While some exclusive celebrity photographs can command huge sums, earning a steady income in this controversial industry is getting a lot harder, writes Allison Schrager.

Santiago Baez has been a paparazzo since the early 1990s. Camera in hand, he’s witnessed the fallout of extramarital affairs, new babies, deaths, new love and breakups of some of New York’s most famous residents.

For paparazzi like Baez, earning a living requires an encyclopedic knowledge of where famous people live in New York, as well as a network of drivers, and shop and restaurant workers who call in tips when they spot celebrities in the vicinity. Often, the tips are from the celebrities themselves via social media: looking to build a following, they alert the public (mostly directed at photographers) about their movements, or their publicist will call an agency to dispatch a photographer.

Most pictures aren’t worth much, but a shot of a new baby, a celebrity kissing a new paramour, or a wedding can change fortunes overnight.

But Baez’s income is not dependably constant. His success balances his training and knowledge of celebrities with the crushing awareness that his earnings are remarkably variable and unpredictable.

The ‘paparazzi gold rush’

These fortunes are determined by a handful of people like Peter Grossman, the photo editor at Us Weekly from 2003 to 2017. But Grossman didn’t work with paparazzi directly; instead, a photographer like Baez sells his pictures to an agency that has the relationship with photo editors like Grossman. A paparazzo receives anywhere between 20% and 70% of the royalties the picture earns, depending on the photographer and the deal he or she negotiated with the agency. The more senior, skilled, and talented paparazzi command better terms, which often includes exclusively selling their pictures to just one agency.

Exclusive shots that make waves in the world of tabloid news can command huge sums: Grossman told me he paid “mid six figures” for a series of photographs of the actress Kristen Stewart in a passionate embrace with Rupert Sanders, the married director of Snow White and the Huntsman, a film she had starred in.

Grossman lived through the heyday of paparazzi photography: he was the man behind the rise of “Just Like Us” pictures in the early 2000s – candid shots of celebrities doing mundane tasks like getting coffee or pumping petrol that proved a hit with his magazine’s readers. Soon, lots of outlets were publishing their own “Just Like Us” pictures, kicking off what’s known in the industry as the gold rush years, coinciding with the heyday of Paris Hilton, Britney Spears, and Lindsay Lohan.

At the gold rush peak, an exclusive ‘Just Like Us’ picture would typically fetch $5,000 to $15,000

Although the price of a photograph depended on what the celebrity was doing and whether it was an exclusive, at the gold rush peak, an exclusive “Just Like Us” picture would typically fetch $5,000 to $15,000.

The gold rush era brought about gold rush mentality, with many new photographers flocking to the industry, willing to break laws and giving paparazzi an even worse reputation for going too far and harassing celebrities and even their young children. Grossman urged everyone to take a coordinated step back, pay less for pictures, and not break laws or put themselves or others in danger to get the shot, but it didn’t work.

The global financial crisis and the rise of online media finally killed the gold rush. Digital media increased the demand for celebrity photographs but decreased the price media companies were willing to pay for them. Photo agencies began to consolidate or go out of business, and the remaining ones changed their business model. Instead of making magazines pay per photo, they offered a subscription service: publishers could use as many photos as they wanted to fulfill the greater demand for cheaper shots. As a result, paparazzi are paid a small fraction of the subscription fee; how much depends on how many of their pictures are used each month. That means an exclusive “Just Like Us” photo that would have fetched $5,000 to $15,000 before, now pays only $5 or $10.

Paparazzi are earning less and less. Gone are the days when many could count on a six-figure income. Now, getting a rare exclusive shot is necessary to earn big money.

Risky business

Seeing a celebrity often happens by chance, which is exactly part of the reason why Baez’s income is so volatile. Not surprisingly, Baez employs risk strategies in his craft similar to what people use in financial markets.

Financial economists separate risk into two broad categories: the first is idiosyncratic risk, or the risk unique to a particular asset. Suppose Facebook changes management; the future of the company is unclear, and the price of the stock might drop based on factors unique to Facebook that don’t impact any other stock. Idiosyncratic risk is risk that applies only to one individual stock or asset.

The paparazzi face lots of idiosyncratic risk. What a celebrity does today – whether she spends time with A-list or D-list friends, for example – determines how much the paparazzi earn that week. If a celebrity stops being interesting or popular, the value of these pictures decreases. Such images are like a stock: their value varies based on a particular photographer getting the right shot at the right time.

Photographers often form teams or alliances to share tips  to increase the odds they’ll be in that place

The paparazzi manage this idiosyncratic risk by spreading it around: photographers often form teams or alliances to share tips (on sightings) and sometimes royalties to increase the odds or payoffs they’ll be in that place.

Because each photographer bears lots of risk based on how lucky he is that day, an alliance pools their luck, reducing their idiosyncratic risk.

The second kind of risk is systematic risk, or risk that affects the larger system instead of an individual asset. Systematic risk is when every stock rises or falls together because the entire market surges or crashes as it did in 2008. Systematic risk events often happen because of a big economic disruption like a recession or an election result that people think will affect business. Systematic risks are harder to manage than idiosyncratic risks, and the downsides are potentially more dangerous. If the entire stock market tanks, you risk losing your job and stock portfolio at the same time.

You can see systematic risk play out with paparazzi, like the boom of the gold rush years and the crash when people stopped buying tabloid magazines during the recession. The downside of systematic paparazzi risk has become more severe in the last 10 years. It is harder for everyone to make money. Many paparazzi have left the business: after nearly 30 years of taking celebrity photographs, Baez moved back to the Dominican Republic in the summer of 2018, with his wife and son, to find new work.

Paparazzi – just like us?

The job of a paparazzo is riskier than most. But to some extent we all face some level of idiosyncratic and systematic risk in our careers, so we can learn a lot from these photographers.

The more systematic risk associated with your job, the more exposed you are

Suppose you want to change jobs from a safe, salaried support role to a sales job based on commission. Odds are you’ll earn more than you did in the salaried job because as a salesperson you will face both kinds of risk: it is a job with loads of idiosyncratic risk; for example, how much you earn will depend on your sales skills and the behavior of your clients (you can manage this risk by working in a team and having lots of clients). You will also face systematic risk because sales depend on the state of the economy.

Systematic risk is especially dangerous. In an economic downturn, your pay may be reduced or disappear entirely, it is likely to be harder to find another job, your assets might take a hit, and your partner’s income may be at risk too. The more systematic risk associated with your job, the more exposed you are.

Why we feel so much economic anxiety

The livelihood of the average paparazzo is threatened by major changes in the publication industry. The photographers manage idiosyncratic risk by forming unstable alliances, but the larger systematic risk that could wipe out their jobs is harder to manage. They could form a union and demand better terms from the agencies, but historically they struggle to cooperate with one another. And the paparazzi are not the only ones who face the risk that their jobs will no longer be viable.

One reason people seem to worry more about their economic future than they did in the past is that they sense more systematic risk in the job market. A few decades ago, most of the employment risk was idiosyncratic: conflict with the boss, a position that was a bad fit, a poorly managed company. If you lost your job, you could probably find another one just like it. Workers formed trade unions, banded together, and demanded better pay and benefits, confident that there was a need for their skills. The job market had its ups and downs, but risk seemed to be relatively easy to manage.

In today’s economy, systematic risk is more acute. There’s a chance technology – robots and artificial intelligence – could take over your job or at least require new skills you don’t have. If you lose your job during a recession, you may never find a similar one.

It is a larger trend that threatens everyone, but for paparazzi like Baez, the threat is more immediate. It is a risky business that is only getting riskier with fewer rewards.

This article is adapted from An Economist Walks into a Brothel by Allison Schrager, published by Portfolio.

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