What is another $20 Million?

NBA players have been taking pay cuts for years to keep their team together. It has been praised for the most part and recently there have been a number of sports segments and articles written on this same topic. I came across the first video below on my twitter feed (tip of the cap @stevebowen12) and I can’t stop thinking about what Rob Parker says about KD’s contract agreement with the Warriors. The biggest takeaway to me was: Why save a billionaire owner money? Parker’s argument is that no one else benefits from the pay cut, only the owner and the owner can pay the lux tax. It partly true…

Steve Kerr had this to say:

“I told him it reminded me a little bit of Tim Duncan and his time with the Spurs,” Kerr said. “He made max money, and then at key times in his career, he took a little less so they could add a player here and there.” (ESPN)

So while it does save the owner money, it benefits KD to be with better players. The other question to ask KD: Why would you forfeit more money to keep a team together? Which is easier to answer. “I wanna win.” That makes sense. Tim Duncan reaped the rewards from his cash sacrifice. But sacrifice that doesn’t guarantee anything (see Dirk). Economic thinking would argue that you should maximize your earnings always (according to some econ thought leaders). See KD has already won a championship. No matter where he plays he will be viewed as one of the best players in the game. So why stick around and not get paid max? My basic economic 101 thinking tells me that (1) scarcity is real… A player should take as much money as he can, when he can. There is a finite amount of resources and players are all fighting over the limited amount of money. A zero sum game. Player A gets paid more than player B. This is absolutely true in the NBA. There is a salary cap that you cannot get around (you can get around it…I may post about this and the CBA in a future post.. interesting stuff). Curry got the max deal, KD did not – Player A and player B… But also closely held to economic theory is that (2) people are irrational. The rational, sensible thing to do would make the best business decision, which would be to maximize profit. Humans are not rational.

Sure, players get endorsements outside of their normal contract, but that doesn’t always mean you make up for the pay cuts with an endorsement deal. Lets look at Dirk Nowitzki, who was recently written about in Business Insider on how he lost out on over $200 million in his career and was notorious

A habit of making poor business decisions?

Per the report, Dirk had multiple opportunities to max out on his contract, but declined to keep the team together, to add pieces. Unlike Tim Duncan, Dirk didn’t win more rings because of keeping the team together. You could argue that a player sticking with one team actually increases your career earnings with other endorsements (more recognizable). Cliche as it might be, but money is just money. Dirk showed that time and time again and so is KD. What is another $20 million when you have $200 million? It is an obscene amount of money. With that kind of money you can choose an option other than to just make more money. More money for these athletes doesn’t really mean they will hold on to it longer either… Maximizing profit may not be the only way to look at these players taking pay cuts. See profit doesn’t account for a weird accounting term called “goodwill” (no, not the store), an intangible asset. Simply put, goodwill is the value of a company’s brand. Players each have their own brand, their own goodwill to maintain.

At the end of the day though it really is about winning for these players. Deep inside of these professional athletes the will to win has never turned off. Money doesn’t change that. Look at what recently happened with DeMar Derozan, who chucked a ball at a ref in a summer league game. I am not excusing his actions, but I do see that as a sign of competitive spirit. He was in a meaningless game and threw a ball at a ref… Total jackass move and immature, but he cared about the game!

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