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Marketplace of Ideas

2014 NBA FinalsWill Friday the 13th be a lucky day for the N.Y. Rangers? They face elimination in game 5 of the Stanley Cup finals tonight. First up on Marketplace of Ideas today, we consider the economics behind another major sports league, the NBA:

  • When is $63 million better than $80 million? When it buys you the roster for the San Antonio Spurs rather than the Miami Heat. Pure domination,” “transcendent,” “selfless”—that’s how people are describing the Spurs’ performance against the Heat in the third and fourth games of the NBA finals. In the upside-down economics of the NBA, the biggest salaries don’t always buy you the best performers. Consider the perennially underachieving New York Knicks, whose $88 million payroll for this season won them a 37-45 record (San Antonio’s was a best-in-league 62-20). The NBA has instituted a salary cap and stringent “luxury tax” to prevent teams with deep pockets from buying up the top players. In theory, that should lead to a more balanced, competitive league. But consider the fact that LeBron James, the undisputed top player in the league, is only the ninth-highest compensated. The Big Lead’s Ryan Glasspiegel says that James could probably fetch $50 million in an “open-market” with no restrictions, but like several other top players he’s willing to take a lower salary to play on a “Super Team.” Don’t cry for Lebron, though—the NBA gives him a great platform for his personal brand. He raked in an extra $39 million in endorsements this year. In sum, the NBA’s salary restrictions don’t seem to be having the desired effect on top players or on teams with plenty of resources, for which fines are little more than an inconvenience. Forbes figures the Knicks are worth $1.4 billion—they can afford to have a losing season, blow the salary cap, and still draw in millions of dollars in media, merchandise, and ticket sales. And that might be a lowball estimate—Forbes says the L.A. Clippers are worth $575 million, but former Microsoft CEO Steve Ballmer just offered the embattled Sterlings $2 billion for the team.

  • Women in the corporate world have gotten a lot of advice lately to “lean in.” In her 2013 book by that name, Facebook COO Sheryl Sandberg opined that women’s progress toward greater leadership roles has stalled in large part because women fail to take risks and negotiate better opportunities for themselves. But the New Yorker this week questioned whether leaning in is really a winning strategy, citing the experience of one woman who lost her tenure track job offer at Nazareth College when she tried to negotiate a better package. The article also cites studies showing women who negotiate for higher compensation are penalized more often than men, possibly because women tend to be evaluated on their social skills rather than their competence. In the Washington Post, Rosa Brooks laments that for women who already do too much, leaning in is “killing us.” Her advice: take some time to recline instead.
  • Could a surge in student loan defaults lead to the next financial crisis? Several commentators are raising red flags, including The Upshot’s Susan Dynarski, who says, “The parallels with the mortgage crisis are striking.” In Bloomberg Businessweek, Eric Chemi says the student loan market is “completely insane” because loans aren’t adjusted for risk. He says students from, say, Harvard are at a lower risk of default than students from “less prestigious” colleges, and interest rates should be set accordingly. Obama’s move this week to expand the Pay as You Earn program, which sets income-based caps on monthly payments for federal student loans, will help at-risk borrowers avoid default, but it will also raise their interest costs by drawing out loan repayment. Data from the Consumer Finance Protection Bureau suggests that about 90 percent of the roughly $1 trillion in total student loans outstanding are held by the federal government. That means the government, not the banking system, is the most exposed. So a surge in defaults would certainly hurt tax payers, but it probably wouldn’t spark a financial meltdown.

[Photo: NBAE/Getty Images]

3 Comments Post a comment
  1. Katy Delay #

    Women “Leaning In”: Once again, it would be nice to see a balanced approach to a subject like this. The assumption here seems to be that women need to figure out why they are “the underdog” in the corporate and employment world. On the other side of the argument, try reading Diana Furchgott-Roth’s book, “Women’s Figures: An Illustrated Guide to the Economic Progress of Women in America.” She has some very provocative answers to this question that should make you think and question, if nothing else.


    June 14, 2014
  2. Katy Delay #

    Another example, Student loans: What about the workings of this? What about the moral hazard of the government backing such loans? Should the public really be carrying that burden without any input on the evaluation side of the loan, or output on the evaluation side of the results of such magnanimous loan-giving? This seems a perfect recipe for excesses of all kinds–easy and therefore excessive loans that in turn create excessive demand, thereby promoting excessive tuition fees and excessive student services at some universities; too many opportunities for less-than-ethical companies to make a quick buck by taking advantage of the government’s largess and back-end support, and by giving loans way too easily (sound like the mortgage mess, anyone?); and even excessive student enrollment numbers that create job-market disequilibrium and that are not always appropriate, justified or even productive. Let’s look more deeply into subjects like these and their effect on our economic equilibrium.


    June 14, 2014
  3. JC #

    Great intro into sports economics. The question of money buying success (championships) is always a controversial debate in sports. The way I see it–there are three keys to success from the organizations perspective that breads a winning franchise. 1. Having a well organized and cohesive management team starting with the owner, to general manager and lastly the coach. These relationships are crucial for bringing in the right players and allowing each position some sort of autonomy in their job. 2. The organization must be well endowed. Money isn’t the end all be all, but without it, its hard to buy the franchise players that elevate your franchise. We see teams like the Oakland Athletics, the 28th richest team in baseball, who year after year produce solid seasons, make the playoffs, but lose in the first or second round. They run their organization like a locomotive, all parts working together as a cohesive and efficient machine, but they lack that star pitcher or game changing player to make it over the hump. Money makes a difference, but it requires the proper oversight and management to use it appropriately. 3. The hardest to achieve- team camaraderie. This can be influenced by the coach and even the organization, but often it is the result of good chemistry, veteran leadership, a collective spirit and drive to win, and the right combination of skill sets to win games. If you look at every championship team in any major sport over several decades, you more often than not see this combination of structural autonomy, money to purchase star-power, and a collective unit on the playing field and in the locker room.


    June 17, 2014

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