NBA Player: Money Tree or Money Pit

by Martha Lair Sale and Debra Reneé Hunter
published by Academy of Strategic Management Journal, 2009
Ref ASMJ08-06
 

Is there a positive relationship between player salary cost and the financial performance of a franchise in professional basketball? This article examines player salaries in the NBA (National Basketball Association) to find out if investment in higher salaries is justified on an ROI (return on investment) basis.

Ownership of a professional NBA team represents a significant financial investment, say the authors, and player salary cost is the most significant operating category. However, there is little research available on how salary levels affect the financial performance of a team. Previously, researchers have concentrated on the effect on attendance levels and the number of games won and lost.

The authors’ research found that while the huge fan appeal of top athletes, such as Michael Jordan, Dennis Rodman and Scotty Pippin, cannot be disputed, they do not necessarily generate enough revenue to cover their higher salary costs. On the other hand, despite disappointing results on the field, a lower salary bill can result in a much healthier operating income as a percentage of player salary.

The financial fortunes of the Chicago Bulls, considered one of the most successful NBA teams ever, are analysed, including the effects of dropping hugely popular but expensive players in the late 1990s.

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About the authors

Martha Lair Sale is Associate Professor, Academic Chair of Accounting and Finance, College of Business, Florida Institute of Technology.

Debra Reneé Hunter is Assistant Professor of Accounting, Arkansas Tech University (previously at the University of Southern Indiana).

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