Why Do Athletes Want to be Paid in Cryptocurrency?
Opportunity Costs.
Professional athletes usually make headlines for their jaw-dropping contract deals—especially during the NFL draft. Yet lately those contracts have been catching attention for another reason. This year, some athletes are asking for their salaries to be paid in cryptocurrencies, not U.S. dollars.
Russell Okung of the Carolina Panthers, Trevor Lawrence from Clemson University, and Sean Culkin of the Kansas City Chiefs have all entered the crypto-ring. Okung took the first step last December when he teamed up with Strike to have $6.5 million of his salary converted to Bitcoin.1 And in the last week, Lawrence signed a multi-year deal with a cryptocurrency investment app where a portion of his signing bonus will be paid directly in cryptocurrency. Whereas Culkin took it one step further by having his entire salary for 2021 converted to cryptocurrency.
Running or On the Run?
But why are these athletes running from the dollar? While some folks may argue it is to avoid taxes or to engage in illicit activities, there is a far simpler reason on the table: opportunity costs.
“Opportunity costs” are the opportunities that are missed when one choice is made over another. If you go to M&T Bank Stadium in Baltimore to watch the Ravens, you can’t also be at Memorial Stadium in South Carolina to watch the Clemson Tigers. So, to go to one, you have to give up the other.
To really drive the point home, bear with me for a moment, and consider the opportunity cost of college. First, there’s the tuition you pay to be there. Then there is the cost of textbooks and supplies. Yet, curiously, we won’t count the cost of room and board. That cost is left out because you would be paying for food and shelter regardless of whether you are in college. However, things get even more interesting when we account for the cost of your time. Rather than spend hours in class, you could be working. So, the opportunity cost ends up being not just the price you pay, but also the possible income you gave up to be there.2
Prices Running Up and Value Running Out
Clearly, Okung, Lawrence, and Culkin understand the concept of opportunity costs. They were originally only holding U.S. dollars, but holding dollars has a cost. As seen in the figure below, the purchasing power of the U.S. dollar is a fraction of its former self. The reasoning for this is beyond our scope here and not always a bad thing, but the important point to understand is that the dollars in your bank account are not earning much of a return. In fact, if we consider other opportunities, those dollars are costing you.
This point is what Jack Maller is talking about on the Investor’s Podcast3 when he says, “The everyday individual, right now, operates their life at a loss.” As grim as that might sound, there is a lot of truth in that statement. The cost of housing is rising, college tuition is rising, the cost of healthcare is rising, and so on. So if your wealth is not growing—either through salary raises or investment growth—you’re actually becoming worse off.
Athletes are a perfect example of why this reality is so important to understand. Let’s step back from all of the big numbers that tend to catch our eyes when new contracts are announced. What is interesting for us right now is that these contracts establish fixed salaries for the years ahead. If the cost of housing goes up 10% and your wealth is fixed, you are, as Maller says, “operating life at a loss.”
However, cryptocurrencies offer a way out. By converting their dollars, these athletes have put their wealth in a form that has a better chance to grow alongside the world around them. They realized that the dollars sitting in their account were losing relative value and costing them other more lucrative opportunities. So, they opted out.
A Marathon, Not a Sprint
There is still a long road ahead before mass adoption is achieved, and it’s unclear to me how much the case here differs from, say, “converting” a salary immediately into some stock(s). However, it is a step forward for the technology’s legitimacy.
As more athletes opt-in, the next step in the world of sports will be contracts denominated in cryptocurrencies. And while that might still be a ways away, the decision by Okung, Lawrence, and Culkin has brought that possibility a little bit closer.
To be clear, the NFL is not paying Okung in Bitcoin. It’s probably a bit easier to think of this as an “automatic bill pay” where Okung’s salary is converted once he receives it. As NFL spokesperson Brian McCarthy told CNBC, “There wasn’t anything to sign off on. The clubs pay the players in US dollars. What the players or his agents do with the money is up to them.”
If you’re interested in learning more, Doreen Fagan has a nice (and short) article here.
H/t to Conner Brown for sharing this podcast with me.