How Simple Majority Rule Has Cost Lebron James Tens of Millions of Dollars

When Lebron James left Cleveland for Miami in 2010, the value of the Cleveland Cavaliers dropped from $476 million to $355 million in one year. That's a 25% decline. In other words, Lebron James, who was paid a little over $14 million in 2010-11, was worth over $120 million to the Cleveland Cavaliers franchise. Fast forward eight years and Lebron is leaving Cleveland again. If the Cavaliers see a similar decline, then they would lose about $300 million in value. Yet, Lebron is being paid only about $36 million dollars a year. Why then, is someone clearly so valuable to a franchise, being paid relatively little?

In a Planet Money podcast about this very issue, they mention many reasons why Lebron is being underpaid. However, I am going to focus on one reason: simple majority rule voting. In the NBA, there is not only a salary cap (which limits how much each team can spend on players each year), but also a maximum salary per player which is agreed upon by the NBA Players Association. It may seem weird that players would want to limit their own salaries, but when you take a deeper look at it, it all makes sense.

First, we are going to operate under the assumption that there must be a salary cap (this ensures that teams in large markets and with owners with bigger wallets can't just buy every superstar player). Next, we are going to assume that the NBA Players Association votes using majority rule (as the Planet Money podcast indicates), and that each player in the NBA has an equal vote. Finally, we are going to assume that there are two possible positions a player can take: no maximum salaries or maximum salaries. Let's think about this. Obviously superstar players will not want maximum salaries. However, bench players will want maximum salaries. If each team is only allotted a certain amount of salaries under the salary cap, lower-level players will not want teams spending all of the salary cap on superstars.

Now we can take a page out of Mueller's book about majority rule voting, specifically median rule voting to determine the outcome. Mueller describes a theorem that states that the person in the median position of a single-dimensional issue cannot lose. Thus, we need only to turn to the median player to determine whether or not we will have maximum salaries. Since most players in the NBA are not superstars, the median player will not be a superstar. Thus, this median player (who can be thought of as the worst starter or the first or second man off the bench), would want to limit the amount of money that superstars make so that he can make more money. This is why (in a very simplified manner) the NBA has maximum salaries, and why Lebron James (and all superstars for that matter) should garner our pity for only making nearly $40 million (not including endorsements, etc.).