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Monday, January 12, 2015

Tyron Smith, Ryan Howard and Income Inequality

Back in November, I read a pair of stories on sports websites about two young, black, highly paid professional athletes, and the legal battles that have erupted between them and their respective parents and siblings over the money the athletes are making.  The media have framed these stories in a variety of ways beyond just being two more clich├ęd made-for-reality-tv  tales of dysfunctional families, or professional athletes who go broke.   Philly.com's  story on Philadelphia Phillies first baseman Ryan Howard, right from the opening paragraph, is an exercise in sympathy that presents him as a man suffering great psychological torment, implying quietly that these struggles may have affected his play in recent years.  ESPN the Magazine's story on Dallas Cowboys' offensive tackle Tyron Smith includes a racial angle, positing that these family pressures and the narratives associated with them impinge much more frequently on black athletes than white. 

I have a slightly different take on them.  These athletes' stories are startlingly pure, dramatic distillations of an issue that progressive thought leaders and allied politicians have been harping on for the past several years, that of "income inequality". 

Some economists contend "income inequality" is bad for economic growth because, after a certain point, a well-to-do person saves incremental dollars, while a less-well-off person has a higher propensity to spend incremental dollars, and the latter shows up in measures of economic activity while savings do not.  (This is, I think, a half-truth when you recognize that most savings are not inertly stuffed under a mattress, but are loaned to banks or governments, or reinvested in businesses, each of which, in turn, tends to return the funds to the real economy where they get spent.) The athletes' stories will touch on this a bit, but it is not my main focus.

Some arguments about "income inequality" are coupled with observations that some people in a society lack certain goods and/or access to certain services that are considered essential, calling them entitlements or rights.  These arguments do not treat "income inequality" as a bad thing, as much as the phrase simply identifies where funds can be found to pay for the delivery of the desired goods and services.  These concerns about income distribution would theoretically vanish once the roster of goods and services was made available, regardless of how they were made available, and thus they are not true objections to income inequality, and therefore not my concern in this post. As we shall see, these athletes' families do not lack for basic necessities.  

More fundamentally, it is frequently contended that income inequality is bad, not because it causes something else bad (a smaller economy, or a violent reaction) but bad in and of itself, in the sense of violating social norms of some kind.  Simply put, it is posited that successful people can make "too much" money for the good of society.  (It is rarely explained cogently how the permissible level of earnings is established normatively, as numbers do not have a normative component.)  Nonetheless, this perspective is demonstrated when someone contends that a society in which everyone becomes better off is still not just, because the lot of some people, who were already better off, improves more than people in the lower half.  As Deidre McCloskey wrote in a brilliant review of "Capital" by Thomas Piketty, "What is worrying Piketty is that the rich might possibly get richer, even though the poor get richer, too. His worry,..is... about a vague feeling of envy raised to a theoretical and ethical proposition."  This perspective is at the root of progressive objections to income inequality in the US today.  

And that is what these athletes' stories frame perfectly.  Each family can stand as a microcosm of a larger society; each of the athletes likewise can serve as a proxy for that typically small proportion of such a society that has dramatically higher earnings than the other members -- the so-called "1%".  How you react to these stories, I suggest, should be consistent with or, if not, challenge, how you react to arguments about income inequality.  These family battles can serve as modern morality plays on the theme of income inequality.   Were I more creatively inclined, I might actually write a play drawing upon these accounts, but, lacking that capability, I write this blog post instead. 

In the rest of this post, any factual statements about the athletes are direct quotes or paraphrases from the ESPN and philly.com links above, unless otherwise indicated; for sake of brevity, I am not going to elongate this post by prefacing each one with leads like "The article goes on to say" or similar phrases. And I don't bother with quotation marks because then I have to do quotes within quotes and it takes too long.

1.         The Athletes and Their Salaries

a.         Tyron Smith

Tyron Smith, age 23, is a highly regarded offensive tackle for the Dallas Cowboys.  Smith began to play football in high school.  He was huge and nimble, eventually reaching 6-foot-5 and 310 pounds. He did well enough to earn a scholarship to football powerhouse USC, and his continued development enabled him to turn pro in 2011 during his junior year.  His first contract provided compensation of $12.5 million over four years.  In July 2014, he signed an 8-year extension that guarantees him $22.1 million; he could earn as much as $109 million before the contract expires in 2023. 

b.         Ryan Howard

Ryan Howard, age 35, has played first base for the Philadelphia Phillies since 2004.  He was named the National League's Rookie of the Year in 2005 and its Most Valuable Player in 2006. He batted cleanup for the team when it won the 2008 World Series, only the second World Series the franchise has won  in 110  years of World Series play.  Initially grossly underpaid due to the structure of Major League Baseball's collective bargaining agreement, Howard signed a contract extension in 2010 that runs through 2016.  Under it, he has received $65 million to date and has $60 million left in guaranteed money.  Sadly, despite his initial success, Howard's performance has deteriorated significantly ever since he signed that extension, and the contract has been labeled by a few analysts as one of the worst, if not the worst, of all time from a club's point of view.

2.         The Athletes' Family Backgrounds

a          Tyron Smith

Smith spent much of his elementary school years working for the family business. Pinkney's Cleaning Service specialized in cleaning new buildings after construction was complete but before tenants moved in. Family members would often climb into the company van, drive from their home in Moreno Valley, California, to Phoenix or Sacramento or anywhere in between, clean a building and then pile back into the van for a return drive that could last seven hours. They'd pull into the driveway at 4 or 5 a.m., and Tyron and his five siblings -- a mixture of half brothers, half sisters, stepbrothers and step­sisters -- would be at school by 8.

Smith says he always asked, "'Can I get my own job? Can I do my own thing?' I didn't want to work in the janitorial business my whole life."  He was excused from janitorial work if he had a practice, game or camp to attend. 

b.         Ryan Howard

According to a New York Times profile that calls him the "anti-Barry Bonds", Howard comes from a largely white suburb. He grew up in Wildwood, Mo., on the outer edge of St. Louis’s western sprawl. His mother, Cheryl, now retired, worked in marketing, and his father, Ron, is a manager for I.B.M. He has three siblings, including a fraternal twin, all of whom are college-educated professionals.

“If you talk to his parents, it will help you understand Ryan,” Howard’s high school coach told the Philadelphia Daily News. “They’re such supportive people, of their kids, of this school. It’s such a good family.”

As his parents describe it, their household was a mix of old-time Southern values and middle-class aspiration. “All our kids were taught to say ‘Yes, sir,’ ‘Yes, ma’am’ and so on,” Ron Howard says. “We valued hard work and taught them: believe in oneself, believe in each other and believe in the Almighty.”

In 2007, Howard spoke of his father's influence on him.

Bryant Gumbel: ‘You have said , ‘My dad set the bar high for all of us.’ What was expected?”
Ryan Howard: “He is very, very big on going out and earning your own keep. because nobody is ever going to give you anything, nothing is ever free.”
Ryan Howard: “When I was younger, I forget what age I was, my dad set the tone by graduating from Washington University here (in St. Louis). We got to see him graduate and I know for me that stuck with me, every day.”
When Ryan Howard was 2, his father walked into a room where a TV was showing a baseball game and saw his son intent on the action and swinging a little red bat. “It was such a natural swing,” Ron Howard says. “At that moment I knew he’d be some kind of baseball player. How far? I didn’t know. But that feeling came over me.”

Cheryl Howard added: “I’m from the pre-Title IX days, so I didn’t get a chance to play organized sports. But my father played sandlot baseball with Willie Mays in Birmingham, so we’ve decided Ryan’s baseball talent comes through my side.”

From all accounts, Howard and his twin brother,  Corey, were inseparable. During high school, they practiced trombone together after school. At Missouri State University, they roomed together.

3.         Payments for Family Benefit

a.         Tyron Smith

When Smith signed his initial $12.5 million contract, he bought his mom a Range Rover and vowed to pay off his parents' mortgage and retire the family's debts. "I didn't think I owed them anything," Smith says. "I just really wanted to help out. I know how hard the struggle is, and growing up we always had to worry about debt. That was my thing: Use this money to pay off your house, pay your debt and be free of all that stuff."

Later, Smith discovered the money he provided wasn't used for those purposes. Asked how it was spent, Smith shrugged, betraying no emotion. "We don't know," he says.

Smith was besieged with requests.  He paid for airline tickets so strangers and near strangers could accompany his parents to games in Dallas. He paid for game tickets, parking and food. He paid for hotel rooms or let the guests stay in his home.  "The things that were asked for as gifts shocked me," he says. "All I could think to say was, 'Hey, that sounds really expensive.'"

Smith's lawyer, estimates that the family received roughly $1 million from Tyron's accounts over one year.   The demands took a personal toll on him as well.  He was no longer son or brother or friend. He began to feel like a human Santa list, robbed of his capacity to be generous.

Smith's breaking point came when he received a telephone call from his mother.  He had agreed to purchase a home in Southern California for his mother and stepfather. They would live in it; he would own it as an investment. The agreed-upon budget was roughly $300,000, but when his mother called him to let him know they had found a home to their liking, the asking price was more like $800,000. 

b.  Ryan Howard

Last year, Howard's twin brother, Corey, sued him in federal court in Missouri for millions of dollars, alleging breach of a 15-year consulting agreement under which Corey had been billing his brother $7975 (in other reports $8975) every two weeks since August 2008.  Ryan Howard's answer and counterclaim denied that Corey had ever provided compensable services under the contract but also revealed that the rest of his family had also been receiving regular, large payments at Ryan's expense for several years.  His father Ron acted as “Business Manager,” his mother Cheryl as “Chief Financial Officer,” his brother Chris as “General Counsel,” his sister Roni as "Executive Director" of the Ryan Howard Family Foundation, and Corey as his "Personal Assistant". All were paid through an automatic “Bill Pay” system set up by Cheryl Howard.  The answer and counterclaim provides the following table of payments to them:


Family Member
Period
Amount
Ron Howard (Father)
Jul. 30, 2007 - May 15, 2012
$1,314,097.47
Cheryl Howard (Mother)
Mar. 20, 2007 - May 6, 2013
     373,000.00
Corey Howard (Twin brother)
Aug.19, 2008 - May 15, 2013
     610,586.85
Chris Howard (Brother)
Jun. 24, 2008 - Dec. 28, 2012
     235,300.00
Roni Cowley (Sister)
Jan. 16, 2009 - Dec. 31, 2012
     262,353.86
TOTAL

$2,795,337.38

Those payments, spread among the 5 relatives over varying periods that range from 4 to 6 years average out to roughly $110,000 per relative per year, although they were weighted clearly in favor of his father,  whom Howard's legal papers call the "patriarch" of the family - he got about double the average.

In contrast, Ryan Howard, the athlete earning millions of dollars per year, lived on an unspecified allowance managed by his mother / so-called chief financial officer.

4.         Estimating Income Inequality in the Smith and Howard Families

Economists use a variety of different measures to base assertions about income inequality.  The most commonly invoked metric appears to be the "Gini coefficient".  That site links to a Wikipedia page that tells one how to do a simplified calculation of the Gini coefficient for a population, which is
"If the high income group is u % of the population and earns a fraction f % of all income, then the Gini coefficient is fu. An actual more graded distribution with these same values u and f will always have a higher Gini coefficient than fu.

"The proverbial case where the richest 20% have 80% of all income would lead to an income Gini coefficient of at least 60%."

The penultimate link above tells one that: "Worldwide, Gini coefficients for income range from approximately 0.23 (Sweden) to 0.70 (Namibia) although not every country has been assessed."

As Howard is making $20 million a year, and there are 5 other members in the nuclear family, even in the unlikely event that the rest of them earn an average of $200,000 / year from other sources, he still would earn more than 95% of the total income in that family (pre-tax).  As he is 1/6 of the population, the Gini coefficient for his family is around 0.78 (95 - 16.7) -- higher than has been calculated for any nation on the planet.

Although we can't tell how much exactly Smith is making per year, it appears to average out to be no less than $3 million and no greater than $10 million over the life of his two contracts. We also don't know precisely how many people there are in his nuclear family, but in the unlikely event that the rest of its members combine for as much as $1 million per year, he still earns over 75% of the total (pre-tax).  While we can't do a precise calculation, under most plausible assumptions about the size of his family, its Gini coefficient is over 0.65, making it too a population of relatively high income inequality.

5.         The Athletes Attempt to Assert Control Over Their Earnings

Smith

After his mother's request for the $800,000 home, Smith made a last-ditch effort. He placed a call to his family, saying, "I love you all, and you mean the world to me, but all this money stuff is stressing me out. Can we just have a great relationship?"

Howard

According to his answer and counterclaim, in late 2011, Howard had become concerned with whether his family members were attempting to enrich themselves at his expense.  He told his parents he wanted to take control of his own affairs and keep his family relations separate from them.  In July 2012, he asked his twin brother to agree to terminate the consulting agreement under which the brother received at least $7975 every two weeks.  The brother declined.  Howard continued to pay him for another year, explaining that it was to maintain his brother's income for a time sufficient to find replacement work.

6.         The Families Respond Indignantly

a.         Smith

"We kept getting voice mails and emails threatening all kinds of things," his girlfriend says. Smith and his girlfriend hired a lawyer and a new financial adviser.  

In June 2012, Smith's mother and stepfather confronted him publicly while he was working at a youth football camp at his old high school in central California. According to a regional newspaper, the confrontation was verbal but involved threats to Smith and / or his girlfriend.  In response, Smith obtained a protective order placed against Smith's parents and siblings, prohibiting them from having contact with him.

Despite the restraining order, on October 27, 2012, with Smith at a hotel on the eve of a home game, two of his sisters showed up uninvited at the home he shared with his girlfriend in North Dallas.

"You need to let us in this house," one of them said. "Why?" his girlfriend answered. "You've made threats against my life. I don't know what you have on you right now, and your brother's not here." She called the police after the women repeatedly said, "We're not leaving until you let us in." 

Three days later, on Tuesday afternoon, two of Smith's sisters were among three people who returned to the house. This time, Smith called 911 and police cited the women for disorderly conduct. A Dallas police report noted that Smith's sisters were there to "harass and torment ... in the pursuit of collecting financial gain."

b.         Howard

When  Howard sought to take control of his financial affairs and “have his family just be family,” his father's  response was allegedly that “if Ryan wanted him to walk away from Ryan’s business affairs, [his father]  should receive $5 million himself and [his mother] should receive another $5 million.”  His mother told him he couldn't separate business from family because the LLC  -- into which evidently his salary was being paid -- had entered into long-term contracts with his siblings (allegedly drafted by his sibling who was a lawyer ...).  It was only then, in July 2012, that Howard claimed to have learned about them.   The term of at least his twin brother's contract ran through 2026.  His parents allegedly refused to turn over the LLC's books and records to him. 

After Ryan cut off payments to his twin brother in July 2013, the brother sued him in U.S. District Court for the Eastern Division of Missouri for breach of contract and sought $2.8 million in damages for the remaining payments in the contract.  Ryan defended alleging constructive fraud in the inception of the contract, and counterclaimed for breach as well, alleging failure to render services.  The case (4:13-cv-02518-CEJ) was settled on undisclosed terms in 2014.

7.         Justifying the Athletes' Perspective

Howard

Ryan Howard has not spoken out, AFAICT, about his family strife so I don't know with certainty what he would say to justify his perspective.  But if we take the allegations in his pleadings in the lawsuit with his twin brother as good faith reflections of his perspective, it is clear that he feels he was defrauded by his family into signing the long-term -- 15 years (!) -- "consulting agreements" and that there was a lack of good faith in the performance, if any, rendered under those agreements, that he got nothing from the agreements under which he was paying large sums semiweekly .  Also, he appears to believe that, as a grown man, he had earned the right to manage his own financial affairs independent of his parents.

Smith

Smith was more forthcoming in his interview with ESPN.  Here are some excerpts that present his rationale:

"I'm not trying to be hurtful, but I'm not making this money so other people can live off it," Smith says. "You have to understand: This game doesn't last long at all."

HIs lawyer has a standard answer when questioned about Smith's financial responsibility to his family. "I am certain none of them ever took a hit for him," the attorney said. "None of them had to get a shot so they could get up and go to work. And they're not entitled to share in this. No matter what they did, they're not taking the risk."

That risk, short- and long-term, is significant. In his fourth year as a pro, Smith has already had a career longer than the NFL average according to the NFL Players Association.

"I know the amount of money I make in the NFL could be over any day," Smith said. "It has to be put aside for me later down the line or for when I have a family."

Smith repeatedly uses the word "work" to describe what he does. He suits up for the Cowboys not because he loves football necessarily, loves slamming into another massive body as a way of making a living. It's exactly what Smith says it is -- work -- and he speculates that half the players in any NFL locker room would walk away from the game if they were offered the same pay to do something else.

When he finishes playing, Smith wants to travel the country telling top college players --prospective fellow members of "the 1%" -- that it's OK to stand up to the pressures from family and friends. "It's so personal, and nobody really talks about it," Smith says. "'Hey, this sibling or family member is screwing me over.' You won't hear that, but it's a real issue. I'm not trying to bash my family at all, but it's hard to talk about this without doing that. And a lot of people aren't willing to tell their story."  He wants them to take control of their money and understand how long it has to last.  "It's OK to say no."

b.         Justifying the Other Family Members' Perspective

The athletes' family members did not give interviews in connection with the ESPN or Philly.com stories.  So I have tried to imagine how they would justify their perspectives.

The parents' argument is relatively easy to imagine:

(1) your success, athlete-son, is due in large part to genetic factors, and those genes come from us;

(2) a contributing factor in your success is the environment in which you were raised, and we were responsible for that; and

(3) we devoted countless hours to raising you and were never compensated for them; while we would not impoverish any of our children to obtain compensation for those services, you make enough money that we can demand compensation for our services from you without depriving you of a decent life.

The siblings' justifications are a little harder to see, but here I will draw upon some of the arguments that are offered up by proponents of redistribution in society as a whole and put those arguments in a family context: 

Athlete-brother, that you are so wildly successful, and we are merely middle class, is a stroke of luck and therefore it's not something you have a moral claim to.  We all grew up in the same environment, We all came from the same genetic stock.  It's just that, in the luck of the sperm-and-egg roulette, you got a package of genes that made your body an extremely good fit for a job that people will pay a lot of money for, and we didn't. Sure, you work hard at your job, but we work hard at our job, too, and it is not within our control that people pay less for our skill set than the one nature endowed you with. 

An Imagined Reply by the Athletes

It's customary for there to be a reply brief in litigation so this is what the athletes might respond to their parents and siblings:

(1) No one is smart enough to know how much of my success is due to genes, environment, luck and my own agency.  You've simply chosen to assign it a weight that supports the outcome you want.  But there is no scientific basis for that argument or for any particular allocation.  Your claim of luck has no more foundation than my claim of agency.

(2) Biological determinism has been raised time and time again throughout the last two centuries and debunked. It has often been used to justify unequal status, by those with higher status, and often to justify lower status for blacks.  How ironic that you would offer it up to demean the success of a fellow African-American.

(3) It is true that my genes are a large part of who I am, as is true for each of us. To deny me the benefits of my body's composition is to deny me as a person. If there is no "me" separate from my genes, then there is no "me" to be judged separately from them either.   In other words, my moral claim to my genes is identical to my moral claim to be a person. You cannot reject one without rejecting the other.

(4) However weak you may say my moral claim to the benefits of my genes is, it is stronger than anyone else's moral claim to those benefits!  No one else possesses them.  If I wasn't playing my position as a pro, someone else would be and you would have no claim to their income.  Your claim to my income is as much the result of luck as you say my claim is.  Your sole basis for claiming to share in my income is the luck of being in the same family as me.  

(5) You are not suffering or wanting anything important.  Your own labors have been sufficient to give you a decent life irrespective of my contribution.  In addition, I have given you a good deal already, and a good deal of the expenses I have paid for were mere entertainment and luxuries, not entitled to any moral standing vis a vis my claim to the fruits of my labor.

(6) But for the way I have been treated by you, you would have been able to count on the savings I have been prudently been accumulating to backstop you against many of the vicissitudes of life. 

(7) My success has not deprived you of anything.  You are no worse off for my success. And as I have shared some of it with you voluntarily, you are better off.  The issue is one of control over the fruits of my labor.

(8)  Relying on transfers from my bank account has made you more dependent, and less productive and self-sufficient, not to mention leading you to make threats to me and my girlfriend, which are clearly beyond any social norms you might invoke.  The aggregate welfare of society would be enhanced if instead you tried harder to succeed.

(9) As for parenting, it is true that you were not compensated for the labor you expended for my benefit in raising me.  Neither were your parents compensated for raising you so I see no moral standing on your part. When I have children I will care for them without expecting reimbursement.  That is the norm of parenting -- it's you who are violating a norm, not me. I have honored you, as any good son should, and, but for the way you have treated me, would have expected to do so for the rest of our time together.  And let's face it, you would not be interviewed by Bryant Gumbel or the New York Times, nor would you able to treat your friends to expensive weekend trips to see me play, if not for my success.  I have given you gifts of considerable worth, and I feel it is enough for now. 

I am sure there are other arguments on both sides but these seem like enough for now.

Closing Observations

What makes these stories perfect parables about income inequality is that there are no complicating factors to obscure the question.  The athletes come from families that were at least working class, in the case of the Smiths, and probably upper middle class in the case of the Howards. So there are no fundamental needs going unmet in the lives of the athletes' family members.  There is no dependency on the athlete;  rather, money is being sought for parties, travel and high-end homes - discretionary expenditures, not basic needs. 

There were two involved parents / stepparents present in each of the athletes'  upbringing, in contrast with the father-who-left-the-kids, parent-in-prison or parent-on-drugs paradigms that recur frequently in stories about professional athletes overcoming adversity.  

In addition, the athletes appear to be living their own lives in a conservative, prudent, non-self-indulgent manner.  There are no accounts of six-figure bling buys, "making it rain" money at strip clubs, no posses, no portfolios of children being fathered with different women.  

And the athletes appear to have voluntarily made large expenditures and gifts to family members, to pay off debt for instance, separate from what the family members requested or extracted.

In short, until there arose a disparity in income and the consequences thereof within each family, there is no factor in any of these stories that might lead the reader to form a negative judgment about any particular participant in these twin morality plays.

And in the Howard story, we can find additional parallels to a larger society.  When his mom collects his salary and disburses it as she and the rest of the family see fit, that resembles very much the tax-and-transfer mechanism of progressive government.  His mom is not really his CFO, she is his IRS.  If the family were a republic, it might have voted the redistribution of Ryan's income and might also have the monopoly of force needed to enforce it -- legitimate correlates to the threats of violence that Smith's sisters allegedly made to him and his girlfriend --  and Ryan would not have been able to escape the regime to establish a different outcome for himself. 


As I was finishing this up, I came across a WaPo report of the latest redistribution proposal of the Democratic minority in Congress (hat tip Hot Air website).  They propose that the federal  government give money, through tax credits, to people making under $200,000 and increase the tax take, yet again, on the top "1%."  No justification is offered that people making under $200,000 in America are lacking basic necessities.  It is simply observed that they have not been getting richer to the same extent as the so-called top 1% have been.  To redress that lack of relative enrichment, the Democrats propose to shift, to an even greater extent, the cost of government onto the top 1% of the country than it already pays.  When they advocate that, they're just playing the role of Ryan Howard's mother, taking from Ryan and giving to the rest of the family.  I submit that it is difficult to react differently to this proposal than one has to the accounts I have just laid out of these two athletes and their families.