The Slam Dunk Economics of Michael Jordan
By Matt Katka
Michael Jordan's stature as the greatest basketball player to ever live created a butterfly effect of positive externalities that stimulated the world economy and the economy of Chicago by at least 10 billion dollars in the 9 years from his being drafted in 1984 to his first retirement in 1993; this establishes him as the most economically influential athlete in history. John Skorburg, chief economist for the Chicagoland Chamber of Commerce was quoted saying "If Michael Jordan were a corporation, he would be in the Fortune 500 he is the 1 billion dollar man. That's what we estimate his worth is to the Chicagoland economy: 1 billion dollars." To understand why Jordan's influence on Chicago was so vast, his influence on the Bulls and the commercial sporting goods industry must first be established.
In Jordans' 1984 rookie season, the value of the Bulls went from $18.7 million to $190 million which represents a turn on investment of %1000 for its owners. Adjusted for inflation this feat hasn’t been replicated by any NBA rookie since, including Shaquille O'Neal, Lebron James, and Kobe Bryant. To provide a sense of scale FormSwift conducted a study regarding LeBron James’ contract with the Los Angeles Lakers estimating a benefit in positive externalities for the city totaling 3000 jobs, $29 million in state tax revenue, and $396 million total, over the length of five years. Now consider that Michael Jordan was paid ten times more than LeBron in annual salary at the height of his career.
Jordans Bulls career spanned from 1984 to 1998. Notice how the apex of NBA viewership was in this period, additionally, he had a one-year hiatus in 1994 where NBA viewership was at its lowest over this period. Furthermore the peak of NBA viewership all time was during the Last Dance which was Jordan's final year with the Bulls and his 6th championship in 1998. (This is the same Last Dance as the epic/best sports documentary ever made on NetFlix right now.)
Furthermore, the majority of his marginal social and external benefit to Chicago was a product of his endorsements within the city for example the $150 million generated in tourism from consumers out of state wanting to get a glimpse of the stardom, the revenues earned by local TV stations and agencies, he has his own restaurant, souvenir vendors, local businesses selling Jordan jerseys and shoes. Outside the city and even outside the country Michael Jordan had billion-dollar deals with brands like Nike, Gatorade, Warner Brothers, and now NetFlix.
Jordan endorsed practically everything. His influence was as boundless as his vertical jump.
In 1993 Robert Dederick, chief economist for the Northern Trust Co. had this to say regarding Jordan's retirement "Michael Jordan has been a kind of one-man export industry for this region, but Chicago is a pretty big economy, and it's big enough to survive this event. We have survived much worse economic downturns." A thirty-year-old man stopped playing basketball for a year and people react as if a billion dollar corporation collapses. It’s all because of the butterfly effect his externalities create; a talented athlete creates TV viewership which stimulates tourism which generates job growth and increases the GDP of a city which increases the purchasing power of consumers which increases the market equilibrium within the cities economy. Forbes Magazine dubs this “the Jordan Effect.” Jordan made evident the influence and significance that sports have on the economy and communities of cities in the US. Despite this many US citizens express disdain for state and municipal governments for spending tax dollars on sports stadiums but frankly if there was a voluntary tax to promote Wisconsin Sports teams I would pay that tax. Even if I didn’t like NBA basketball the implicit benefits far outweigh the explicit costs of funding sports. Even now this “Jordan effect” is in play as economists and Bucks fans in Wisconsin and Milwaukee brace for the current best player Giannis Antetokounmpo's exit from the bucks. Michael Jordan's unchallenged stature as the greatest NBA player to ever live makes evident the significance of NBA basketball and mainstream sports.
Works Cited
Forbes, Forbes Magazine, www.forbes.com/#30f0a49d2254.
HoopsHype. “The Highest Salaries in NBA History (Adjusted to Inflation).” HoopsHype, HoopsHype, 28 July 2018, hoopshype.com/2016/01/30/the-highest-salaries-in-nba-history-adjusted-to-inflation/.
Reiff, Nathan. “How The NBA Makes Money: The Second-Largest Sport in the Country.” Investopedia, Investopedia, 18 Sept. 2020, www.investopedia.com/articles/personal-finance/071415/how-nba-makes-money.asp#:~:text=Key Takeaways,about $8.76 billion in revenue.
Yates, Ronald E., and Nancy Ryan. “Chicago's Economy Could Take a Hit after Michael Jordan Retires.” Chicagotribune.com, Chicago Tribune, 9 May 2020, www.chicagotribune.com/sports/bulls/ct-michael-jordan-retirement-economy-20200509-svxt55oz4rgzpce2djkraqv7qy-story.html.
Wow, this is really interesting. I know baskletball players must get payed a lot for being professionals in their field and all that, but this is fascinating to look at how their performance can actually make their team and themselves more profitable. What I found shocking was that not only did Michael Jordan actually increase the profit of his team, but also helped boost the economy of Chicago as well, with brand deals and all that. I know celebrities usually use brand deals to increase their profitability, like Travis Scott and his deals with Resees' Puffs and McDonalds, and I wodner how that might affect the economy of both the company and his hometown, like it did with Michael Jordan. Anyway, this was really cool topic, and I want to learn more about how celebrities could influence their economy, along with improving GDP for their city.
ReplyDeleteVery interesting topic, Matt. It's pretty incredible that a single person can affect the economy to that extent. The graph, I found very interesting because it expressed how important Michael Jordan was, as observed between 1998 and '99. If I were to argue whether a professional athlete or celebrity brought more positive or negative externalities, I think it would be fair to say mostly positive. Although once a professional athlete or celebrity retires, pretty much all of the marketing and use of the person as a marketing tool ceases, bringing everything down with them. Although the revenue stops flowing, there was so much revenue accumulated during their career that it's still overall positive.
ReplyDeleteIt is crazy how one person can have such a big impact on something. When someone is considered as legendary as Michael Jordan though it makes sense that he can have that impact. He changed the entire landscape of the NBA and the sport in general. It also helped that he was drafted to such a big market team in a big city. If he was drafted to a smaller team with a lesser fanbase his impact could have been much different. For example a team like Milwaukee, he might not have had the same level of success and in a smaller city that attracts less fans his impact could have been different than we know it today.
ReplyDeleteThis is a very interesting topic, and I'm astonished that a single man has such a significant effect on the economy. I like your explanation of the butterfly effect with examples, since it really puts into perspective how important he is and what he means to our society. It's also interesting that if he were a corporation, he would be worth more than many other businesses--and that's just a single man alone. It makes you wonder how his fame came to be, and why he earns so much more money than other athletes with similar skill.
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