June 13, 2018
COLUMBIA, Mo. – NBA draft prospect Michael Porter signed a five-year deal with Nike, a deal expected to be “in line” with prior No. 1 overall selections Ben Simmons and Markelle Fultz.
While terms weren’t disclosed, it’s expected the deal will be worth at least $12 million, similar to what Simmons garnered in 2015. And like Simmons, Porter passed on an Adidas deal potentially more lucrative but rested on an incentive-laden contract.
Nike is now the official equipment supplier for the NBA, has a long track record of marketing prowess, and — in spite of the growing share by Under Armor — remains far and away the largest player in the market.
A year from now, we’ll see a dispatch like the one above cross the wire, and the roll out of Michael Porter Jr. will begin.
An agent will have been retained. Word will filter out from workouts, the slyly-leaked details meant to shape how the market assesses his wares. The cycle of mock drafts, perhaps, will inject a tad bit of intrigue. Today? Well, they have Porter as a consensus top-two pick.
Until that moment, his value is mere conjecture. Real GM tells us a four-year rookie deal could be worth $23.9 million. Signing a shoe contract, though, will make Porter’s skills liquid. His social media accounts will be hubs for slick and glossy guerrilla marketing, a way to connect with his fans and peddle gear. No, it won’t be real until Porter strides on stage in a trim, well-tailored suit and tugs on the hat handed over by NBA Commissioner Adam Silver.
For the next 12 months, though, MU fans are all fortunate witnesses to what they hope is a quickly flourishing renaissance at Mizzou Arena, one that features a return to the NCAA tournament.
No doubt, the on-court impact of Porter can’t be understated. His presence created gravitational pull, luring in players that make up a top-10 class. And it spurred Cuonzo Martin’s (potential) evolution from a motion offense to a more pro-style system.
Lost in the glee is the more practical impact: Porter’s presence can help Mizzou dig its basketball program out of a hole.
It won’t come as a shock to anyone that Kim Anderson’s three seasons weren’t a financial boon. Ticket revenue slid 20.9 percent to $3.7 million in fiscal 2015, a year where the program ranked 55th nationally in attendance. We’re still waiting to see what the 2016-17 wrought, but it’s unlikely that dropping 30 more spots — finishing between Boise State and Fresno State — and averaging just 6,200 fans a night helped matters.
There’s also the $1.3 million MU forfeited as part of self-imposed sanctions for NCAA violations under Frank Haith. The penalty only compounds lost revenue from failing to land a berth in the field of 68. (Appearing in one tournament game is worth $1.7 million over six years.) All told, the basketball program’s net revenue is half of what it was before Haith skipped town to Tulsa.
All of which raises the question, how much is Michael Porter Jr. worth?
So, uh, where do we start?
In 2014, The Washington Post concluded the average college basketball player was worth $218,000. Business Insider followed up in 2016 by calculating the Fair Market Value of players at 20 profitable hoops programs, finding that a player at Duke, for example, was worth almost $1.3 million. Just for fun, let’s take the Post’s user-friendly methodology for a spin. Here’s how it works:
- Look up how many win shares a player contributes.
- Use the U.S. Department of Education’s database to find a program’s revenues and expenses.
- Calculate net revenue.
- Divide net revenue by the team’s total win shares, yielding the “value” of a win.
- Multiply a player’s win shares by the “value of a win.”
I’ve included a table outlining the supposed value of five-star freshman who laced up in the 2015-2016 season:
Value of Five-Star Freshmen — 2016
|Player||School||Win Shares||Team Win Shares||Revenue||Expenses||Profit||Proft/Win Share||Value|
|Player||School||Win Shares||Team Win Shares||Revenue||Expenses||Profit||Proft/Win Share||Value|
|PJ Dozier||South Carolina||1.3||22.5||$9,647,770||$7,080,820||$2,566,950||$114,086.67||$148,312.67|
|Malik Newsman||Mississippi State||1.4||16.7||$7,390,683||$6,111,629||$1,279,054||$76,590.06||$107,226.08|
|Dwayne Bacon||Florida State||2.9||19.9||$12,263,221||$11,730,040||$533,181||$26,793.02||$77,699.74|
Cool, right? Well, economists would take issue with how we concluded the average value of an elite recruit settles in at $642,539.
Now is where we pause for a quick lesson in labor economics, principles that frame can just how much Michael Porter Jr. is worth to Missouri.
(A caveat: My experience with the dismal science went awry about the time you had to use calculus. I fully expect some segment of readers will cringe.)
When firms mull hiring another worker, guiding their decision is a simple logic: Will the additional revenue they generate exceed the wages the company will have to pay? In a competitive labor market, businesses will hire people until the additional revenue is equal to the wages paid — otherwise known as the market wage. Now, if a company can hire employees below that wage, it retains the surplus (called labor rent) and can use it to invest in capital like equipment or paying off existing debt.
The labor market for athletes, however, is quirkier. For example, professional athletes hire agents to negotiate their salary. Do you? No. Most of us don’t, and that’s a pretty decent indicator the market is unique.
Instead, negotiations are game. The player wants to maximize their salary, while owners want the most wins at the lowest cost. Typically, a player’s wage demand can’t exceed the value (which is formally called marginal revenue product) he or she produces, and it acts as the upper bound. Meanwhile, the team’s owner can’t make an offer below the reservation wage — the lowest salary a player will accept.
The result is the “contract zone,” which is the range where a wage is most likely to land. Where that salary lands hinges on leverage and who wins the negotiation.
Of course, while economists haven’t reached a consensus on how to calculate a college player’s value, most agree that the NCAA is a buyer’s monopoly. Its members agree to only offer grant-in-aid — tuition, room, board, fees and, more recently, a cost-of-living stipend — as a wage. And its thick and arcane book of bylaws enforces how schools woo labor, creating inelastic demand. Violations don’t just violate a spirit of amateurism. They undercut the collusion schools use to depress wages.
Let’s see what the experts have to say
In 1993, economist Robert Brown took a crack at player valuation, reporting that a future NBA player generated an additional $871,310 to $1 million for their college program. The piece offered confirmation of what we largely assume: Elite players are drawn to programs that win consistently and join a roster laden with fellow top-flight prospects.
Of course, that’s for current college players.
“The calculation is especially problematic for unproven high school recruits,” wrote Richard Borghesi, an economist at the University of South Florida.
Borghesi’s study, published in 2015, tackled the question of what you’d pay an elite, incoming freshman like Michael Porter Jr. Using RPI, the 247 database, and EADA data, he showed five- and four-star recruits care little about a school’s academic credentials, cost of attendance, or market size. Like Brown, Borghesi’s data indicated a winning tradition and stacked roster were the significant draws.
“Five-star recruits offer twice the first-year contribution relative to four-star players,” Borghesi wrote.
They also make for good business.
A five-star recruit creates a $625,000 in additional revenue and $366,000 in net profit, Borghesi reported. Oh, and the impact the improved performance of the team makes boosters eager to cut checks to the tune of an extra $5.8 million.
Borghesi’s scope was wider, too. He tried to figure out what Mizzou would pay players like MPJ.
The model is simple. You’d follow the NBA’s lead and split revenue 50/50 between schools and players. (In 2014, for example, that would have amounted to $708.1 million.) Next, you’d allocate 15 percent (or $106.2 million) to freshman contracts.
Based on their marginal revenue, Porter is worth close to $739,000. After stripping out the cost of grant-in-aid, Porter’s cash pay shrinks to $613,000 — almost 24 times greater than the cost to attend Mizzou last year.
Next, a trio of authors used three different methods of estimating the value of college players. The first is the Scully Method, created by economist Gerald W. Scully more than 40 years ago to figure out how wide the gap was between what players were paid and what they were worth with Major League Baseball’s now-defunct “reserve clause” in place.
Their results found the median values for players in three position groups:
- Center: $87,325 (Max: $1.7 million)
- Forward: $100,567 (Max: $2 million)
- Guard: $91,491 (Max: 1.9 million)
Historically, the Scully Method has been the standard approach, but it has drawbacks. Chiefly, it sucks at pegging the values of bench warmers, who often are shown having no value at all.
The authors tried to work around the problem by using a distribution of pro salaries. Assuming the market for NBA players is perfectly competitive, the value of players equals their respective salaries.
Now, the NBA is not an entirely competitive labor market. But it’s more competitive than the one in college. So, the authors used the distribution of pro salaries as a proxy for value at the college level. If the average salary of the top NBA big man is almost four times the average NBA salary, then it’s assumed a top college center has the same value on the college market.
What they found was the value of a college player rose to $117,764, which is roughly 30 percent more than the estimate using Scully’s approach.
- Center: $128,355 (Max: $1.8 million)
- Forward: $124,909 (Max: $2 million)
- Guard: $117,503 (Max: $1.9 million)
Lastly, the authors updated Brown’s approach, based on using a player’s future draft status, finding that future NBA player at an elite program is worth almost $1.2 million in revenue. As the finishing touch, the authors estimated the value of players drafted into the NBA using all three methods. Here are the results:
- Scully: $970,164 (Max: $1.9 million)
- Pro: $1,403,265 (Max: $2 million)
- Brown: $1,188,945 (Max: same)
Often, a point of contention among those on both sides of the debate over paying college athletes is figuring out just how many of them are worth more than their scholarship. Critically, this study gives us an estimate: almost 60 percent. “Even with the recent increase of the limit of athletic scholarships,” the authors write, “the majority of players would still produce more revenue for the school than the maximum value of his scholarship.”
Porter’s father, Michael Porter Sr., is on Martin’s staff, drawing $345,000 in salary. His hire was a shrewd move and totally above board under the NCAA’s bylaws. But even if we account for that paycheck as a benefit flowing to Porter’s family, it would still only be half of what Borghesi projects the combo forward would be paid if an open market existed for college players.
There’s little doubt, too, his presence may help the program’s financial rebuild unfold as quickly as the one on the floor of Mizzou Arena. Assuming his marginal revenue product is at the top end of the scales, he may produce close to $2 million in additional revenue — alleviating the financial shock inflicted during Anderson’s tenure.
Using Borghesi’s estimates for net profit, we can also crudely forecast the impact of the Tigers’ top-10 recruiting class:
- Michael Porter Jr.: $366,167
- Jontay Porter: $366,167*
- Jeremiah Tilmon: $101,969
- Blake Harris: $8,103
- C.J. Roberts: $8,103
- Total: $850,509
*Even is he reclassifies for 2017-18, Jontay Porter would still be a five-star recruit
Porter is already showing up at the office for summer workouts, and Mizzou is already reaping the benefit. Season ticket sales topped 4,400 in early June, and the school had commitments for 7,000 total. “Our goal is to sell out the building,” athletic director Jim Sterk told The Kansas City Star. It foreshadowed more positive news last week, with Mizzou announcing it raked in more than $50 million in donations over the past 10 months, setting a record for the Tiger Scholarship Fund.
Another year will have to pass before we can see the balance sheet Mizzou submits to the U.S. Department of Education. But it’s a pretty safe assumption Michael Porter Jr.’s touch will be golden.