HOW IS A PLAYER COST OR EXPENSIVE

HOW IS A PLAYER COST
A player cost or worth is judged primarily on the skill level of such athlete. A player that delivers well enough and is instrumental to the team victor always would worth more than an average player in a team. In an interesting study entitled, “The NBA and the Influx of International Basketball Players”, economists Erik Eschker, Stephen Perez, and Mark Siegler examine the process by which an owner, or whoever within the organization has the responsibility of evaluating talent, determines a player’s worth on the market. They use the structure of the National Basketball Association as an example. As long as teams are able to buy or sell players, they say, NBA salaries will resemble an auction- like process (p.1010)
The authors point out that the bids from the teams are determined upon a given player’s Marginal Revenue Product (MRP). The team looks at performance and other factors like age, experience, height, etc. in order to gauge what the player’s market price is. In this environment, we should expect to see the player to be paid close to the highest expected MRP (p. 1011). This judgment is based on limited information and uncertainty, however, so bids are actually more likely to be far above or far below the actual MRP. Thus we find that the bid that is far above the actual MRP wins the player, and we find the case of a player being paid far more than he is really “worth” (p. 1012). This seems to suggest that, while some athletes may in fact be overpaid, it is in relation to other athletes, rather than to the rest of society. This explanation however, while partly justifying “how” athletes are paid so much, does not entirely explain “why”. Why don’t the all the owners get together and decide upon a system of worth such that overbidding doesn’t become a necessity? This is the type of question that would be raised by Adam Smith, the widely renowned “Father of Economics” and author of Wealth of Nations. There are fewer owners than there are players. Thus, they are more easily able to gather together and force the players to comply with a restructured pay system. The owners will always be able to hold out longer; they have more spare capital at their disposal. Why don’t they use this leverage? This failure has not been for a lack of trying. Collusion, as it is so called, was prevalent in Major League baseball in the mid 1980’s. As such, a rule was negotiated in the Collective Bargaining agreement prohibiting such action,whether on the part of the owners or the players.

BY ADEMOLA VICTOR