Collective Bargaining, the NBA Draft, and Superstars

I used to be interested in professional basketball back in the 1970s. In the last 4 years, I have once again become an avid fan. There are plenty of important differences between the game of the 1970s and the present game – perhaps the biggest is the 3 point shot – but a significant change is that the collective bargaining agreement (CBA) between the NBA and the players union has now become an important part of environment necessary to field a successful basketball team.

The CBA places fairly strict limits on how much each team can spend. It also places maximum salaries on how much individual players can be paid, depending on how many years they have been in the league (and other considerations). Because of these limits on how much individual players can be paid, some players are paid less than their market rate and represent deals for a team that allow it to build a successful basketball team.

There are at least two classes of players who receive less than they are worth to the team. First, there are newly drafed players. The recent NBA draft was important, not merely because it involved a large number of impressive prospects, but also because the CBA places strict limits on how much drafted players can receive. Newly drafted players represent a deal.

Second, there are superstars in the middle part of their career. Lebron James and Kevin Durant, the two best players in the game, cannot be paid their actual value, but only somewhere in the $16 – 20 million range. Teams that get them thereby benefit.

By contrast, former superstars who have played many years – such as Kobe Bryant – can be paid extraordinary amounts – more than their actual value as NBA players. Kobe, who has played 18 years, made $30 million last year and will make approximately $24 million next year. As a result of his overpayment, the Los Angeles Lakers are unlikely to be a contender for a while.

What explains the structure of these pay limits? To a significant extent, it is the players union. Newly drafted players are harmed, because college players are not part of the players union and so the players union takes advantage of them. Superstars in the middle of their career are also exploited, based on majority voting. By limiting how much such superstars can be paid, the remaining players – role players who make the large majority of the NBA – are able to receive significant excess wages. If Lebron received the $50 million he was worth instead of the $20 million he receives, that would take away $30 million from the role players, which would probably mean 3 milion per role player on his team.

I follow NBA discussions closely, and while there is a great deal of talk about whether owners are exploiting star players, there is little about how the players union harms the stars and the newly drafted.