then arises two different issues. Firstly, there is the question of the value of the commodity they are actually buying, his labour-power, and secondly there is the question of the commodity they are producing and selling with that labour-power, i.e. entertainment.

The value of the former can be determined by examining the cost of producing footballers of equal skill etc. That may or may not be quite limited to what the costs of food, clothing, shelter, etc. are for any other form of labour-power, plus the cost of finding workers with similar skill or aptitude, and the cost of developing that skill. That will, of course, depend upon the number of people in total for whom that applies. If it is very limited, we may or may not want to consider any payment of wages above the average as a form of rent due to a monopoly situation, or we may simply want to accept that the cost of producing labour-power of this type is high, and so the value of this labour-power is high.

But, the question of the value of the product of that labour-power, can, as Marx sets out only be determined in the market, by what consumers are prepared to pay for that product. Although, individually consumers pay only small amounts for their share of the product, collectively the total is very considerable, which is reflected in the fact that even after paying large amounts to purchase such labour-power, the capitalists who do so, still make even larger profits from it.

Similarly, consumers individually only pay small amounts to cove the purchase of the products of other service commodities such as healthcare. From the fact that nurses and doctors are paid much less than top class footballers, and from the fact that people complain about paying more taxes to cover the purchase of their product, whilst seem happy to continue paying large amounts for football season tickets, for Satellite TV subscriptions for sports channels, for football merchandising, and so on, it would seem, however, that consumers value the product of footballers and other entertainers far more highly than they do the product of healthcare workers!

[FromArseToElbow]

I'm loath to quibble with the estimable Boffy, but RM most definitely are buying Bale as a commodity. The giveaway moment for most people in this interminable saga was the news that they ordered eleventy gazilion new shirts with his name on them a couple of weeks ago.

What they are buying (or licencing) is brand Bale. RM's "galactico" strategy has always been predicated on TV money and ancillary rights, driven by the peculiar Spanish system that allows them and Barca to secure the lion's share of TV fees. Bale will expand their commercial opportunities abroad (just as Zidane, Beckham and Ronaldo did), recouping a lot more than a CL win bonus.

Bale has admitted he had a Madrid shirt when he was 9 and has always "followed" the club. That made him an oddity in Wales in his youth. You can expect to see a lot more RM shirts around over the next few years, maybe as many as the ubiquitous Messi Barca ones, though perhaps not on Tottenham High Road.

[Boffy]

Sorry David,

but they are not buying Bale, for all the reasons Marx sets out in Capital I, in defining the difference between Labour and Labour-power. If they were buying Bale, then he would be selling himself body and soul, i.e. turning himself into a slave for them to dispose of as they choose.

He is not doing that. The fact that they are able to make money from advertising etc. using his name, is only an aspect of that. In the end his name is not separable from his labour-power.

[FromArseToElbow]

@Boffy, my point is that Bale's name (which I'm using as short-hand for the brand) *is* separable from his labour-power.

The inflation in transfer fees in recent years is due to the realisation that the player does not in fact have to deliver on the field (and nor do you have to discount for possible injury), so long as the brand delivers off it. This is why an average player like David Beckham was so valuable to Real Madrid.

It became common during the 90s/00s to equate top players with business leaders and financial traders, partly on the back of Sherwin Rosen's 1981 paper, The Economics of Superstars, which explained how technology amplified the scale economies of talent.

But the real insight came much earlier with Walter Benjamin. In his The Work of Art in the Age of Mechanical Reporduction, he noted how as the work lost its "aura" this was compensated for "with an artificial build-up of the 'personality' outside the studio", where that personality is "the phony spell of a commodity".

There is a real flesh-and-blood Gareth Bale, and there is the construct "Gareth Bale of Real Madrid", which is now being mechanically reproduced not just on replica shirts but in a variety of commodities.

Madrid haven't just bought Bale's labour (as Marx would see it), and they're not just turning that into an entertainment commodity (as Rosen would see it), they're also buying intellectual capital that they can use to enhance their own RM brand and sell ancillary commodities.

Of course, this divorce between the real player and the brand can cause problems, as Graham Souness famously found out with Ali Dia - http://en.wikipedia.org/wiki/Ali_Dia

[Magpie]

@Chris,

Referring to the belief that "rewards depend... on the value that we deliver", you say:

"This is reasonable for many professions. If a company were to hire, say, electricians at £200,000 a year it would go bust because electricians don't create that much value..."

Your reasoning, while incomplete, is valid in the case of most employees, who are essentially price-takers, in a competitive market. A company, any company, must (1) have an estimate of the cost each staff (in your example, electricians) represents and (2) an estimate of how much income the staff will bring the company. If (1) exceeds (2) then there is no deal (note very carefully: exceeds)

This individual company registers a profit when (2) exceeds (1).

(The company could also profit from selling overpriced stuff, but this kind of "profit" would be exactly offset, in the aggregate, by the buyer's loss.)

Indeed, that at least for some companies (2) exceeds (1) is the necessary condition for there to be aggregate profits in a national economy and even more surely in the global economy.

So, if in an economy there are aggregate profits, it's because someone is being paid less than their contribution.

----------

But that reasoning above fails in other cases. You mentioned sportsmen.

A better example: CEOs hire executive's compensation consultants (essentially, appraisers, just like real estate appraisers, or arts appraisers) to help determine CEOs' compensation packages. If, as an executive's compensation consultant, you do not recommend the compensation CEOs want, you won't be hired any more.

Neat, huh?

[DJK]

aragon beat me to it,

Bale's labour on the football field is only part of the story. The big money comes from his share of rents accruing from the state-enforced monopoly of Sky television rights (and the like). That copyright monopoly is an artificial construct, a distortion of the free market intended to encourage original producers. But if we (collectively) think that obscene sums of money going from the many fans to the few players and agents does not contribute to the common weal, that copyright could be relaxed, which would soon bring players wages down.

[Boffy]

David,

That is to assume that Bale's labour-power is only defined as his activity on the field, rather than that labour-power as with any other celebrity can also be simply to exist as a celebrity. Indeed, precisely for that fact, the value created by some labour (not labour-power) might only be realised after the provider of the labour has died. (other than for live performances or direct service provision the value produced by all labour is only realised after the labour has been completed, for example, the value created by labour in wine producing may only be realised decades after it was performed). So, for example, the value produced by Elvis' labour continues to be realised by those who have ownership to the its product long after he died.

[Boffy]

The point about "celebrity" of course is, how much is it a commodity that has value, and how much simply a commodity like land that has a market price, i.e. it is not something that has been produced by labour itself. If its defined as being like land, then its price is a form of capitalised rent.

But, that then poses a different question. Landlords are able to obtain rent for land, and thereby a price for land as capitalised rent, only because, labour is expended on the land producing commodities, food, raw materials etc. Marx defines various forms of rent - absolute and differential I and II. But, the rent is only a share in the surplus value created by the labour applied to the land. So, the value has itself been created by labour.

If we treat the payment of celebrity as a form of rent then, the question still remains what was the source of the value creation out of which this rent could be paid????

As I put it in a response to Nick Rogers recently, when people pay a £1,000 for a Man U season ticket, do they do so in order to enjoy the product of the labour of the players on the field, or the product of the ground staff??

The development of Satellite TV, and global audiences via the Internet simply enhances the value of the product of this labour because it means it can be enjoyed by more people. It is no different than for example the product of the labour of actors being increased because the capitalist theatre owner builds a larger theatre.

The argument about monopoly pricing is also weakened by the fact that compared to 30-40 years ago when Satellite TV, and son on did not exist the supply of the product by these means has increased hugely compared to when you could only enjoy this product by buying a ticket and going to the match.

Moreover, there are any number of substitute commodities, including going for free down to your local recreation ground, and watching people play because they enjoy it rather than because they are being paid loads a money.

There are lots of people today uploading their songs and other artistic material to the Internet, yet people still pay large amounts to see particular artists. Perhaps the only area where this is not the case is in porn, where free home made porn on the Internet has crashed the porn industry's earning capacity.

[Boffy]

Another way of looking at it could be that the value of these kinds of product whose use value is not diminished by the number of people that consume it, is to say that the value of its product can only be determined on the basis of its total potential demand, and that delivery of the product is a cost that has to be deducted from that value.

In that way, it is not that the value of the product has risen, but that satellite TV etc. have reduced the cost of delivery.

[DJK]

In a free market (Nigeria, Afghanistan?) anyone would be able to erect a satellite dish and enjoy watching premier league football. But here, the state has chosen to enforce the monopoly power of Sky and the FA, and it is this that ultimately enables the mega-earnings. It even (I would guess) increases the market for live football, and hence the price of season tickets.

As for Elvis, his posthumous earnings are again the result of an artificially constructed monopoly, as the US has granted a copyright of 70 years to his heirs, with predictable results.

Whether Gareth Bale and Elvis' heirs deserve their earnings or not, the sums involved are not due to the operation of a free market.

[Magpie]

Actually, there's a better way to show how top executives' compensation packages "reflect" their true contributions to their firms and to society:

http://anticap.files.wordpress.com/2013/09/heads-they-win-tails-we-lose.jpg

As they say, an image is worth a thousand words.

[Boffy]

In the 1960's lots of people used tape recorders to tape their favourite songs for free off the radio. It didn't stop record sales continuing to rise, and pop singers earnings rising sharply.

A lot of people across the globe do pick up Premier League football on their satellite dishes. If Sky etc. did not have a monopoly, my guess is that the Premier League clubs might still obtain huge earnings, but they would do so from selling the rights to several distributors rather than just one.

Elvis' music would still have to be put on CD, or distributed over the Internet by someone, so the product would still be realising value. The same with any merchandising. The price of each individual piece of merchandise might be lower, but the total value of the product might be larger.

As I said there is no real monopoly here because the commodities being sold are hardly necessities, and there are innumerable substitutes.