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Adam Smith Meets Pat Riley and They Hit It Off

From a pure standpoint of economics, LeBron James' decision to become a member of the Miami Heat makes perfect sense. Not in terms of James' personal finances, mind you, because he'd have made more money staying in Cleveland, but just as an example of how rigged markets have unintended consequences for the riggers.

At bottom, any salary cap system in sports, hard or soft, is an artificial restraint of trade, a collusion by capital to limit the value of labor. Due to the weird nature of sports themselves, this is the one case extant where labor, at least skilled labor, is scarcer than capital, and hence supply and demand works in favor of athletes, not moguls.

Nowhere is that supply and demand ratio more skewed in labor's favor than in the NBA. It's simple arithmetic. Basketball is the team sport played by the fewest people on a side. In addition, the nature of the game makes the best players more important still. Victory and individual prowess go hand in hand. No superstars, no rings.

Salary caps can only be negotiated through collective bargaining, and free agency is the concession owners in football, hockey and basketball had to make to get their caps. This has set up a situation where the top NBA players eventually get the chance to choose their employer, but when the choice is made, money is, if not no object, less of an object.

An All-Star free agent is going to sign a contract that ought to set up himself and his family in riches for generations to come. But it has a topside limit of insane wealth. This means somebody like that Russian crook who owns the Nets can't use money as a means of satisfying a free agent's ego. "You'll be the highest-paid player ever," which, let's face it, would sound good to you, me, or anyone else, is not allowed as a bargaining chip.

So if wages cannot be used to recruit high-level executive talent (the best way of thinking about free agents like James), franchises will turn to offering fringe benefits, lower taxes, marketing opportunities, hanging out with Jay-Z, etc. In the final analysis, however, the only meaningful fringe benefit for these gifted, sheltered, incredibly driven people is victory. If the money's pretty much the same anywhere they go, the opportunity to be on a championship team is inevitably going to be a dominant factor in their decision-making process.

Given that NBA superstars are a clubby lot, it was probably easy as pie for Wade to recruit James and Chris Bosh for his team, which as we saw in the playoffs was pretty awful except for him. All Riley had to do was make sure he had enough cap money on hand to back up Wade's sales pitch, which he did.

This trend, which is hardly new (among great players in history who left teams in pursuit of further glory, although through forced trades rather than free agency are Wilt Chamberlain and Kareem Abdul-Jabbar), is going to continue, and paradoxically, the more limits the owners place on salaries, the more pronounced it will get. High draft picks working for capped rookie deals will be counting the days until they can create superteams of their own. Why not, if the money's the same, or pretty much the same. Do you, dear reader, think there'd really be much different between making $12 million a year or $18 million? The players don't either. It's a dream to them, too.

This places the owners in a nasty dilemma. Lack of superstars causes franchises to lose games, fans and money in that order. But by limiting player salaries to save money, the owners rob themselves of their best means of acquiring superstars. You can't depend on David Stern fixing the lottery every year.

It's funny. In their attempt to create socialism for the rich (themselves), NBA owners are stuck in a mini-crisis of capitalism, the kind described by the founder of socialism, Karl Marx.

posted by Michael Gee @ 9:15 AM