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The Economics of Michael Jordan

The Economics of Michael Jordan

On this day in 1990, Michael Jordan, the greatest basketball player in my humble opinion, scored his career high of 69 points against the Cleveland Cavaliers.

And the reason that Michael Jordan is the probably for me the best basketball player, or really the best athlete of his time, is that his brand is powerful and pervasive, and some economists have called this the Michael Jordan Effect.

Michael Jeffrey Jordan was born in February 17, 1963, won six NBA championships, and was named MVP six times.  Not only is he an excellent athlete, but he’s also a savvy businessman as well.  Moreover, Michael Jordan is not just a person, but a brand that is recognized all over.  His marketing value far exceeds his earnings as a basketball player.

Sonny Vaccaro, the former Nike consultant who was played by Matt Damon in the movie Air, was the only one who saw Michael Jordan’s immense market value even before he was a drafted as a professional basketball player.  It was a gamble based on a gut feeling, and one that clearly paid off for Nike and Jordan.

Sonny Vaccaro (left) was played by Matt Damon (right) as the Nike consultant that went against the odds to follow his gut feeling about Michael Jordan.  Obviously, this partnership has paid off handsomely over the decades.

In a report written in 1998, Michael Jordan’s impact to the economy was $10 billion.  Majority of this impact is not from playing basketball but from endorsements and trickle down effects of his brand name.  Fortune estimated that the Jordan product line was worth $5.2 billion to sneaker and sports apparel manufacturer Nike.  Other products that he has endorsed also increased by $408 million.  The National Basketball League (NBA) also saw increased sales in licensed apparel since Jordan joined the NBA in 1984.

What is also incredible with Michael Jordan’s market value is his substantial positive effect on the revenues of other teams in the NBA.  According to a study, Jerry Hausman and Gregory Leonard in 1997, “Jordan can generate $50 million per year in an externality (positive) that flows to other NBA teams.  This positive effect comes from the shared national TV revenues among teams without adjusting that some teams draw more viewers and hence increased overall viewership.  This is what they call the superstar effect on the NBA.

Larry Bird, Magic Johnson and Michael Jordan all had the superstar effect on the league.

This superstar effect causes a positive externality, which in economics means the unintended benefit of an activity.  In this case, Michael Jordan’s stellar performance in each basketball game draws his fans (or otherwise) to each game just to witness his greatness!

I also think that his positive externality also extends to his endorsements and many other athletes have greatly benefited from it.  Scratch that—many other athletes have benefited from Deloris Jordan’s negotiating skills.  Watch the first few seconds, or more….

In this clip from the movie, MJ’s mom, Deloris Jordan (played by Viola Davis), asks for a percentage of each shoe sold, a practice that was completely unheard of between athletes and apparel manufacturers at that time.    Considering that 58% of all basketball shoes bought in the United States and 77% of all kids’ basketball shoes are Air Jordans, the calculations amount to a staggering amount. But the benefits do not stop at MJ’s bank account, the positive externalities extended to all athletes whose endorsements are used to sell shoes from various manufacturers such as Adidas, Reebok, etc.  In Vaccaro’s words, “…Michael, opened every marketing dollar in the world for every future athlete.”

The Gist…

  • Jordan has an immense impact on the economy, nearly $10 billion

  • Jordan generates $50 million in positive externalities, which come from shared national TV revenues

  • Deloris Jordan revolutionized shoe deals with her proposal of receiving a percentage of each shoe sold, a proposal that paid off handsomely for the Jordans.

  • Jordan’s positive externalities extended not only through more common mediums such as viewership, ticket sales, local economies, etc., but through subsequent endorsements that other athletes undertook after his deal with Nike.

Image and Video Sources:

John W. McDonough/Sports Illustrated

YouTube:  Raw Film Basketball (Michael Jordan Highlights - 69 Points - 1990 vs Cavaliers)

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