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Why David Beckham’s salary is not an exaggeration

15 January 2007

All those who like or just enjoy a bit football (or soccer for this matter) must have noticed that David Beckham has been signed for £128 million. Or in other words, $1 million a week. Excessive as it looks, this amount of money might actually make economic sense.

LA Galaxy, the club that is signing him, is a company. Hence it must have enough revenues to cover its costs. And these costs will rise considerably from April when Beckham starts playing. They must have a plan.

Although his right leg was still one of the best in Europe, Real Madrid, his present club was not signing him from Manchester United to become the new superstar. Beckham had to become a living advert. And he did. There were record sales of shirts, the team got exposure in the whole world. Everyone wanted to see Madrid playing to see Beckham.

LA Galaxy is signing him after a bad performance in the World Cup. He went to Real Madrid to win trophies, and to date, he has won nothing at all. But he is not being signed for being a quality player. He is being signed for being a celebrity-player.

He will boost the name of LA Galaxy around the world (very few people in Europe knew the name of this team until one week ago and now it is everywhere). Thousands of fans will be willing to see him playing, which will fill the stadium. In a moment where the fan base is still being built, this might attract some fidelities to Galaxy. The merchandise sales will soar. There will be a demand to watch the games all over the world, which will turn into TV rights sold. And in a advertising-driven-economy as the USA, advertisers will be pouring millions on the team. Not to mention, obviously, that with such player, LA Galaxy increases the chances to win the championship. And this will attract more fans, more attention, more advertising and more money.

What is hard to comprehend is the amount of money that he will generate now, and above all, in the future. This revenue will make the signing amount small. In that case, if Beckham is generating more money than what he costs, the signing amount is not exaggerated.

We could discuss if it is fair that a single person receives such an outrageous amount of money. That would put us in the realm of ethics, which are not strange to Economics. But leaving ethics aside, it is clear that Beckham is being paid in accordance with his contribution to the revenue of the company, and that is perfectly economics.

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