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