Revisiting the Superstar Externality: Lebron's 'Decision' and the Effect of Home Market Size on External Value

Open Access
Author:
Bryant, Andrew David
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Edward Coulson, Thesis Supervisor
  • David Shapiro, Honors Advisor
Keywords:
  • Economics
  • Sports Economics
  • National Basketball Association
  • NBA
  • LeBron James
  • superstar
Abstract:
The movement of superstar players in the National Basketball Association from small-market teams to big-market teams has become a prominent issue. This was evident during the recent lockout, which resulted in new league policies designed to hinder this flow of talent. The most notable example of this superstar migration was LeBron James’ move from the Cleveland Cavaliers to the Miami Heat. There has been much discussion about the impact on the two franchises directly involved in this transaction. However, the indirect impact on the other 28 teams in the league has not been discussed much. This paper attempts to examine this impact by analyzing the effect that home market size has on the superstar externality that Hausman & Leonard discovered in their 1997 paper. A road attendance model is constructed for the 2008-09 to 2011-12 seasons to compare LeBron’s “superstar effect” in Cleveland versus his effect in Miami. An increase of almost 15 percent was discovered in the LeBron superstar variable, suggesting that the move to a bigger market positively affected LeBron’s fan appeal. The results from the road attendance model were then extended to create an estimate for the monetary impact of LeBron’s move on television ratings and revenue. Both the model and estimation results reveal that it appears LeBron’s move resulted in a sizeable increase in revenue for the other 28 teams in the league. This suggests that the league policies enacted in the newest Collective Bargaining Agreement are inefficient policies that do not lead to a revenue-maximizing distribution of talent.