## The Economics of NBA Draft Picks

June 29, 2013 *in Daily Bulletin *

The NBA’s 2013 draft ended this week with several players being offered millions of dollars. Yet 60% of the players in the draft are likely to be bankrupt five years after retirement. Matthew Heimer looked at why:

- Our understanding of NBA careers is distorted by the distinction between the average and the median. If Bill Gates walks into a bar then on average everybody there is a millionaire. Yet the median gives a more accurate overview of the actual salary class of the bar.
- Thus while the average salary of an NBA player may be $5 million, the median is around $2.3 million.
- The average NBA career lasts six years – but the median career lasts just four years.
- In fact a quarter of all NBA players only earn for a year before ‘retiring’.
- Thus the mdian NBA players makes between $500,000 and $1.5 million a year after taxes, for four years. At 26 they’ve retired and have no other real source of income.
- For a player to avoid bankruptcy they need to start careful management of the money now – and realize that they can only really afford an upper middle-class lifestyle. Not a millionaire’s one.

Read more about the fate of NBA players, how ‘survivorship bias’ distorts the numbers, and more over here.

Source: Market Watch

“Mean” should probably be “median” here several times, since as far as I know, “mean” is the same as “average”.

That..was embarrassing.

We’ve fixed it now. Thanks. Let us never speak of this again.