Monday, March 28, 2016

What is Playing Big-Time College Hoops Worth to the Athlete? Surprise: $3.3 to $5.5 Million

There is a lot of talk during the NCAA tournament about college athletics. Much of it takes place without nuance and is mostly about whether or not the NCAA is the Galactic Empire, led by Darth Vader. This post avoids that important debate by getting into a bit of nuance on the economic value  to scholarship athletes of playing big-time college basketball.

How much is playing basketball at the big time schools worth to a basketball player?

To answer this question, I start with the top 16 schools in terms of NBA players on rosters in 2014-2015. Here is that list sorted by number of players, along with salary information courtesy the 2015 Sporting Intelligence Global Sports Salary Report.

Rank School  players active in NBA in 2014-2015 total 2014-2015 salaries of those players
1 Kentucky 18 $108,158,801
2 Duke 18 $60,071,427
3 Kansas 17 $46,259,689
4 North Carolina 16 $54,625,190
5 UCLA 15 $81,289,328
6 Florida 12 $74,980,341
7 Arizona 12 $58,117,537
8 UConn 9 $39,922,313
9 Michigan State 8 $30,057,811
10 Washington 8 $23,726,676
11 Texas 7 $57,054,326
12 Georgia Tech 7 $55,938,726
13 Wake Forest 6 $42,771,466
14 Georgetown 6 $35,781,077
15 Southern Cal 6 $34,662,162
16 Memphis 6 $34,134,926

Let's call these the "Sweet 16" schools. These Sweet 16 represented 171 players making a total of more than $800 million, with a yearly average of just about $5 million per player.

There are a few other numbers that we need to calculate the value of playing basketball at one of these schools.

One is the average playing career of a NBA player. In 2014-2015, the average tenure in the League for all players was 5 years. There were about 450 players in the league, which suggests a turnover of about 90 players per year.

Another number we need is the number of new players who come into the league from college via the draft (for now we'll set aside any journeymen or other former college players who come into the league from overseas or elsewhere). According to the NCAA, an average of 48 (of 60 draft spots) come from colleges each year.

How many of these come from the Sweet 16 schools listed in the table above?  Well, 171 divided by 5 (the average tenure of an NBA player) is 34. However, not all come into the NBA via the draft and it is possible that these elite players have a longer tenure than the average. So let's be conservative and say 20, which is a lot closer to what actually occurred the past few drafts (2015, 2014). 

The last number we will need is the pool from which these players come from among the Sweet 16 schools. The NCAA provides 13 scholarships per year and players are eligible for 5 years. However, they do have to play at least one year in college before going to the NBA. So let's follow John Calipari's lead and just assume that 10 players per year at each of these 16 schools are eligible to go to the NBA. That gives a total of 160 eligible players each year.

So let's now put these pieces together.

If you play at one of the Sweet 16 schools listed above, then in any given year you have a 20/160 chance of being drafted into the NBA, or a 12.5% chance. With the average NBA salary at $5 million and average player tenure of 5 years, that implies a value to the player of the opportunity to play at a Sweet 16 school of: 
  • 12.5% * $25 million = $3.3 million.
If we forget about the draft and just go with the observed presence of Sweet 16 players in the NBA (171 players total, or 34 per year), then the value of the opportunity to play at a Sweet 16 school is higher: 
  • 34/160 = 21.25% = odds of making it to the NBA from the Sweet 16 schools
  • 21.25% * $25 million salary over 5 years = $5.3 million
Bottom line: Being provided the opportunity to play basketball at one of the Sweet 16 universities with the greatest number of players in the NBA has an economic value of $3.3 million to $5.3 million.

Schools below the Sweet 16 level will have lower economic values, but they will still be significant and well above zero.

I welcome comments and critique of this analysis, as it is work in progress.

2 comments:

  1. The median NBA salary for 2015-16 was just over $2 million (http://www.basketball-reference.com/contracts/players.html), which suggests large outliers are skewing the average--in the table I cited, only 163 of the 570 players listed earn $5 million or more. The median might be a better statistic to use with this sort of approach (unless there's good reason to believe that players from these schools are more likely than others to earn above the median). The same logic regarding the influence of outliers could apply to approximating the most likely career length as well. Obviously, you could get an even more precise model by attaching different probabilities to different salary ranges and career spans, rather than using a single statistic. I think this EV approach is an interesting starting point, though.

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  2. Scott, Thanks, I agree on all points.

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