Taylor Swift, Lionel Messi and the Economics of Superstars

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Hi friends,

I hope everyone who celebrates had a great 4th of July weekend!

Social media and the internet writ large have democratized talent and enabled anybody to become a creator/influencer. However, at the same time, technology has in part meant that those that rise to the absolute top of their craft are worth more than ever before. There aren’t too many better examples of that than Taylor Swift and Lionel Messi. They’ve both been quite busy over the last few weeks and this week we’ll discuss what the economics of their work look like.

Taylor Swift’s Eras Tour

Taylor Swift has been on a marathon tour across the US and recently announced her international show dates as part of her Eras Tour. More dates continue to get added and currently, she is scheduled to perform a whopping ~109 times over the course of 18 months¹.

Each show is over 3.5 hours, and the tour is one of the longest-ever by length and number of shows. From a commercial standpoint, the tour is being billed as the first-ever “billion-dollar tour” in history.

But what exactly does that mean for Taylor Swift? Let’s discuss the economics of the tour:

• Gross Tickets: On average, Taylor Swift will gross ~$10 million in ticket sales per show. Some shows in the US may see as much as ~13M per night, and typically with international shows historically grossing 20% lower than the US, the average will be near ~$10M.

• Venue fees: Venue fees and related transaction processing fees will likely take up $2.5-3M, leaving $7.5-8M per show.

• Staging Costs and Promoter Fees: There are a number of other costs associated with the shows such as the cost of the stage, lighting, sound, and other equipment. In addition, there are promoter fees that go to Messina Touring Group, the promoter of the Eras tour. Typically these add up to about 40% or ~4M per show.

• Other expenses: Taylor Swift incurs a few other expenses such as salaries to managers, dancers, travel between tours etc. These end up in the ~0.5M per show. Adding up all these expenses leaves about ~3M in profit per show for Taylor Swift. But that’s not at all.

• Merchandising Sales: Taylor Swift has also been selling merchandise at these stores, and for some shows, merchandise sales have been as high as $3M. The average will likely be closer to $1M-2M in sales, and we can assume a profit margin of 50%, giving us an additional profit from the merchandise of $0.5-1M.

• Total Profit: Putting that together, we net out at $3-4M per show in total profit on average. Given the 109 shows, that nets out to about ~$350-400M in total profit generated for Taylor Swift.

Not bad for an 18-month (albeit grueling!) tour. Also apparently she might save Australia from a recession:

As recession risks in Australia mount, one unexpected factor could deliver a boost to the economy just when it’s under maximum pressure from the Reserve Bank’s aggressive interest-rate increases: Taylor Swift. 

Messi and Inter Miami

Lionel Messi made shockwaves when he announced his next destination after Paris St. Germain would be to the MLS to play for Inter Miami. The implications of this are huge along many dimensions, including what it means for the sport in the US. But one of the most interesting aspects of the deal was just how it was structured, and it speaks to the power that elite superstars have.

He had an offer from Al-Hilal in Saudi Arabia which was reportedly as high as $1.6B euros for 3 years, which was impossible to match for any team in the MLS. But he ended up choosing Inter Miami, and the deal to make it work was somewhat unusual. It includes:

• ~$50M in salary

• A percentage of sales from Apple's MLS Season Pass

• A percentage of Inter Miami's shirt sales from Adidas

• An ownership stake in the club

• Reportedly the opportunity to purchase a new MLS franchise in the future

It’s not too often that a player is deemed so valuable for a sports league, that the sports league (MLS), their shirt sponsor (Adidas), and their broadcaster (Apple) all decide to chip in to make sure that a financial package that makes sense for the player can be gotten too.

But that’s the effect that superstars like Messi can have. They can grow the entire league and the sport, and make it a win-win for every party involved such as Apple and Adidas.

The initial impact of Messi’s announced move has been wild:

• Inter Miami has grown from 1M to 9M followers in under a month

• Inter Miami Tickets prices have surged over 1000%

But perhaps this isn’t even that unexpected. According to a report from Marca, PSG made $750 million with the addition of Messi, through added revenue from sponsors and jersey sales.

The Economics of Superstars

In 1981, Sherwin Rosen posited in a paper The Economics of Superstars that industries such as entertainment and sport have winner-take-most type power-law effects where the superstars can significantly out-earn others.

We’ve seen that play out more and more, despite technology also providing in some ways an antidote — streaming services and social media mean that people can find the exact content of their niches and interests and access media from a wider variety of entertainers than ever before.

But the technology has also in some ways helped make these superstars even larger and increased the disparity in a few ways:

• Increased demand and reach for superstars: Technology made access to the “content” from the very best performers easily accessible which has made these performers even more well-known than before. For example, It wasn’t as easy to watch Maradona highlights or play digitally as it is to watch Messi clips/games today.

• Easier brand building for superstars: Social media has allowed superstars to build their own brands on a global scale and more easily connect with their fans all over the globe. This allows for fans to be more connected to them, but also for superstars to keep them informed. Arguably more importantly, its also enabled them to more accurately measure the value they provide. Messi’s 450M+ Instagram followers make it clear to any future employer/sponsor that he is one of the most well-known and followed people in the world.

• Need for shared experiences/schelling points: Despite the wider variety and a large number of niches, people still want things to bond over as a group / that they have in common with others, meaning that there’s a bias towards a few quality superstars emerging in each area that become well-known and part of the culture among a wide number of people.

Combined, the factors above mean that superstars can get bigger than ever before, allowing them to create more value than they might have in the past by knowing who their fans are, where they are, and how to best cater to them as Taylor Swift did. At the same time, measuring that value is also easier than before, which enables them to capture more of it, through equity stakes and royalties as Messi did.

1. This may be off by the time you read this because new shows continue to get added