The National Basketball Association (NBA) generated well over $4 billion in revenues during the 2014-15 season. I analyze the value of a win to a team in terms of revenue and examine the potential underpayment or overpayment of players and superstars throughout the league relative to their marginal revenue product (MRP). My findings suggest that players are overpaid, especially superstars. However, it is important to consider the fixed-revenue streams a team receives before assuming a player is simply overpaid compared to his MRP. In congruence with previous literature, I find that veterans are overpaid at the expense of younger players’ lower salaries. I also look at the drivers of a player’s salary and find that general managers tend to overpay for points relative to other statistics.

This dissertation uses the institutional setup in the market for NBA players to test important hypotheses about how the labor market functions. Sports markets provide an ideal setting to study economic phenomena because of the wealth of publicly available information on productivity and compensation. In Chapter one, I analyze the effort incentives created by the existence of long-term contracts that guarantee players a wage irrespective of performance. I use a panel of all NBA players from 1999 to 2007 to show that player performance improves as the expiration date of the current contract draws nearer. Players perform ten percent better in the last year of their contract than in the penultimate one, an effect attributable to their interest in gaining a new contract. Despite the adverse effort incentives, teams may still prefer to sign players to multi-period contracts because risk-averse players are willing to accept lower salaries in return for greater security. In Chapter two, I use the fact that the NBA draft provides us with a quasi-natural experiment to analyze the impact of peers on player productivity and earnings. Using information for first round draft picks for a fourteen-year span I find that better teammates have a negative but statistically insignificant effect, on player performance. Teammate quality has a statistically and economically significant adverse impact on player wages. Thus the market appears to penalize players for having better teammates. I focus on the NBA's push to raise the minimum age of entry into the league in Chapter three. This phenomenon seems surprising since one naturally expects employers to encourage and entrenched workers to discourage entry of new workers into the labor market, as this should push wages down. I construct a three-period theoretical model in which the surplus accruing to teams can be higher when entry is restricted, even if the average productivity of NBA players declines. In our setting this outcome is driven by the existence of a fixed wage for rookies, which implies that the rents extracted from new entrants increase when entry is restricted.

We test the NBA betting market for efficiency and find that totals lines are significantly biased early each season, yet sides lines do not show a similar bias. While market participants generally force line movements in the correct direction from open to close, they do not fully remove the identified bias in totals lines. This inefficiency enables a profitable technical trading strategy, as the resulting win rate of our proposed simple betting strategy against the closing totals line is 56.72%.

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During the 2020 season, the NBA implemented, for the first time, the use of virtual advertisements. Virtual advertisements are digitally superimposed ads directly on the court that are visible to anyone viewing the broadcasted version of a game. This study used eye-tracking and galvanic skin response (GSR) in conjunction with the limited capacity model of motivated mediated message processing (LC4MP; Lang, 2006a) to a) determine virtual advertising's effectiveness compared to traditional in-stadium advertising and to b) monitor the effect emotional arousal has on advertising recall and recognition. A sample of 176 fans of the Utah Jazz viewed one of four identical highlight reels of a basketball game that sought to manipulate emotional arousal by altering only the score and were then tested on advertising recall and recognition. Results revealed that virtual advertising receives more visual attention than traditional in-stadium advertisements yet are remembered poorer - indicating that while virtual advertisements are placed in a more central location they are likely still processed peripherally. The attempted manipulation of arousal failed and the results surrounding the LC4MP were insignificant. Implications for the LC4MP and recommendations for advertising practitioners are discussed.

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This paper analyzes the link between relative market value of representative subsets of athletes in the National Basketball Association (NBA) and individual wages. NBA athletes are categorized with respect to multiple performance characteristics utilizing the k-means algorithm to cluster observations and a group's market value is calculated by averaging real annual salaries. Employing GMM estimation techniques to a dynamic wage equation, we find a statistically significant and positive effect of one-period lagged relative market value of an athlete's representative cluster on individual wages after controlling for past individual performance. This finding is consistent with the theory of prototype heuristic, introduced by Kahneman and Frederick (2002), that NBA teams' judgment about an athlete's future performance is based on a comparison of the player to a prototype group consisting of other but comparable athletes. / Series: Department of Economics Working Paper Series

Thesis advisor: Christopher Maxwell / Although there is extensive theoretical and empirical literature discussing the impact of revenue sharing agreements on competitive balance in professional sports leagues, there has been little work done to improve the structure of current agreements which are designed to improve competitive balance. This paper focuses on the National Basketball Association (NBA) and the current revenue sharing agreements it has in place. This paper both evaluates franchises’ efforts in earning revenue sharing payments and offers alternative metrics designed to accomplish the goals of league-wide profitability and competitive balance. / Thesis (BA) — Boston College, 2010. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: Economics.