The women’s World Cup Soccer tournament has started, and the US women have won their first two games. At the same time, the subject of pay for the United States Women’s National Team (USWNT) has received more attention. In 2016, five of the more prominent members of the team filed a complaint with the EEOC, alleging that discrimination is limiting their salaries compared to US men. Personally, I believe the players could solve this problem by recognizing and exercising the considerable pricing power they have.
When discussing pricing power, we typically think of companies selling products, but employees, athletes, doctors, lawyers, contractors, consultants, etc. are also selling something – their personal abilities. Whenever anything is being sold, the sellers need to determine the price at which they are willing to sell. The more value they offer compared to the next best alternative, the more pricing power they have.
The USWNT has been more successful than the US men, having won the World Cup three times since 1991. In contrast, the US men’s team has never won the tournament. The US women’s team is more popular than the men and brings in more revenue, which gives the players pricing power. They just need to use it. Imagine what would happen to fan interest if Alex Morgan, Megan Rapinoe, Carli Lloyd, Crystal Dunn, Julie Ertz and Mallory Pugh all said they would not play for the salaries offered. You might think that is crazy, because their employer, the US Soccer Federation, sets their salaries and they control who gets on the team. That is true, but the Federation also wants the best product they can get, and they need the best players to draw advertisers and sponsors. They will pay to get the best talent. The soccer players could learn from many good and bad examples in history of individual pricing power being exercised.
Let’s start with women’s tennis. In the 1960s, the prize money for men’s tennis tournaments was six to eight times as much as women’s prize money. The United States Tennis Association position was the men played longer matches and were more popular, so they were paid more. Nine women, led by Billie Jean King, boycotted USTA tournaments and formed their own tour of eight tournaments, sponsored by Virginia Slims. If nobody came to the tournaments, the tour would have failed. But spectators came. Very soon, more than 40 players joined the Virginia Slims tour and prize money increased substantially. Within two years, the WTA was formed and soon thereafter prize money at the grand slam events became equal for men and women. That happened because the players exercised their pricing power.
In football last year, Khalil Mack was scheduled to make nearly $14 million, but he believed he was worth more, so he did not report to the Oakland Raiders’ training camp. After a somewhat lengthy holdout, the Raiders traded Mack to the Chicago Bears who promptly signed a new contract with the lineman worth $141 million over six years. It was risky, but Khalil Mack successfully exercised his pricing power.
Mack’s move had risk because there is always a danger of overestimating pricing power. An example is running back Le’Veon Bell. He played for the Pittsburgh Steelers through 2017 and wanted a long-term contract worth approximately $17 million per season. The Steelers reportedly offered Bell $70 million over five seasons ($14 million per year), which Bell declined. The Steelers then tendered a one-year franchise-tag contract worth $14.5 million for the 2018 season. Although Bell did not have the option to sell his services to another team last year, he did exercise his option not to play at all, forfeiting the $14.5 million. After becoming a free agent at the end of the year, Bell was not able to get another team to pay him his asking price, and he eventually settled for a four-year $52 million deal with the Jets. So, while he had some pricing power, he overestimated it, and it cost him some money.
We can also look at examples of pricing power in the film industry. In 2017, All the Money in the World told the story of the kidnapping of J Paul Getty III and his mother’s attempt to get the boy’s grandfather to pay the ransom. The film starred Mark Wahlberg and Michelle Williams and, for a time, Kevin Spacey as the grandfather Jean Paul Getty. Before the film was released, Mr. Spacey was replaced by Christopher Plummer, and scenes that had included Wahlberg, Williams, and Spacey had to be reshot with Plummer. Wahlberg recognized that he had pricing power. He had already completed his work, and he was asked to redo much of it. He exercised his pricing power and set a price of $1.5 million to redo his work, and the studio agreed.
Michelle Williams had the same amount of pricing power for the reshoot as Wahlberg, but she did not recognize it and did not ask for additional compensation. It was a huge missed opportunity for her. When those details became public, significant scorn was heaped on the studio, Wahlberg, and Williams’ agent, The William Morris Endeavor Agency. There is no doubt William Morris did not serve Ms. Williams appropriately. They should have helped her understand the pricing power she had. However, I don’t blame the studio or Wahlberg. They were behaving as normal buyers and sellers.
That is the point. Individuals are sellers of their skills and services to companies, teams, studios, universities, hospitals, etc. who want to buy those services. Individuals have pricing power when the value of their services exceeds the buyer’s next best alternative. Buyers want to control their costs, and they try to acquire the best product (talent) they can at prices they can afford; but there is usually a relationship between the talent they acquire, and their own ability to sell their own product. Alex Morgan, Megan Rapinoe, and the USWNT players are better than the alternatives. That means they have pricing power. They just need to say “No” at the next contract negotiation until they get what they are looking for.
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