Leveling the playing field: The distributional impact of maximum‐ and minimum‐level contracts on player compensation

Abstract

AbstractHow does the presence of maximum‐ and minimum‐level contract restrictions impact (i) superstar compensation and (ii) the distribution of compensation across an industry? Using ticket price and observed player talent data from the National Basketball Association (NBA), I estimate expected salaries for each player as well as their value to the NBA as a whole. I find the ratio of actual to expected salary is 2.8%–56.9% for the most talented players, resulting in subsidization to less talented players. The findings also suggest the most talented players generate significantly more value to the NBA than their actual and expected salaries.