Friday, January 25, 2013

NPR says LeBron is overpaid

An NPR segment went around this morning on why LeBron James makes less than he should. To this I say “what took so long?”

The NBA has had an individual salary cap in place since the 1999 collective bargaining agreement between the players and owners. By definition this provided top players with less than they “deserved” because otherwise it would be unnecessary.

Given a relatively normal distribution of talent (or at least the right-most part of it) there are a few superstars who are far and away better than all other players in the league. In competitive bidding they would exceed even the lofty value they provide due to the Winner’s Curse which results in auctions going to the bidder most optimistic about the value of the asset.

As an example, Michael Jordan earned in excess of $33 million for the 1997-98 season when the league average was $1.4 million. In 2012-13 the average is up to roughly $5 million while the highest in the league is Kobe Bryant at almost $28 million. The ratio has gone from 20x to just over 5x since the introduction of the individual salary cap and Jordan never really faced competitive bidding for his services so the real ratio may have been higher.

Maybe the real story is that NPR is now covering basketball. I blame the Brooklyn Nets.

1 comment:

  1. Stupid Brooklyn Nets, bringing hipsters into the NBA...

    Seriously though, this has been well known for a while and I am at a loss as to why they decided on now to report it. The individual salary cap, in combination with the overall team salary cap, pushes marginally elite players to elite salaries and punishes the few truly elite players by reducing them to the same level.