Superstars in the National Basketball Association: Economic Value and Policy

TLDR

Superstars create positive externalities that can cause inefficient talent distribution across NBA teams. The study examines league policies to mitigate the externality caused by superstar players. The authors use econometric analysis of ratings, attendance, and merchandise sales to estimate superstar value, exemplified by a $53 million valuation for Michael Jordan. Superstars significantly raise TV ratings and generate revenue for both their own and other teams, with Michael Jordan estimated to be worth about $53 million to other NBA franchises.

Abstract

An econometric analysis demonstrates that television ratings for NBA games are substantially higher when certain players (“superstars”) are involved. Thus, these superstars are quite important for generating revenue, not only for their own teams but for other teams as well. Using the econometric analysis and additional information on attendance and paraphernalia sales, we estimate the value of Michael Jordan to the other NBA teams to be approximately $53 million. The positive externality superstars have on other teams can lead to an inefficient distribution of player talent. We examine several league policies that might be used to address the externality.