Michael Jordan: The Underpaid Superstar

It is tough to fathom that Michael Jordan, the first billionaire athlete, was underpaid at any point in his career, however, that is exactly the case when it comes to “His Airness”.  Furthermore, because Jordan was underpaid, he did not play enough during his career.  Of course both of the previous statements are in economic, rather than absolute, terms, as Jordan averaged over 38 minutes per game over 15 seasons, and made $94 million from just his salary during his career.  The reason Michael Jordan did not play enough during his NBA career, when looking at it from an economic perspective, is because Michael Jordan was a positive production externality.  

Jordan earned vast amounts of money for the league and the other owners during his career, yet was only compensated directly for his playing time (production) by his salary with the Chicago Bulls.  As noted in this article in Fortune, Jordan’s career effect on road game gate receipts was $30.5 million and his career effect on the broadcasting revenue received by the NBA was $366 million.  During his time in the league, merchandising revenue also increased for the NBA from $44 million to $3.1 billion.  Although a specific amount of this increase is not attributed to Jordan in the article, it is safe to believe that Jordan contributed a lot this growth, especially since he has the best selling jersey of all time.  Totaling just the increased gate receipts and broadcasting revenue, Jordan was responsible for an increase of $396.5 million in revenue for the NBA and the league owners, and when considering the increased merchandising revenue Jordan brought, this figure is likely well over $400 million.  As can be seen by the increase in revenue generated by Michael Jordan, he was a positive production externality because his playing (production) brought in well over $400 million to the league and its owners, which all of the owners benefited from, while only the Chicago Bulls’ owner had to compensate Jordan any amount for this increased revenue.   

The fact that Michael Jordan was a positive production externality made it so that the private marginal cost (PMC) to the Bulls’ owner was greater than the social marginal cost (SMC), since the league and all of the other owners received an external benefit from having Jordan play, without having to pay for this benefit.  As a result of the SMC being less than the PMC the amount Jordan played, Q^*, was less than the allocatively efficient amount, Q_AE, that Jordan would have played had other owners also paid (allocated more resources to) Jordan to increase his production (have him play more).  Although odd to think about a single person as a positive production externality, this is exactly what Michael Jordan was during his career in the NBA.  This made it so Jordan played too few minutes and as a result was an underpaid superstar.