The famed economist Joan Robinson stated (back in 1933): “What is actually meant by exploitation is usually that the wage is less than the marginal revenue product.”
Or to put it more simply… if you make more money for your employer than your employer pays you, then you be exploited.
This means that a worker who is paid $3 an hour, but only generates $2 in revenue, is not exploited. And a worker who is paid $200 million, but generates $300 million, is indeed exploited.
This lesson in basic labor economics is important for the sequel to yesterday’s argument that Shaquille O’Neal was the most overpaid player in 2006-07.
Patricia Bender’s web site (as well as Basketball-Reference.com) tells us that Shaq has been paid more than $230 million in his career. Despite this immense sum of money, Shaq has been – as Robinson defines the term – exploited.
Shaq’s Salary and Revenue Generation
To see this, let’s first look at how much revenue Shaq’s on-court production has generated for the teams who have signed his paychecks.
Table One: Shaq’s Career Pay and Productivity
In O’Neal’s first four seasons he was paid $17.4 million by the Orlando Magic. But his 80.1 Wins Produced was worth an estimated $38.6 million (please look at yesterday’s post to see the crude method I employed in this calculation). Consequently, Shaq was underpaid – or exploited – by $21.2 million.
Shaq left Orlando in 1996 and joined the LA Lakers. His first three seasons in LA he produced 39.6 wins and generated $31.7 million. But he was paid $38.6 million, so he was now overpaid.
And then Phil Jackson came to town and Shaq’s productivity increased (and yes, there may be a link between these two events). Across the next five seasons O’Neal produced 100.6 wins, production that was worth $127.7 million. His salary, though, was only $107.9 million. So once again, Shaq was exploited.
Just like before, the exploitation did not last forever. After 2004 Shaq moved on to Miami. With the Heat he has only produced 27.4 wins, which were worth $40.6 million. O’Neal, though, was paid $67.7 million so in his first three years in Miami (like his first three years in LA) Shaq has been overpaid.
If we put it all these numbers together we see that Shaq has produced $238.6 million in revenue in his career and he has been paid $231.6 million. Consequently, according to these numbers (and Robinson’s definition of exploitation), Shaq has indeed been exploited across his entire career.
The SuperStar Externality
The exploitation of Shaq, though, goes beyond a comparison of the value of his wins production to his employer and his salary. To see this, let’s turn to The Wages of Wins [soon to be available in paperback :) ]. In Chapter Five we discuss the work of Jerry Hausman and Gregory Leonard. In an article published in The Journal of Labor Economics in 1997, these authors introduced the term “superstar externality”.
This is what we said in the book in discussing the work of Hausman and Leonard:
“A superstar externality exists when a star player generates revenues for teams that do not employ the athlete. To illustrate this phenomenon, Hausman and Leonard looked at Michael Jordan. In an extensive study of television ratings, these authors offered evidence that ratings were significantly higher when Jordan appeared. Beyond his impact on television ratings, Jordan was also found to have a sizable impact on both attendance and the sale of NBA merchandise. In sum, for the 1991-92 season, Hausman and Leonard estimated that Jordan generated $53.2 million in revenue for teams other than the Chicago Bulls. Given a league of 27 teams, Jordan generated a bit more than $2 million in revenue for each team not signing his paycheck. We would note that the Bulls did pay Jordan, although his salary of $3.25 million for the 1991-92 campaign made him only the fifth highest paid player in the league. And given the analysis of Hausman and Leonard, his wage was about $50 million less than the revenue MJ was creating for the NBA. So with respect to His Airness, we have evidence of a substantial “superstar externality.”
Following the lead of Hausman and Leonard, we also published work on the superstar externality. Our study, which appeared in The Journal of Sports Economics last fall, examined road attendance in the NBA.
The NBA, unlike the NFL, does not split regular season gate revenue. The home team keeps the entire gate. Consequently, when a star player attracts fans on the road he receives no compensation. In Chapter Five of the book we report that from 1992-93 to 2003-04 (the entire time period we considered) the team that lead the NBA in road attendance each season employed either MJ or Shaq. Clearly these two players were the primary star attraction on the road during this time period.
What was this road attraction worth? From our road attendance model (reported in the Technical Notes to the book) I estimate that Shaq has generated about $20 million in revenue on the road during his career. And again, he has not been compensated for any of this road work.
Star Power at Home and Other Issues
We also note in Chapter Five (and in another paper we published in The Journal of Sports Economics), that star power doesn’t matter much to the home fans. Home fans tend to primarily care about winning. Consequently, Allen Iverson and the 76ers were not drawing very well at home before the trade (a point I made in The New York Times last February).
But the work of Hausman and Leonard does make it clear that star power does generate television ratings. I don’t know precisely the impact Shaq has had on TV ratings, but one suspects it’s substantial. And again, he has not been compensated for any of this as well.
And then there are the playoffs. A few months ago I noted NBA players are not compensated very well for the post-season, which for Shaq often lasted more than two months. So again we see evidence of exploitation.
If we put it all together, we can see from the comparison of Wins Produced Value and salary that Shaq was underpaid by about $7 million. And he generated another $20 million on the road. Plus there is money from TV ratings and post-season appearances.
All of this leads one to conclude that Shaq – a man who has earned $230 million in his career – has been exploited. And apparently, the level of exploitation is quite high in monetary terms.
So perhaps Shaq should be channeling Karl Marx (yet another economist we mention in The Wages of Wins). Consider the conclusion of the Communist Manifesto, where Marx called upon the workers (or proletarians) of the world to act.
Let the ruling classes tremble at a communist revolution. The proletarians have nothing to lose but their chains. They have a world to win.
Proletarians of all countries, unite!
Of course, one wonders… can you still take part in the revolution if you have enough money to buy a small country? Hmmmm…not sure that’s covered in Das Kapital.
– DJ
Our research on the NBA was summarized HERE.
Wins Produced and Win Score are Discussed in the Following Posts
Simple Models of Player Performance
What Wins Produced Says and What It Does Not Say
Wages of Wins Journal 
mrparker
September 7, 2007
3% underpaid = exploited???
SM
September 7, 2007
(1) I wouldn’t consider someone exploited who enters into a voluntary contract. Maybe one party gets the better end of the deal. Taxpayers are exploited.
(2) How is exploitation be defined as making more money (revenue) than your paid? Companies don’t pay 100% of revenue out in wages. For example, investement banks are generous payers with about half of revenue going to wages. The average company is maybe 25%. If all revenue is paid out as wages, there’s nothing left to cover overhead and no profit remaining. I would think the right metric is more related to profitability than revenue.
Sweat of Ewing
September 7, 2007
Guys, I have a feeling that “exploitation” is being used loosely. The idea is that he’s been paid less than he has generated for his teams across his career, whereas many other players shown yesterday have probably done the exact opposite. (Desmond Mason, eg)
Pete
September 7, 2007
Enough with this left wing propaganda.
Fred Flintstone
September 7, 2007
Do you guys actually read the posts before commenting? “Exploitation” is a term of art to economists and that is how it is being used here. So mrparker, 3% underpaid does = exploited. SM, (1) you wouldn’t consider someone exploited exploited who enters into a voluntary contract. Who cares what you would consider. An economist would consider him exploited.
dbg
September 7, 2007
I was interested in your comment about Phil Jackson. If he indeed helped his players become more productive (which is his job after all) then some of the “wins” would have to be credited to him to determine his value. If that’s the case then Shaq would be a little less exploited.
How about that for a post? Which coaches are exploited and which are the exploiters?
mrparker
September 8, 2007
I would expect (when studies are done on
coaches effect on wp48) that “smart” coaches
advantage is in understanding lineups
and which players are the most valuable.
For instance, Avery Johnson only played
Eric Dampier(~.18 wp48) 8 minutes a game in
the Golden State series while playing
Stackhouse(~.07wp48) 20 plus minutes per game.
He was fooled by Nelson into believing that
he had to get more scoring on the floor to
beat Golden State.
In contrast Larry Brown is famous for quick
turnarounds of teams in part because he
chases off all of the unproductive players
in favor of less exciting, productive players.
Of course this was impossible in New York
and he skipped town.
SM
September 8, 2007
The point is that in a free market system “exploitation” has no economic meaning. Only in non-voluntary transactions such as in socialism does it make sese.
Kent
September 8, 2007
Joan Robinson was robbed of a Nobel prize in economics. :-(
dberri
September 8, 2007
Kent,
I agree. She should have been recognized for her contributions.
MODI
September 10, 2007
It seems like too many people weren’t understanding the economist use of the term exploitation as opposed to the more popular usage.
As for the comment about “voluntary economy” the NBA which imposes a salary cap is not a voluntary economy. Sports franchises act more like socialism than capitalism. I am pretty sure that there are 29 teams out there who are willing according to their own volition to pay Lebron james more money.