The Importance of Team Fit for NBA Rookies' Career Earnings
Total Page：16
File Type：pdf, Size：1020Kb
The Importance of Team Fit for NBA Rookies' Career Earnings Joseph Kuehn∗ and Filippo Rebessiy May 28, 2021 Abstract Workers entering the labor market often face a trade off between job matches that maximizes their short run and long run compensation. This trade off is influenced by peers who may enhance or diminish the worker's productivity, and thus affecting their future salary. We study this question for rookies in the National Basketball Association (NBA). We find that for rookies drafted between 2011 and 2017, playing with teammates that facilitated them getting 1 additional point per 100 possessions was predicted to increase the value of their second contract by between 9.9% - 23.6%. This implies that being drafted by the team that provides the `best fit’ is an important determinant of a rookie's future earnings. 1 Introduction Workers searching for jobs early in their career often consider not only the salary the job is offering, but also how taking that job will affect their future earnings. Initial job placements often provide a platform for workers to showcase their skills and abilities. Thus, workers may face a trade off between taking the job with the highest salary and the one offering them the \best fit” to enhance their resume for future job opportunities. This is especially important in work settings where intrinsic talent is noisily observed and complemen- tarities between coworkers affect individual productivity. If workers are paid according to their individual productivity, and coworkers can influence it, then these complementarities can impact an individual's lifetime earnings. Working with peers that enhance a worker's productivity can lead to higher subsequent wages, while working with colleagues that reduce it will depress future earnings. This is particularly important for workers early in their career since there is more uncertainty about their underlying productivity. In this paper, we examine the importance of these complementerities for early career employees by studying the impact of \job fit” on future earnings of rookies in the National Basketball Association (NBA). ∗Department of Economics, California State University, East Bay. Email: [email protected] yDepartment of Economics, California State University, East Bay. Email: fi[email protected] 1 Rookies have very little choice on which team they initially play on, as initial matches are determined by a draft. In the draft, teams select players with whom they have the exclusive right to contract for a period of 4 years. Complementarities between coworkers are potentially crucial in this setting, since basketball is a team sport where productivity depends heavily on the joint production of teammates. We first develop a simple model of compensation and player talent. In the model, the talent of a rookie player isn't directly observed. The player's performance provides a signal of their underlying talent, where the strength of that signal depends on teammates. A direct result of this model is that for players with high intrinsic talent, future salaries are increasing in the precision of the signal, while for players with low intrinsic talent, their future salaries are decreasing in signal precision. This implies that playing with teammates that accentuate (or hide) a rookie's talent can affect that rookie's future earnings. To quantitatively assess the impact teammates have on rookie future earnings, we look at NBA rookies drafted in the first round between 2011 and 2017. Using data on salaries and player productivity, we look at how a rookie's early productivity translates into future career earnings, and how their teammates impact that. We first study how a rookie player's productivity is valued in the market by testing how individual offensive and defensive value affects the second contract an NBA player signs. We find that offensive production has a significant impact, as players that generate 1 additional expected point per 100 possessions are expected to sign a second contract worth 13.3% - 13.7% more in total. We find no statistically significant effect for defensive production. We then look at the effect that teammates' productivity has on a rookie's second contract. We find that being on a team with more productive teammates leads to a higher likelihood of signing a second contract and a higher predicted compensation. However, more productive teammates also decrease the returns to individual productivity. We take a deeper look at the latter finding by breaking down productivity into a component that is intrinsic to the player and what is due to a player's teammates. We then find that while a rookie's own intrinsic productivity is the most important determinant of the value of their second contract, the effect teammates have on an rookie's individual productivity does play a significant role. Teammates that increase a rookie's offensive productivity by 1 expected point per 100 possessions, are predicted to increase the value of that rookie's second contract by between 9.9% - 23.6%. Finally, we look at how important team fit was for the first 10 players drafted in the 2015 NBA draft. Using back-of-the-envelope calculations, we estimate that if Karl-Anthony Towns had been drafted by any of the other teams drafting in the top 10, the predicted total salary in his second contract would be 27.55% - 54.38% lower. On the hand, if Jahlil Okafor had been drafted first by the Minnesota Timberwolves, instead of by the Philadelphia 76ers, his increase in offensive productivity would have translated into a 49.91% increase in total second contract salary. 2 1.1 Related Literature The prior literature on the importance of a worker's first job has mainly focused on either the worker learning about their skills (Antonovics and Golan (2012), Papageorgiou (2014)), or the firm learning about the worker's productivity (Jovanovic (1984), Moscarini (2005)), which is more closely related to our work. Rubinstein and Weiss (2006) studies how initial job placement ties to early career earnings growth, while Topel and Ward (1992) and Wachter and Bender (2006) analyze its effect on worker mobility, which is especially impacted if workers enter the labor force during a recession (Oreopoulos, Wachter, and Heisz (2012), Kahn (2010)). There is also a large literature on the effects that peers have on earnings. This work has mainly focused on how coworkers affect a worker's productivity (Mas and Moretti (2009), Nefke (2017)). The existence of peer effects in the NBA and other sports settings, has long been recognized. Arcidiacono, Kinsler, and Price (2017) and Kuehn (2017) both find that teammate productivity has little effect on future salary, but both ignore the impact that teammates have on individual productivity. Kendall (2003) looks specifically at this interaction and finds that more productive teammates (measured as points per field goal attempt) lead to increases in own productivity. However, he does not look at the impact this has on player salary. Idson and Kahane (2000) take into account the interaction between teammate and player productivity in the setting of professional hockey, and find that teammates have both a direct and indirect effect on future salary. Idson and Kahane (2004) extend this study to the NBA and again find that the interaction effect is important, but smaller than in hockey. This paper extends that work by using play-by-play data so that we can look at substitutions between players within a game rather than relying on switches of players across teams in different years. The data also allows us to breakdown individual production into what would be observed if the player was on any team, and what is due specifically to the team he is currently playing on. Looking instead at baseball, Gould and Winter (2009) find that batters will increase their effort when playing with other high performing batters, but will decrease their effort if playing with high quality pitchers. This suggests that peer effects in sports are due to interactions in the production function, not peer effects, which is consistent with the results of this paper. Other papers have also looked at the effect worker complementarities have on pay in a wide variety of fields from manufacturing (Park (2019)) to the film industry (Rossman, Esparaza, and Bonacich (2010)), and also more generally (Battu, Belfield, and Sloane (2003), Cornelissen, Dustmann, and Schonberg (2017)). This paper combines the literature on coworker effects with the aforementioned literature on the impor- tance of a worker's first job match. We specifically look at how a worker's peers in their first job can affect their future earnings. This contributes to our understanding of the importance early career decisions have 3 on future wages. 2 Background and Data 2.1 Rookie Contracts Players entering the NBA are first matched to teams using a two round draft held each offseason. For each round, teams are ordered in ascending order based on their record in the previous season.1 Once a team drafts a player, they have the exclusive right to sign that player. They can also trade that right to another team. A first round draft pick's first contract is heavily regulated by the rookie salary scale. In terms of length, each rookie contract is for 2 years, with separate team options for a third and fourth year. Both the third and fourth year options must be exercised one year in advance. The per-year salary is then closely tied to a scale that depends on the league salary cap and the position the player was drafted in. For example, for the 2019 NBA draft, the rookie scale specified that the first year salary for the first pick was $8,131,200, the first year salary for the second pick was $7,275,200, and so on, in decreasing amounts.