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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.

Reader Discussion

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on July 21, 2014 at 17:31:14 pm

When speaking of how some person’s interest are harmed, it would be useful to say harmed relative to what.

For example, while we speak of a players “draft,” the players are not in fact drafted; they have the option not to participate. Yet, overwhelmingly, they do. This would seem to demonstrate that new players are not harmed relative to the option of avoiding the NBA altogether. The same is true of the superstars. They are all free to go form their own league, or to become college coaches, or to drive taxis if they prefer. They simply don’t prefer. This suggests they also are not harmed relative to the option of avoiding the NBA.

So then we face the logically prior question: Given that all these players derive vastly greater benefit from being part of the NBA than from not being part of it, and none of these players can in any sense claim a legal right to be part of the NBA, in what sense can we say they are harmed? We say they are harmed relative to a hypothetical NBA that lacked a salary cap, draft, etc.

Arguably the salary cap, draft, etc., exist to promote the structure of the NBA itself – and, in particular, to discourage rich teams from dominating the league. Whether that would happen to any greater extent without these institutions than with them is a bona fide question. But for purposes of this discussion, it’s appropriate to acknowledge that we’re talking about a hypothetical world in which star players could derive market-clearing salaries within the context of a vibrant NBA – and the NBA instituted the draft. salary caps, etc., in order maintain the vibrancy of the sport. That is, we’re taking an endogenous variable (the vibrancy of the NBA) and treating it as if it were exogenous to the question of player’s salaries.

This is akin to analyzing the “net weight social loss” of taxes – a calculation that assumes that market transactions would continue unimpeded even in the absence of taxpayer-financed governmental services that make markets possible (e.g., enforcement of property rights). That is, it takes an endogenous variable and treats it as exogenous. The conclusion that flow from such analyses must be taken with sufficient salt as to threaten anyone’s blood pressure.

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nobody.really
on July 21, 2014 at 17:34:45 pm

Oops - let's make that "deadweight social cost" of taxes.

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nobody.really
on July 21, 2014 at 18:06:16 pm

I don't think they would be taxi drivers - not with Uber! - then again your analysis works just fine for medallion taxi industry as well.

One should also point out that Rappaport's argument concerning players hurting players is also true with the NFLPA who had consistently voted in the past against extending / increasing pension and medical benefits to retirees and pre-1970's players. Now of course the NFL takes the blame for it.
Give me golf anytime - if you suck, you don't get a paycheck - pretty simple, hunnnhhh!

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gabe

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