Professional sports, unlike most other industries in America, have provided with the opportunity to succeed. One possible focus of such a determination may be the present economic situation faced by NBA players. The top NBA players, and some not so top, have been made financially secure for life. At salaries near or in excess of $1 million per year, often in up-front cash, it is only a matter of prudent handling of these finances that should be of concern. While only a few players actually exceed the $1 million per year mark (still under ten players as of the 1984-85 season), the fact that these few have topped the milestone, and that several others follow not that far behind in the $500,000 to $1 million range, suggest that, at least for the chosen, the NBA is a path to riches.
There are many economic models of labor contracting that feature job performance monitoring by employers when there is asymmetric information about worker behavior. These models focus on a variety of agency issues and generate implications about contract terms such as initial wages, wage-tenure profiles, termination rates, and involuntary unemployment. It is typically assumed in these models that a worker's Marginal Revenue Product (MRP) is known at the time of hiring, but that costly monitoring is necessary to enforce contractual terms. An athlete's productivity is often quite variable over time. For example, in professional basketball points scored per game or minute is typically variable over time and the amount of variability can differ substantially across players. Second, contractual arrangements in the NBA induce team owners to actively monitor players, particularly younger players. However, there is seriously doubt that Stiglitz's required conditions for an inverse relationship between variance and pay would be satisfied in an industry such as professional basketball. It is not unusual to see players sign contracts where a relatively large proportion of compensation comes from incentive pay. For example, during the 1990-1991 season Larry Bird (Boston Celtics) received 69% of his compensation from incentive pay and Patrick Ewing (New York Knicks) received approximately one-third of his compensation from incentive pay. (Brown, Eleanor, Richard Spiro, and Diane Keenan. 1991) We contend that if a player is willing to be paid relatively large amounts of incentive pay, exposing him to substantial risk, it is unlikely that his level of risk aversion will exceed that of the firm.
Implications are developed and tested on a sample of 151 players in the NBA during the 1990-1991 season. A notable result is that while specialists find strong support for our monitoring costs hypothesis, they fail to find evidence of racial discrimination against black players in the 1990-1991 season. This result differs from Kahn and Sherer [ 1988 ] and other authors who have written on the subject of racial discrimination in the NBA.
In truth, it is hardly slave labor at the bottom. The NBA minimum salary for 1984-85 was $65,000 and will climb. The average salary for all players in the league was $340,000. If a player can stay in the NBA for a few years, whether or not a star, the good money will be there. From the players' perspective, for those who make it, the making is marvelous.
Leaguewide average salaries, of course, tell only part of the story. Further breakdowns team by team are often revealing. For example, for the 1983-84 season, before the full implementation of the maximum and minimum team, the total expenditures by teams on salaries varied significantly. It was reported that the Indiana Pacers total payroll was under $1.5 million, which was less than Larry Bird or Moses Malone individually earned. At the high end for teams was the Los Angeles Lakers with an imposed maximum team salary of $5.2 million, which was probably exceeded because of various exceptions allowed under the new collective bargaining provisions.
While there is a definite positive correlation between a team's revenues and its salary obligations, there are exceptions. The most notable was probably the Cleveland Cavaliers, which, for the 1981-81 season, had salary obligations of $3.7 million and a total gross from all sources of only $2.8 million. When other operating costs were added to salary expenditures, the Cavaliers had an operating loss of $5.1 million for that one year. While much of this could be attributed to the folly of the Cavaliers' then owner, Ted Stepien, and his headlong rush into the free-agent market, the situation, while extreme, has not been singular. (Moore, 2002) Al- though few teams may have spent more on salaries than was their total gross, there have been many who have committed to such high salary levels as virtually to assure overall losses.
The reasons for such arguable excesses are complex, in part related to player market pressures, in part perhaps to an owner's ego, in part to honest, though probably negligent, miscalculations. It is difficult to ascribe excessive salary commitments to one cause. There are usually multiple factors at work. But the fact that many NBA teams lose money consistently has been a reality. (Hollander, Zander and Sachare, 1989) Tax depreciation allowances and other bookkeeping measures undoubtedly present a bleaker picture than the net effects justify. Even so, if not losing money outright, certain NBA clubs have committed to present and deferred salaries at levels that have saner heads in the league worried.
As with the other leagues, the NBA has felt the effects of the fearsome threesome: contracts, antitrust, and labor. Each has taken unique twists in the NBA, and other legal areas have found interesting interpretations through first the courts and then in arbitration.
I begin the analysis with a touch of whimsy. Partly because a basketball team fields only five players at a time and partly because basketball players have been proficient both on the ball court and in the law court, I present as an introduction to the fields of litigation and arbitration our choices for an all-NBA all-litigators team, chosen roughly on weighting our ratings two-thirds for the importance of the legal nature of the complaints involved and one-third for perceived playing prowess. All-NBA Litigators.
Space does not permit a full explanation of law court and basketball court exploits of all these players, but a few remarks about the legal areas in which each has been most notable must be made. Leading with our strength, go immediately to the captain, Rick Barry, of the San Francisco Warriors, Oakland Oaks, Washington Capitols, New York Nets, back to the Warriors (now Golden State), and on to Houston Rockets fame. While not every team switch involved legal problems, most did.
Rick Barry joined the Warriors in 1965 and immediately led the team in scoring his rookie year, at a 25.7 point per game clip. He followed this in 1966-67 with a 35.6 average, tops in the NBA. Then it happened. The ABA formed, Barry forsook the Warriors to pursue a new career and additional dollars in the newly formed league, and his old club toppled from first to third place in the NBA's Western Division the following year. Barry's choice of teams in the ABA was the vaunted Oakland Oaks. Only one obstacle stood between Barry and immediate realization of his goals--an option year under his contract with the Warriors. (Brown, Eleanor, Richard Spiro, and Diane Keenan, 1991) In the initial legal action, he was preliminarily enjoined from playing for the Oaks, but at full trial on the merits a year later, the injunction was lifted because by that time the option year had expired. The court refused to extend an injunction beyond the contract term, falling in line with usual precedent where courts are extremely loath to extend injunctive relief in cases of employment contracts beyond the contract term unless the contract had specified that such could be done. No such provisions appear in NBA contracts, unlike the extension provisions in an NFL form contract. (Sachare, Alex, 2000)
By the time Barry was ready to play for the Oaks, the Oaks were ready to call it quits in Oakland. Undoubtedly an incentive in Barry's contract that called for bonuses if gate receipts reached certain levels was never realized. The destitute Oaks departed quietly and headed across country to become the Washington Capitols. This created a problem for Barry, who did not want to go. His heart was in San Francisco, or at least the Bay area, and he tried to sign again with the Warriors. Once more, injunctive relief was sought, this time by the Capitols. Barry unsuccessfully claimed that the Capitols should have invoked against them the "clean hands" doctrine, whereby a party can be denied equitable relief if that party has engaged in conduct in relation to the circumstances under question that is illegal, immoral, or in other ways repugnant to the court. Barry's claim was that the Capitols' predecessor, the Oaks, were nefarious creatures, even though Barry of course had earlier fought to join them under the circumstances he now contended constituted unclean hands. (Kahn, Lawrence and Sherer, 1988) Now that the Oaks had moved, he did not want to go. The court, however, refused to attribute the sins of the assignor to the assignee, thus reaching a result opposite to that in Lou Hudson's case, one of our all-NBA litigators second-team stalwarts. The two cases are interesting contrasts, but do little to enlighten on just when unclean hands are transmissible. (Hollander, Zander and Sachare, 1989)
Even this second bout did not end Barry's litigation career. Still in the ABA, he was later traded to the New York Nets. By this time, he was committed to return to the Golden State Warriors (as they were now called) at the end of his then-current contract. When that time arrived, however, he had changed his mind again. Fresh from an ABA championship with the Nets, Barry's heart was now in New York. Threatened litigation, however, had him hit the trail back to the Warriors. There he helped lead them to an NBA championship. Then it was off again-this time hitting the free-agent trail within the NBA. Barry now left litigation, temporarily, and shifted to arbitration.
Barry's career ended with the Houston Rockets, but not without a red glare bursting. When he signed with Houston, his old club, the Warriors, and his new, the Rockets, could not agree on the compensation to go from Houston to Golden State for the latter's loss of Barry's services. Under the compensation rules then in existence, after a hearing, Commissioner Larry O'Brien decreed that Houston must award to Golden State either Houston's young guard John Lucas and $100,000 cash or the Rockets' 1979 first-round draft pick and $350,000. Golden State could choose; and it opted for Lucas and the lesser amount of cash. Rick Barry finished his career with Houston, helping garner no more league championships but remembered as the last of the pros to use the two-handed, underhand free throw, as the all-time free throw leader with a career mark of .893, and, of course, as one hell of a legal in-fighter.
Rick Barry's legal career underscores the continuing importance of contract actions in both the courts and now in arbitration. Except for one brief excursion as a defendant in a tort action, Barry stuck to contracts, joining others who merit selection on the NBA litigation squad, including Dick Barnett, Lou Hudson (mentioned above), Wilt Chamberlain, Art Heyman, Billy Cunningham, and Julius Erving. Each deserves special analysis, but for now their marks must simply be noted and passed over in favor of the heavy antitrust hitters among the NBA players. Among these are two giants: Spencer Haywood and Oscar Robertson, one on his own, the other as a representative of that new breed, the sports union man.
The Haywood case brought to an end, in the NBA at least, the four-year rule that decreed that a player could not enter the professional ranks until his college class had graduated. It must be carefully noted that there was no requirement that the player have graduated, only that he had been kept out of the league the appropriate length of time. Spencer Haywood caught the public's eye in the summer of 1968. (Ashe, 1993) His sensational performance in the Olympics that year had immeasurably helped an undermanned U.S. team, doing without the services of such as Lew Alcindor ( Kareem Abdul Jabbar), Elvin Hayes, and Wes Unseld, all of whom passed on the opportunity. The United States emerged with the gold medal, its unbeaten Olympics record unblemished. Haywood enjoyed a brief career at the University of Detroit, then headed well ahead of graduation into the ABA. A couple of years later, with his college class still not graduated, Haywood wanted to switch to the NBA. One team was glad to oblige, but the NBA said no.
The Haywood suit charged the league with an illegal boycott of his services. It was probably not so much that the league really felt he should be excluded; it was more that the league did not want to alienate the colleges by relaxing its rules. The U.S. District Court hearing the case had no such qualms, ruling that a boycott did indeed exist and that the league's rule was a per se violation of the antitrust laws. The case was not appealed, which led the NCAA evidently to feel that the NBA had not vigorously pushed for retention of the rule. This led to strained relations between the colleges and the NBA that have persisted, to a degree, to the present time. In the meantime, Haywood was free to enter the NBA, the league set up a procedure by which other college-eligible players could declare "hardship" and be subject to the draft, and later, dropping the hardship requirement, the league streamlined its procedures whereby today a simple declaration of availability, filed by a certain date, is enough to allow any player to be eligible for the draft. Over the years since Haywood, approximately 100 players have chosen this option. Magic Johnson and Isiah Thomas have been notable successes. Others have foundered and quickly disappeared. Any rule of this nature has mixed blessings. As a final irony, since the centers in the NBA have not been the heaviest hitters in the courts, Spencer Haywood has been moved from his natural power forward position and placed here in the pivot on the all-NBA all-litigators squad.
Oscar Robertson instigated an entirely different situation. Robertson did not take on the NBA as an individual; He was a leader in the NBPA and put his name at the top of the list of many NBA players who sought to head off what was perceived as multiple legal infractions by the league. In truth, it was a laborinspired suit, maintained by the players' association. Whatever its origin, Robertson vs. NBA spanned multiple hearings before the U.S. District Court in which it originated and before a special master appointed by the court to determine whether actions by the league were in accord with the later so-called Robertson settlement.
In contrast to the large number of studies of the economic effects of final offer salary arbitration and free agency in the market for professional NBA players, there has been relatively little analysis of the impact of owner conduct during the 1980s on player salaries. This a direct model of salary determination that exploits panel data techniques to control for unobservable individual effects such as those due to a player's "heart," personality, or fan appeal. Further, a rich set of human capital and experience variables makes it possible to assess the differential impacts on player salaries that stem from collusion by the team owners.
References
1. Arthur R. Ashe, Jr., A (1993).Hard Road to Glory: The African-American Athlete in Basketball. New York: Amistad Press.
2. Brown, Eleanor, Richard Spiro, and Diane Keenan. (1991) "Wage and Nonwage Discrimination in Professional Basketball: Do Fans Affect It?" American Journal of Economics and Sociology.
3. Hollander, Zander and Alex Sachare, ed. (1989) The Official NBA Basketball Encyclopedia. New York: Villard Books.
4. Kahn, Lawrence M. and Peter D. Sherer. (1988)"Racial Differences in Professional Basketball Players' Compensation." Journal of Labor Economics 6.
5. Moore, David. (2002)"2002 NBA Player Salaries." The Dallas Morning News, 22 December.
6. Sachare, Alex, ed. (2000) The Sporting News 1999-00 NBA Register. St. Louis: The Sporting News Publishing Co
