Why Super Teams are Becoming More Prevalent in the NBA
Sports is an integral part of today’s society. While one might wonder whether athletes should be paid millions of dollars, recent data shows that NBA athletes, specifically super stars may actually be undervalued. According to the article, “ If you can’t beat‘em, join ‘em” the NBA’s collective bargaining has been in place since 1995. As it currently stands, players are entitled to 51% of all basketball – related income. As such, as income flows into the NBA from its recent deal $24 bn with ESPN and Turner sports, the cap on team salary has gone up from $70 – $94 million. One thing that has not changed much; however, is the maximum salary that players can make. Thus, Kevin Durant, a super star who’s estimated value based off last year’s performance was worth $54 million to an average team can only be paid $27m a year.
Often times, when bidding for a player’s service, one submits a “First Price sealed- bid auction” to the player’s agent, who then amalgamates this data and distributes to the player. However, for a player such as Kevin Durant, this suggest that the net benefit to these players will be in the negative (-$27m in Kevin Durant’s case). The question then arises how the market clearing value for a superstar is then determined. Non-financial motives such as the drive to win a championship by teaming up with other superstars is then the key factor. Ultimately, this results in the creation of a super team.
While the superstar may be negatively impacted, the average player is benefited – especially in situations where teams have additional cap space. This can be seen on NBA teams where the superstar is paid close to the same amount as a role player. Interestingly enough, the notion of common values and the winner’s curse can be applied to the scenario when teams are bidding for the services of these role players where their values are less than the maximum salary. For instance, take Nick Young who’s resale value can be classified as his ability to perform – a value which can be approximated by teams but is relatively unknown. As such, the marginal distribution for error “xi” can be especially high in situations where there are many teams vying for this role player’s services increase. When n (the # of teams) increase, the team that “wins” the player most likely over-estimated the common value which results in the winner’s curse and the team trying to trade the player away.
Ultimately, the Collective Bargaining Agreement reduces the art of team-building by restricting market clearing prices. This results in the exercise of courting superstars and the creation of super teams.
http://www.economist.com/blogs/gametheory/2016/07/basketball-s-labour-market