Charlie Sheen, CEOs, and Gigli

Domestically, the biggest news stories of 2011 have a common link. Whether you are talking about the Wisconsin budget bill, the NFL work stoppage, or even the Charlie Sheen meltdown, there is a core issue of labor-- how much workers are worth. I somehow have managed to avoid having an economics class post-high school, and other than a few "Dismal Science" columns on-line and the Freakonomics books, I haven't done much to educate myself. But since I have a self-imposed mandate to write about something every week, I'll venture into a realm of unfamiliarity.

I assume that the only two categories that people are compensated for producing are goods or services. And I would guess that the former category is simpler in assigning value. Markets will determine how much value your good has, and the more people that buy your good, the more money you will get.

But of course, the production, distribution, and promotion of goods usually involve an added labor cost, and services are necessary to be rendered. And services are harder to gauge. I'm sure economists would argue that markets are also created to determine the value of services, but it seems that these markets are more easily influenced by artificial and often arbitrary value judgments.

And I'm sure many would argue that the compensation of professional athletes fits this description. Fans would be ill-advised to sit in the bleachers of a Major League Baseball game and play a drinking game based on how many comments they hear made about player salaries (in no small part because the price of that particular good in ballparks is artificially inflated, but that's the topic of another blog). And I have actually heard people cite player salaries as a reason that they don't follow professional sports. But it seems to me that the market for athletes is much fairer than those for other highly compensated professions.

There is a good number of adult males in the state of Wisconsin who can play the game of baseball with some degree of skill. And when many people say, "I would play Major League Baseball for free," I don't think they are lying. If the Milwaukee Brewers wanted to save a lot of money in the short term, they could raid the rosters of the Rock River League and I have no doubt they would find a full complement of players who would sign for the Major League minimum...and if every other team kept their payroll and roster in-tact, the Brewers would finish with a historically bad record. And eventually people would quit paying money to come to games (even if ticket prices were slashed to bargain basement levels). So I think there is a case to be made that professional athletes comprise a cohort of legitimately elite performers, and as long as there is a demand for elite performances, the market seems fair.

On the other hand, I'm not so certain about Charlie Sheen and his cohort. We all can agree that just like there are bad professional baseball players (who tend not to last long as baseball players), there is such a thing as bad actors. And there must be good actors, of which Charlie Sheen is apparently one of them. But we just don't have the empirical measuring sticks for actors that we do with athletes. The closest we have is box office performance or TV ratings. But I'm not convinced that we couldn't pull the best couple of actors out of any small town community theater in America, put them in the lead roles of a sitcom like Two and a Half Men, and have the show fare any worse than it does with known name actors. As Chuck Klosterman asked recently on Bill Simmons' podcast: "Is Two and a Half Men a hit because Charlie Sheen is popular, or is Two and a Half Men a hit because TV is popular?" And even with the advantage of name recognition, is there any actor or actress that can guarantee a positive financial delivery for a film? In 2003, the name "Bennifer" dominated popular culture, but Gigli delivered about $7 million on a $54 million budget. You could have plucked out the worst actors out of a community theater presentation and they could have matched that performance.

Entertainers tend to get attention for their salaries, but it's possible to make an eight-figure income without being a household name. Michael White sounds like the guy who sat next to you in social studies class, and he very well might have--before becoming CEO of DirecTV, which paid him almost $33 million in total compensation last year. I doubt he's related to Miles White, CEO of drug company Abbott Laboratories, who took home a modest by comparison $20 million. But they both pale in comparison to Viacom's Philippe Dauman, who pocketed a cool $84.5 million.

Just like there are baseball players and actors in every hamlet and burg in America, there are CEOs everywhere. Of course, most of them operate businesses substantially less complex than Fortune 500 companies. I would surmise that most corporate decision makers would argue that the market for CEOs is like that of baseball players, that to just give the job to any old Joe would be a competitive disaster. But then again the corporate world has seen its share of Giglis over the last few years.

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