I work for a software company in Seattle. I make a decent living. Imagine, if you will, that my company decided to move to Minnesota and offered to move me there as well, but said that since the opportunities for software companies are not as plentiful as they are in Seattle, I'd have to take a 20% pay cut. In this hypothetical scenario, I'd say "thanks but no thanks" and go get a different job at my market value in Seattle.

Would that make me selfish?

As the news broke yesterday that James Harden was traded from Oklahoma City to Houston, there seemed to be plenty of people that thought James Harden was being selfish for not signing in OKC -- reportedly, OKC was offering about $4 million less than Harden wanted. In other words, OKC refused to pay the max because, as a small market team, they can't afford it.

Let's leave aside for a moment that this is not at all true; at the max contract, Harden would be underpaid. This is sort of the point of max contracts, from the NBA's perspective: it ensures that the best players cannot get their fair market value. This entire scenario indictates to me not that OKC simply is not correctly evaluating the worth of their players, which should not surprise us given that they chose to overpay Russell Westbrook last year. As Stop-n-Pop put it:

Professional basketball roster construction is not rocket science. Rule #1 is simple: If you get an awesome player, never ever let him go. There simply aren't that many enormous humans with stunning athleticism who can put the little orange ball through the hoop.

There are multiple ways to underpay for talent in the NBA. One is to have a good rookie who's forced to play for the rookie pay scale. Another is to buy talent that is underappreciated (Ryan Anderson, Omer Asik, Ersan Illyasova, etc), and the last is to get a superstar and pay him whatever he wants (which is usually the max). If you get a superstar who's willing to take less (like Durant, James, and Wade did), great, congratulations, you win extra bonus points! But if he stands firm, you pay him anyway, because not paying him is crazy. It's like if some guy is willing to sell you a dollar at 75 cents and you're standing firm at 50 cents.

I digress... my original point is....why, exactly can't OKC afford to pay for Harden? Twitter is awash with type-first-think-second-if-they-think-at-all pundits who are quick to blame the CBA and how the harsh luxury taxes put small markets at a disadvantage, so clearly the OKC ownership is a victim of the system, here.

Except...does anyone remember the part where this team used to play in Seattle? I know geography is not a strong suit for us Americans, but surely there are a few people that might recall, if gently prodded, that a lot more people live in Seattle, and that, famously, lots of them are millionaires. in 2009, Clay Bennett took the Sonics and moved them to Oklahoma City (and paid a handsome sum to do so) because that's his hometown. This franchise chose to be here. 

If a man wants to own an NBA team in his hometown, that is his right, of course. It's cool if Mr. Bennett and his co-owners like watching the team in their hometown more than they like money. But it strikes me as odd that James Harden is being asked to pay for the moving expenses. It strikes me as exceedingly strange that a man who wants to be paid his market value (or well...at least as close as he can get with the max) is considered "selfish", but that packing up the toys and moving them to Oklahoma City isn't.

Categories: James Harden, Oklahoma City Thunder, Economics

There's an article today on SheridanHoops about how David Stern would like to limit the Olympics to players 23 and under because of pressure from team owners, who have "complained that their prized assets are loaned out for free each summer to international federations.":

“And there’s a recognition, certainly Mark Cuban, other owners have raised repeatedly the issue of our players playing in essence year round when you add the Olympics to our newly-renamed World Championship of Basketball to our World Cup of Basketball."

I find this position interesting, because, after all, lots of NBA players play for free every year.  In fact, every game of every playoff series, the players are playing for free (discounting a per-diem), because NBA players get their last paychecks in the regular season. Yet it doesn't seem to bother Mark Cuban that Dirk Nowitzki could get hurt playing in a playoff game in May. Clearly, it isn't the fact that the players are not being paid that bothers the owners. It's the fact that the franchises are not being paid.

Which brings me to the next point: contrary to what some ridiculous tax code laws might lead you to believe, NBA players are not cattle. They are most decidely not 'assets'. They are employees, and usually, what employees do in their free time is up to them.  For instance, I am a software developer. I am paid to write software, yet I write the software that powers this site 'for free', in my spare time. If my employer were to come to me and say 'you can't write software in your free time', I'd look for another employer. As much as I love my job (and I really do), that's just a deal-breaker.

My employer could, of course, try to force my hand. Companies can make things like this conditions for working for them. If they were the only company in town worth working for they might say "We know it isn't fair, but tough." Luckily, this is not the case for me, which is part of the joy of working in a free market. If the supply of labor and the demand for labor isn't one-sided in the company's favor, things like this don't happen, unless a lot of money is switching hands.  If my company were paying me twice what I could get elsewhere, they might very well be able to make demands like this, knowing that I'd rather stay and keep making the big bucks.

I know what you're going to say. I can hear it already. These guys make millions playing basketball! To which I respond: they are paid millions playing basketball because they earn millions for their owners. That's how the supply and demand of labor work.  I've written about this before:

The second, also known as economic rent, is a measure of MARKET POWER: the difference between what a FACTOR OF PRODUCTION is paid and how much it would need to be paid to remain in its current use. A soccer star may be paid $50,000 a week to play for his team when he would be willing to turn out for only $10,000, so his economic rent is $40,000 a week.

This is where we get back to basketball and the topic of free markets.  Professional basketball is not a free market, as Professor David Berri reminds us often. The NBA, like nearly all American professional sports leagues, is a Monopsony or Monopoly, depending on your viewpoint. Soccer is an exception; truly talented American players would actually earn much more money playing in international leagues, where the game is more popular than it is here, so the MLS is not a monopoly. And because Soccer is so popular in so many countries, there is a ton of inter-league competition, and the market is very free.

The NBA owners, most of whom made billions (or at least hundreds of millions) in a free-market economy, are once again trying to apply exploitative principles of markets that are not free to their market. As we've half-joked before, they are basically socialists. In a truly free market, the employers could never make rules like this stick; their employees would just leave and play somewhere else.  This is especially true in markets where the talent gap at the top is large (meaning that good talent is very hard to replace). Imagine, for example, that MIT told all of its computer science professors that they couldn't write any software in their free time? Google, Microsoft, and Apple would get a flood of new talent influx for their R&D departments. Or imagine a hospital that told its cardiac surgeons that they couldn't do pro-bono work outside the hospital on their time off? Any competent surgeon (who cares about this) would say "Well, I'm sure there are other hospitals that need a cardiac surgeon, and it's not like there are guys lined up around the block who can do my job for you."

What I find especially interesting here is that none of this came up during the lockout negotiations. It would seem to me that many players would indeed like the freedome to choose whether or not they can play for their country during the off-season, and that a rule saying one must be 23 or younger to do so would definitely have been a stumbling block in CBA negotiations.

Wait, maybe it's not so curious that that never came up last fall.

Categories: Olympics, Economics