Sports

NBA Lockout Analysis: Simple Basketball Economics

| by David Berri

While it is often floated around that the “average NBA player” makes around five million dollars, that is a little skewed. Because certain superstars like Kobe Bryant make lots of money it brings up the average for the whole. According to Basketball-Reference, 449 players were paid to suit up last season. Just over half of these players made less than $2,000,000.  Again, the $5 million average is very misleading.

When we look at how much of an impact of the player giving into the owners (accepting 47%) versus getting what the players want (i.e. 53%) we see for the $2,000,000 group it’s only a difference of $170,000.  And for the lowest tiered workers — who make $500,000 or less — it’s only $50,000!

This reminds me of an interesting story from Freakonomics about real estate agents. When selling a $200,000 house a difference in $10,000 seems huge. Leaving a house on the market longer can actually be worth as much as $10,000. A real estate agent though only gets a 1.5% cut (6% commission split between the buyer and selling agent. The agent then splits their commission with their firm) so an extra $10,000 for the seller only gets the agent another $150. For several weeks of work this in not a lot for the agent. As such, the real estate agent actually has an incentive to sell lower for a quicker sale even though it hurts the seller — who is supposed to be on the same side as the agent!

Back to the NBA… the current BRI is around four billion dollars. That means every percentage point is worth around $40,000,000 for the players collectively, and the difference between the 47% and 53% offers is a quarter of a billion dollars! However, for a majority of the union it’s less than a few hundred thousand dollars. As the NBA union argues collectively we see that most players merely have an incentive for the lockout to end as opposed to fighting for tens of thousands of dollars (again, even though hundreds of millions of dollars are at stake). The players talk of standing strong may not hold up as many of them have an incentive to cave.  And it’s entirely possible the league knows this. So in the fight between the players and the owners, it may be that the owners are using the same sheet as Arturo and that may be why we could still see basketball this season.

Arturo kindly decided to make a cheat sheet for the NBA Players that are currently in negotiations. Above is chart showing the different pay grades in the NBA and how a new BRI split would alter each player’s pay. Arturo also kindly phrased this in another way for the players: “How much of a pay cut will I take if we accept this deal? ” (shown below)

You’ll notice that I’ve highlighted the 47% column (the owners initial offer), the 53% column (the players’ counter), and the $2,000,000 salary row. Why is the $2,000,000 salary row important?

Table 3: 2010-2011 Player Salary Tier breakdowns

Current SalaryPlayers at or below salary% Affected

$500,000

100

22%

$1,000,000

196

44%

$2,000,000

240

53%

$3,000,000

279

62%

$4,000,000

314

70%

$5,000,000

337

75%

$6,000,000

354

79%

$7,000,000

369

82%

$8,000,000

378

84%

$9,000,000

386

86%

$10,000,000

397

88%

$11,000,000

409

91%

$12,000,000

412

92%

$13,000,000

423

94%

$14,000,000

431

96%

$15,000,000

432

96%

$16,000,000

436

97%

$17,000,000

444

99%

$18,000,000

447

100%

$19,000,000

448

100%

$20,000,000

448

100%

$24,000,000

449

100%

 

-Arturo and Dre