Freakonomics: The NBA’s Lack of a Free Market

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This past weekend, Dwight Howard changed teams a second time in a 10 month span. Like his first move from the Orlando Magic to the Los Angeles Lakers — and the months that led up to that moment — Howard’s jump from the Lakers to the Houston Rockets have led to his public image taking a beating, especially on Twitter, where the superstar center was widely mocked.

While Howard’s incredible fickleness and immaturity certainly during both incidents is surely deserving of mockery and disdain, the fact is, even had Howard’s departures been handled in a smoother, trouble-free manner, Howard was going to get killed anyway.

Fans hate athletes for switching teams. Some do it because they hold on to this false idea of loyalty in sports; others do it because they’re simply jealous haters. Ray Allen has been denounced by the entire city of Boston and hailed a traitor throughout this past season, all because he decided to switch employers after he had fulfilled his contract. And when you consider that the Celtics tried to trade Allen three times from 2010 to 2012, the notion that Allen had committed a sin by playing elsewhere is blasphemy.

LeBron James could potentially be a free agent after this coming season, setting up the Summer of LeBron, part 2, in June and July of 2014. James, if he lets it happen, will be courted by several teams again. Just like 2010, the first Summer of LeBron. Rumors are flying James could leave Miami for Cleveland. The Lakers think they have a shot at Bron too. Whatever the case, the only thing we can predict is there will not be a The Decision II.

Make no mistake, The Decision back in 2010 — the televised special on which LeBron announced his free agency decision — was in bad taste, but the level to which James was vilified went far beyond logic.

Like Allen, James had fulfilled his contractual duties with the Cleveland Cavaliers. And for a man who, by any business measure, is actually under-compensated in salary, to take his time and decide on his new place of employment isn’t the act of an ego-driven diva, but common sense.

Fans spit venom when athletes choose to relocate and work elsewhere, as if they haven’t switched jobs after a better offer came along. Or maybe they haven’t, and that’s why they’re mad.

The NBA’s lack of a free market is, in a sports sense, a brilliant move. It helps — okay, somewhat helps — alleviate the problem of uneven markets. By ensuring a salary cap, luxury tax, the NBA has given cities like Cleveland and Salt Lake City and Milwaukee a shot at competing against the major metropolises like Los Angeles and New York.

The rookie salary scale then keeps costs down for bad teams employing big talents, thus giving bad teams a chance to rapidly get back in the game.

All these rules are, again, great for a sports league trying to keep competitive balance. But it’s highly unfair from a business and life perspective. James is underpaid — he is by far the best player on the floor and one of the most valuable off it (generating ticket sales, TV ratings, free marketing); it’s been estimated that he generates up to 50 to 60 million a year for his employers based off ticket sales and TV ratings alone. But he’s only paid an annual salary of 17 million — because of this salary cap structure, which places a ceiling on a player’s maximum earnings. The Oklahoma City Thunder, who built a strong team through smart drafting, was forced to give away one of its three superstars because of the luxury tax — the Houston Rockets improved drastically as a result.

Furthermore, the NBA’s age restriction is another sensitive issue in this NBA business world. By forcing players to wait until they turn 19 before they are eligible to be drafted, this strips away the option to work for 18 year olds who might already be good enough for an NBA job. Most of these 18 year olds are instead forced to attend college, where they’re exploited by a corrupt system that sees them — as a group — generate billions while getting paid exactly $0.00 per month.

Some of these athletes come from poverty. The NBA’s age limit basically keeps the athlete and their families (and ridiculous entourage) there (at least on the surface) for another year. And what happens when an athlete who was worthy of an NBA job at 18 but had to wait a year get injured, such as Nerlens Noel (torn ACL)? They end up losing millions because their basketball stock drops. Instead of going number one or number two as an 18 year old and getting an average of $4.6 million per year over three years, Noel fell to sixth pick (partly due to the injury) and will now make $2.7 million per season over three. That’s a loss of over 4 million dollars.

This looks especially bad when you look at things in a vacuum, and see a majority black employee base being stripped of free market rights by a mostly white group of employers.

So while fans want to attack players for being spoiled or for switching teams, it’s wise to step back and look at things rationally. LeBron James at 17 million per year is underpaid, especially when compared to other celebrities or high-earners. There’s no one else on this earth who can do the work that he does. He generates triple his salary for his employers from just revenue, and that’s not accounting for work performance, at which he is the best. He at 17 mil is a better salary rate than some model making 3 mil per year or a TV star getting 500k per episode or some banker guy you know making $200k per year.

There are probably five million other people who can do your job, by the way.

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