Thursday, January 22, 2015

Pay Structure, Rent Contests, and Euvoluntary Institutions; Angus on the NBA

Click all the way through for KPC plankowner Kevin Grier's thoughts on how the NBA pay structure affects the final product you see on your TV screen or in the arena.

It's a good exercise in analytical economics to follow incentives and institutions through to their logical conclusions, and this includes not just current teams and their players, but potential future players as well.

One thing that puzzles me a bit is how it is the world has any decathletes. To the best of my knowledge, there is nowhere in the world a professional decathlon league. The training required to achieve the physical conditioning needed to be an effective decathlete carries with it a massive opportunity cost. If you have the natural talent required to excel at the 100-metre dash, running long jump, shot put, high jump, 400-metre run, 110-metre hurdles, discus throw, pole vault, javelin throw, and 1,500-metre run, you probably also have the natural talent required to excel at rugby, cricket, soccer, baseball, or other sport where you could earn considerable returns in both direct salary and endorsements. Amazingly, we still see, every four years, a slew of humans good enough at each of these events to compete internationally in the Olympics. Why is it that people still train in athletic events like this when they could make a far more comfortable living as even a third-string wide receiver in the NFL?

So what's the deal? To anyone but an economist, the answer is obvious: love of the sport. It's a wide world (of sports) and some people love track and field (or Greco-Roman wrestling, or what-have-ye) enough that they're perfectly willing to forgo participation in the rent contest that is pro sports. This should tell us something about the other side: it's likely that there are inframarginal big league athletes: they are telling the unvarnished truth when they say they're in it for the love of the game.

Here's the question I have. Assuming that the same sorts of tech trends that are gutting the world of print and music will sooner or later turn their inevitable electronic eye towards pro sports, what will happen to the incentives faced by young people?

The overarching purpose of information-age tech is to reduce transaction costs. Uber matches passengers with drivers. AirBnB matches travelers with hosts. I'm not sure what it would look like, but Uber for hockey doesn't seem all that outrageous. Even the atavistic tribalism evoked by local teams can probably be reproduced without all the organizational baggage of a formal league structure. Probably. And with free agency, the superstar effect Angus mentions would likely become a lot more powerful.

But the kids? Would kids put all the blood, sweat, and broken teeth into the game as they do now?

Maybe. Maybe not. It seems likely that the ones who do are all in it for the love of the game, for the glory. What if instead of European soccer, the incentive model for US pro sports were something like Shaolin kung fu? Would the games be better? Worse? For those kids who would otherwise be indulging hoop dreams, what would they do instead?

Consider the possibility that one of the knock-on effects of the NBA/NFL/MLB compensation structure is that it lures, on the margin, kids away from drugs and crime and towards a low-p, high-return activity. How might you test this hypothesis?

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Do you have suggestions on where we could find more examples of this phenomenon?