a blog

by Josh Nicholas

nba

Paying players pays

Is Stephen Curry actually worth more than $30 million a year? How about Lebron James, Russell Westbrook or James Harden?

Five Thirty Eight make a pretty good case that NBA superstars are generally underpaid, relative to what they would earn in an open market.

But that analysis is based on their impact on the court.

This is the top-heavy nature of production in the NBA, and why superstars are so valuable just as a basic bookkeeping cheat code: They create surplus value for their teams (and more generally the league as a whole) that is funneled into less productive players.

What is the business case for paying Stephen Curry >$30 million?

Well, according to a paper by Harrison Li at Berkeley, both superstars and wins add to the bottom line.

..every extra win during the season will bring in .3% more revenue to a team. To put this into context, each individual win for a team like the Los Angeles Lakers, who gained about 214 million dollars in revenues this past year, brought in about 642,000 dollars.

As only five players take the court at a time, one person can have a huge impact on winning. More wins mean more people coming to the games (yay bandwagon fans).

It also means teams can charge more for season tickets and premium seats, and more lucrative local television deals (something a lot of teams depend on). Of course, not all of this is realised immediately. Television deals, for example, are negotiated only every few years.

When the Boston Celtics (my team) added superstars Ray Allen and Kevin Garnett in 2007 the team's salary went up by $25.5 million. But Li estimates revenue increased by over $40 million due to the extra wins and playing more games (thanks to making the playoffs and winning the championship).

So it seems like paying players does pay. Although this paper is a bit old now. It would be interesting to see some fresh analysis, accounting for the new collective bargaining agreement and stratospheric increases in the salary cap.