The price is $123 million for seven years--call it sticker Shaq. That's what the Los Angeles Lakers will pay Shaquille O'Neal to leave the Orlando Magic and play basketball on the left coast. "I am a military child," said O'Neal, son of an Army sergeant. "I'm used to relocating." The Shaq's signing capped a frenetic week that reshaped the rosters of many National Basketball Association teams and marked a radical shift in the way team owners spend money. When the music stopped, the owners had agreed to dole out more than $600 million to try to buy themselves a championship. Or defend one: the Chicago Bulls will pay Michael Jordan $30 million for his services next year.
Can anyone be worth that much money to put a ball through a hoop? The answer is yes, at least the way economists keep score. It's a simple case of supply and demand. The inventory of 7-ft. 1-in., 300-lb. human rockslides like Shaq is not deep; you will not find one at Wal-Mart. That's why the Houston Rockets' pivotman, Hakeem Olajuwon, got a $55 million, five-year contract extension and another African-born center, Dikembe Mutombo, signed with the Atlanta Hawks for a five-year, $50 million deal. The Miami Heat is on the verge of re-signing playoff flop Alonzo Mourning for $115 million over seven years rather than lose him.
On the other hand, the supply of money provided by television networks, cable stations and ticket buyers is expanding. "Team quality generates demand, and demand determines ticket prices. The better the team, the more intense the demand for a fixed number of seats. And that's why stars are worth so much," notes economist and sports expert Roger Noll of Stanford University. Last year the N.B.A. took in some $1.4 billion, excluding licensed merchandise, and its revenues are increasing some 15% annually. N.B.A. commissioner David Stern's global strategy has helped boost demand for the game. The N.B.A. is becoming as popular in Zagreb as it is in Chicago. Here the owners are counting on a fat increase when their network contract comes due in 1998. The current one, with NBC, pays them $187.5 million a year.
More important, unlike many businesses, team owners know exactly what their costs will be over the next few years. For instance, the players get 48% of the league's basketball-related income, and each team has a salary cap of $24.3 million. (There's one exception: a team can spend any amount to keep its own free-agent players.) So a team that brings in $50 million, an average figure, has plenty of money left after labor costs. Of course, "labor costs" doesn't quite describe the exquisite athleticism of Michael Jordan sinking a fallaway jumper with defenders dangling from him like mismatched earrings.
With the stars claiming a bigger share of the salary pool, the bench sitters will be left diving for loose change. "It's a dramatic, strategic judgment by a few teams," says N.B.A. deputy commissioner Russ Granik. For instance, the Heat is about to pay $213 million to Mourning and forward Juwan Howard. That left guard Rex Chapman without a job, since, under the salary cap, the Heat didn't have enough cash left to pay him what he wanted. Says one N.B.A. executive: "They're going to end up with two players making about two-thirds of the salary cap, and another pair will make about 20%. So that means the rest of the players will be minimum-salary players that you just sign because no one else wants them." The N.B.A. minimum: $247,500, tip money if you're a star.
Granik frets that the new salary structure will erode morale. "If it becomes something that was done across the league, I don't think it would be good for the sport," he says. Don't tell that to Laker fans, who rushed the ticket windows after the O'Neal deal was announced--even though the lowest ticket prices have increased some 110%. If Shaq brings them a championship--something he never did for Orlando--the price will be more than worth it.
--Reported by Mark Thompson/Washington