I stirred up some controversy on Tuesday with my post equating Olympic athletes to Ponzi schemers, so I want to provide a little more explanation.
What do scammers and Olympians have in common? Let’s start with a simpler question: What do sugar and arsenic have in common? Answer: There’s such a thing as having too much of either. With arsenic, any amount is too much; with sugar, some is good but too much is bad. Likewise for scam artists and athletes. Scam artists, like arsenic, are bad in any quantity; athletes, like sugar, are good in moderation and bad in excess.
What counts as excess? Well, for starters, if everyone in the world were a fulltime athlete, that would be excess. We’d have no farmers, no scientists, no engineers, and eventually no way to stay alive. So there should be absolutely nothing controversial about saying that there’s such a thing as too many athletes. The question then becomes: Is the current number too large or too small? Or to put this another way: If we converted one Olympic athlete to a taxi driver, would the world be a better place or a worse one?
[Note: I realize that if we converted all Olympians to taxi drivers, we'd surely be worse off; given its popularity, losing the entire Olympics would be a very bad thing indeed. But the question isn't whether we'd be better off with no Olympics; it's whether we'd be better off with a smaller Olympics.]
Whenever you want to know if you’ve got too much or too little of something, you should start by asking: “What incentives do the suppliers face?”. Orange growers, for example, face pretty much exactly the right incentives: Their rewards depend on the price of oranges, and the price of oranges depends on how much people are willing to pay for them. Grow an orange that’s worth a dollar, and you get paid a dollar. That’s a recipe for producing neither too many oranges nor too few. (For more on this point, see my video lecture on why More Sex is Safer Sex.)
Now let’s look at the incentives facing athletes. Take a stylized example: Suppose a race between two runners is entertaining enough that someone’s willing to offer a $5.9 million prize. A three-way race is a little more entertaining, so the prize goes up to $6 million. When the third athlete enters the race, he’s got a 1/3 chance of winning $6 million, which is a $2 million reward on average. But he’s added only $100,000 to the entertainment value of the race.
Unlike the orange farmer, our athlete receives a reward that’s out of line with the value of his product. That’s why you tend to get too many athletes. In my example, the rewards are monetary but the same problem arises when the prize is fame or glory.
The athlete who reaps large personal rewards while producing very little value is parasitic in pretty much the same way as Bernie Madoff. He puts a lot of effort into getting rich (or famous) at other people’s expense, which is tragic because the same effort directed elsewhere could have enriched the world.
Before you accuse me of being anti-sports, please note that my example assumes that a race is roughly a $6 million social boon. It assumes, in other words, that sporting events are quite valuable. But you can still get to a point where the value added by one more athlete is almost zero. In other words, you can still have too much of a good thing.