Safety versus Compensation for Professional Athletes Who Face the Prospect of Career-Ending Injuries: An Economic Risk Analysis

Abstract

The National Football League and National Hockey League have instituted several rule changes, equipment improvements and medical protocols in response to the frequency of serious career-ending injuries. These two professional leagues and others have litigated lawsuits by former players who have sought financial compensation. This paper constructs a simple economic model of a risk averse athlete who faces the uncertain prospect of a career-ending injury. Improving the athlete’s welfare can be accomplished by reducing the probability of a serious injury or providing increased compensation in the event of such an injury. The net marginal preference for safety is high in sports with moderate to high probabilities of serious injury. Compensation plans are favored in sports with moderate to low probabilities. Significant increases in player salaries have little effect on a players net marginal preference for safety. These results are robust to constant or decreasing absolute risk aversion.