NBA Salaries in Context

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"NBA Salaries in Context"

Shockingly enough, NBA officials are hoping to take advantage of the expiration of the current collective bargaining agreement to pay the players less money:

For all the tough talk about raising the age limit to 20, eliminating 10.5 percent annual pay raises and lowering the maximum length of contracts, the real meat of the discussions is expected to be centered around the division of revenues and the percent the players are getting: 57, which is nearly 9 percentage points more than they were allocated when the salary cap was instituted in the 1980s.

What to make of that 57 percent? Well, to put it in context, consider the Kaiser Family Foundation’s report on the evolution of compensation in recent decades in the United States:

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Total compensation as a share of GDP is denoted by the topmost line and is a fairly stable over the period, ranging from about 56 percent to 59 percent. Although wages are consistently the largest component of worker compensation, the shares paid to employees for health benefits and other fringe benefits/payroll taxes have increased as a share of GDP, while the amount paid as wages has fallen. Health benefit costs have increased from 0.6 percent of GDP in 1960 to 4.1 percent in 2006. Fringe benefits other than health care and payroll taxes have also increased over this period, ranging from 3.8 percent of GDP in 1960 to 6.7 percent in 2006.

In other words, a 57 percent share of revenue going to the players is pretty much in line with the historically determined rate of employee compensation as an overall share of the economy. Of course owners do have labor costs beyond the players (coaches, guys who sell pretzels, etc.). But the 57 percent in question here is a percent of “basketball-related income” which does not include the full range of income sources available to owners:

Basketball-related income includes most basketball revenue, but it excludes several important income sources. For instance, basketball-related income does not include naming rights (often several million dollars per year), licensing and sponsorship income (around $300 million per year), 60 percent of both arena signs and luxury box income, and parts of related-party income.

To make a long story short, NBA players earn a lot of money because (a) NBA franchises have a lot of revenue and (b) there aren’t very many NBA players (usually 12 players on a roster instead of 25 on a baseball team or hundreds of employees at a given Wal-Mart) so the money is concentrated in a few hands. But I don’t see any evidence that they’re earning an unusually large slice of the pie relative to any other industry.

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