According to Patricia Bender (who maintains an excellent NBA website), NBA teams collectively spent $2.06billion on player salaries in 2007-08. With 451 players taking the court for an NBA team this past year, the average salary in the Association was $4.56 million.
Certainly that is a huge sum to bounce a ball. So one could argue that all basketball players are paid way too much (my wife makes that argument). Economists, though, argue that a worker is only paid too much if the revenue the worker generates is less than the wage being paid. Or to look at it the other way, a worker is exploited if he or she is paid a wage less than the revenue being generated (this definition was first provided by Joan Robinson in 1933).
Given this definition, some NBA players are going to be exploited. But of course, some others are still overpaid. And it’s this group I want to talk about today.
Again, a worker is overpaid if he is paid a wage that exceeds the amount of revenue he generates. Last September I wrote a column on this topic where I detailed the crude approach I currently take to ascertain to find the most overpaid. Although this method is not perfect, I have not come up with a better approach in the past few months (not that I have spent much time thinking about it). Here is how I explained this approach last September:
A Crude Measure of Player Value in the NBA (this is a re-run)
Back in 1974, Gerald Scully published a study in The American Economic Review (perhaps the top journal in economics) outlining how a baseball player’s economic value could be measured. Scully’s method involved two steps. First he figured out the baseball player’s level of productivity. Then he figured out how much this production was worth in terms of revenue.
For basketball we can look at Wins Produced to measure productivity. So all we need to know is how much each win is worth to an NBA team.
The standard approach is to simply regress team revenue on wins (and other stuff). But I think there’s a problem with this approach for the NBA (a problem I wish to avoid getting in to for a blog entry), so I am going to estimate the value of a win differently. According to USA Today, NBA teams paid their players $1.818 billion in 2006-07. We know from our research on revenue and attendance [mentioned in The Wages of Wins, which is soon to be published as a paperback :) ] that players primarily generate value in the NBA via their ability to generate wins. And we also know that a player’s wage is only for the regular season. Consequently, we could say that the value of one win in the NBA is simply the amount of money the league paid its players divided by how many wins these players produced in the regular season.
Such an approach makes three assumptions. I am assuming that all players in the NBA are collectively paid what they are worth (which may be true if the union bargained effectively), players are only paid to produce wins (which is a reasonable assumption given the research cited above), and the value of a win is the same for all teams (okay, not true, but two out of three ain’t too bad).
Let me update the numbers for the 2007-08 season. Again, teams paid more than $2 billion in salary. With 1,230 regular season wins, this works out to $1,671,230 per win. Given this value, who is the most overpaid?
The Overpaid in 2007-08
Last year the most overpaid was Shaquille O’Neal. He was paid $20 million, but with only three Wins Produced, generated less than $5 million in revenue. Although Shaq was still overpaid this year, he did not top the list. That honor went to the other O’Neal.
Jermaine O’Neal was paid more than $19 million last season. But his Wins Production was in the negative range. Consequently he cost the Pacers more than $20 million (and yet the Pacers only missed the playoffs by one game).
The name after J. O’Neal is a surprise. Andrea Bargnani is still working under his rookie contract. For the 2007-08 season he was paid $4.8 million. Had he produced just 2.9 wins, he would have “earned” this paycheck. Bargnani, though, produced -5.7 wins, so his value was -9.5 million. Given his salary, he was overpaid by more than $14 million (and yet the Raptors still made the playoffs).
After J. O’Neal and Bargnani, other prominent names on the list include Eddy Curry, Shaq, Tracy McGrady, Jeff Green. Here are a few quick comments on these names:
Readers of The Wages of Wins – or any fans of the New York Knicks — should not be surprised to see Curry on this list. What might be surprising is the following quote from Mike D’Antoni (the new head coach of the Knicks):
I would be surprised that a team with Curry (and many of the other current Knicks) could be transformed into a winning team by any coach. I understand it is good to confidence in your abilities. But a more useful comment from D’Antoni would have addressed how New York’s roster is going to have to change. And finding a new home for Curry might be a good place to start.
Last September I noted that Shaq was the most overpaid player in 2006-07. The next day I noted that for his career, Shaq was exploited. For his career he had generated $238. 58 million (according the above methods) and he had been paid $231.61 million. So he was underpaid by nearly $7 million.
After 2007-08, though, that difference has been erased. Shaq has now been overpaid in his career- according to the method employed here – by about $3 million. The method utilized here ignores the substantial impact Shaq has on TV ratings and road attendance. In other words, if we considered everything Shaq does for the NBA, he is still exploited. Still, the level of exploitation is going down.
T-Mac was voted to the 3rd All-NBA team by the sportswriters. Certainly McGrady deserved such honors in the past. But as has been noted, T-Mac ain’t what he used to be. For the 2007-08 season he only produced 5.4 wins. With a salary of more than $19 million, T-Mac was clearly overpaid. In other words, he is not the reason the Rockets made the playoffs (I also don’t think his play is the reason why the Rockets lost to the Jazz).
The last player I want to talk about is All-Rookie first team member, Jeff Green. Green had a very poor rookie campaign and was one of the big reasons the Sonics last season in Seattle went so badly. Although he was only paid $3 million, his -3.8 Wins Produced means he was overpaid by more than $9 million. Again, it is hard for a player working under a rookie contract to be overpaid. These contracts are designed to exploit the players. For Green (and Bargnani) to manage to be overpaid by such a large margin is truly remarkable.
Looking Past the Cut-Off
Table One only considers players with 1,000 minutes played. If we look past this cut-off we see a few more famous names. Stephon Marbury and Antoine Walker each made the list last year but did not play enough minutes to qualify this year. If we ignored the minutes played restriction, though, each would make the top 10 list in 2007-08. Marbury was paid $19 million and only produced 0.6 wins. So he was overpaid by nearly $18 million (good for second on the list reported in Table One). Walker was paid $8.3 million and produced -1.8 wins in only 892 minutes. Consequently he was overpaid by more than $11.3 million.
Sometime this week I hope to look at both the Underrated and Exploited (i.e. underpaid). Hopefully those columns will be posted by the end of this week (or end of the month).
Our research on the NBA was summarized HERE.
Wins Produced, Win Score, and PAWSmin are also discussed in the following posts:
Finally, A Guide to Evaluating Models contains useful hints on how to interpret and evaluate statistical models.