Results on One and Two

Abstract: This article examines the positive effect that superstars such as Michael Jordan have on other teams revenue. The article used econometric analysis to on attendance and paraphernalia sales, and estimated Michael Jordan to generate approximately $53 million dollars. This can lead to small market teams to earn revenue from large market teams which leads to competitive imbalance in revenue sharing leading to unproductive talent distribution.

1.) Number of cable TV households tuned into the game divided by total number of cable TV households designated market area (DMA) equal to the functional form for expectation; quasi-maximum likelihood E(R ij / X ij, α i) = F ( X ij β + α i)

2.) Bernoulli likelihood: R 1-R ij L i + [F(X ij β +α i)] ij[1-F(X ij β+α i)]

Results on one and two: The superstar effect on league policy is that superstars generate $ 50 million dollars in revenue a year in eternality because teams do not share local TV revenues and gate sales.

3.) Superstar externality through revenue function 2 2 2 2 2- σRi/σQi > 0, σ Ri/ σQ i < 0, σ Ri/ σQi σsi>0, σRi/σQ-i > 0, σ Ri/ σQ i<0

4.) Team quality produced using player talent: Qi=α+βLi

5.) Profit for team i Πi(Qi)=Ri(Qi,Q-i)-W(α + βQi)

6.) The unconstrained market equilibrium: απj/σQi=σRiσQi –βW=0, i=1,…,N, N and Σ i=1 Qi = Q

7.) Maximize the sum of the teams’ revenues subject to the talent supply constraint: N σRi/σQi + Σj≠i σRj/σQi=π, i= 1…,N, and Σ i=1 Qi = Q

8.) The equilibrium under a salary cap: σRi/σQi – (1+πi) βW +0, i= 1…,N, πi[C-W(α+βQi)] =0, i= 1…,N, N and Σ i=1 Qi = Q

9.) Considering the above the market equilibrium: σRi/σQi – (1+ι) βW +0, i= 1…,N, N and Σ i=1 Qi = Q Results: The superstar externality can lead to inefficient player distribution, because smaller teams can just “free-ride” of larger market teams superstars, because opponents of superstars still generate about 2 million per team.

Source: Hausman, Jerry A.,Leonard Gregory "Superstars in the National Basketball Association: Economic Value and Policy". Journal of Labor Economics, 1997, vol. 15, no. 4.