Superstar Externalities

Berri, Schmidt, and Brook’s The Wages of Wins is a fairly entertaining romp through professional sports through the eyes of statistically-savvy economists. Their model for basketball productivity is particularly elegant; rather than simply regress various statistics (shots taken, rebounds, etc.) against wins or points scored, they take a step back and create an abstract source-draing model that accounts for the finite set of ways in which a team can gain or lose possession of the ball. A little judicious rounding, and the result is an easy-to-compute, intuitive equation that predicts 95% of total team points.

But that’s not what I want to mention. The authors, describing previous work of Hausman and Leonard, explain that the data clearly show that superstar players such as Michael Jordan raise television ratings, merchandise sales, and gate attendance. (Interestingly, stars have a much larger effect on attendance on the road than at home; more people turn out to see the local schlubs play against the Bulls than against other schlubs.) Hausman and Leonard calculated that in 1991—-92, having Jordan in the NBA was worth $53.2 million in revenue for teams other than the Bulls. Compare that figure with Jordan’s $3.25 million paycheck for the season, and the NBA got quite a bargain.

Don’t cry for Jordan, though. Even in 2004, a year into his third and so-far final retirement, he was still the highest-paid “player” in basketball, thanks to his endorsement contracts.