When Michael Jordan, who will become a free agent on July 1, said a couple of weeks ago that he would re-sign with the Chicago Bulls only if they paid him at least $18 million for each of the next two years, the immediate reaction was that, given today's inflated salaries in sports, Jordan was selling himself short. Not as short as he has been selling himself—the $3.85 million Chicago paid Jordan for the 1995—96 season made the best player in the game only the 31st best compensated—but still short of his market value.
Jordan's salary is woefully low compared with the dollars being thrown at the NBA's wanna-be-like-Mikes. The San Antonio Spurs' David Robinson, who has been unable to get his team past the Western Conference finals, made $12.4 million this season, and his salary will rise to $17.1 million in 1999-2000. The Washington Bullets' Chris Webber, who has been injured for much of his three seasons, will average $10 million through 2000-01. Playoff flop Alonzo Mourning of the Miami Heat, who like Jordan will become a free agent on July 1, is reportedly looking to re-sign for between $13 million and $17 million a season. And the Orlando Magic's Shaquille O'Neal—he of the 10 ring-less fingers—also will become a free agent this summer and could command between $15 million and $20 million a season, which works out to about a buck per missed free throw.
Given these numbers, what is Jordan worth? "You ordinarily try to come up with some relationship between pay and performance," says Steve O'Byrne, an executive compensation expert with the Manhattan-based consulting firm Stern Stewart & Co. "But in Jordan's case, as good as his performance is, he's even better at attracting fans."
Should one calculate his worth to the Bulls on the basis of the three—probably soon to be four—championship banners hanging from the rafters of the United Center? For the fannies he puts in the seats? Or for the seats themselves, since the United Center, a huge profit center for both the Bulls and the NHL Blackhawks, would almost certainly not have been built, at the cost of $175 million, had Jordan not played in Chicago?
In 1983-84, the season before Jordan's arrival, the Bulls, playing in antiquated Chicago Stadium, averaged only 6,365 fans a game—17,273 fewer than they now attract. (The Bulls have sold out 434 consecutive games at home, a streak that goes back to November '87.) At an average ticket price of $36, times 41 home games, times 17,273, that's a cool $25.5 million in additional annual ticket revenue that Chicago can attribute largely to Jordan. Perhaps that's the number he should ask for, though it doesn't take into account the dollars he generates through increased preseason and playoff ticket sales, concessions activity, stadium advertising and the leasing of luxury skyboxes. (This season the Bulls and the Blackhawks split $24 million in revenue from the United Center boxes.) Nor does it include the growing sums paid to the Bulls for their local TV and radio rights. Nor does it factor in the appreciation in the value of the Bulls' franchise during Jordan's tenure. The club was worth $15 million when a group headed by Jerry Reinsdorf, now chairman, bought it in '85. Today, as estimated by Steven Matt, a partner in the Dallas office of the international accounting firm Arthur Andersen and a specialist in evaluating pro sports franchises, the Bulls are worth at least $200 million.
Were it allowed, which it's not, the other 28 teams in the league should chip in to help pay Jordan. Chicago has been the NBA's top road draw every season since 1990-91, except for the one-plus seasons during which Jordan was off playing minor league baseball. Perhaps NBC and Turner Sports, which televise the NBA nationally, should kick in some dough too. The five highest-rated regular-season pro basketball games on television this year all involved the Bulls. How about the league itself? The NBA sold more than $3 billion in merchandise in 1994-95, with Chicago stuff leading the way. And although the league refuses to say how much of the Bulls' merchandise is Jordan-related, it seems safe to assume that much of it is. The profits from those sales are divided among the 29 teams and the National Basketball Players Association, and thus only indirectly does any of that money trickle down to Jordan. And the Players Association itself should kick a little something extra Jordan's way, since the league's total revenues, which include merchandise sales, TV income and gate receipts, are used to determine the NBA salary cap. By boosting league revenues, Jordan has increased the salary pool for other players.
Says USC finance professor and compensation expert Kevin Murphy, "Eighteen million dollars a year sounds to me like a bargain. You have to determine whether Jordan improves the revenues of the Bulls by more than $18 million a year. I don't think there's any doubt about that."
Actually, in the context of the next couple of seasons, there is some doubt about that, according to Bulls season-ticket holder and University of Chicago sports economist Allen Sanderson. "Seen from Jerry Reinsdorf's narrow perspective, when he asks himself, 'Can Michael Jordan add to my revenue stream next year?' the answer is no," Sanderson says. "All the seats in the United Center are already sold, and for anyone who cancels his season tickets, there are 18,000 more names on the waiting list. The skyboxes are all leased at least until the year 1999. The local television contracts are in place. So Reinsdorf has already sewed up most of the money he can earn from Jordan over the next two years. It would be different if Jordan were 22 years old. [He is 33.] As it is, by the time the Bulls' TV contracts are due to be renegotiated and the skyboxes are up for renewal, Jordan will be gone whether he signs again with Chicago or not."
The only incentive Reinsdorf has for signing Jordan—besides wanting to win another championship or two—is to avoid being forever vilified in the Windy City as the cheapskate who let the greatest player in basketball history get away. That's a pretty good incentive. "Clearly Jordan's been the most underpaid athlete in all professional sports," says Matt. "At this point Reinsdorf can justify paying him just about anything and tell his partners it's for past services. It's a no-brainer. The Bulls decline in value a minimum of $15 million the day Jordan leaves. A minimum." So how much would Matt advise Reinsdorf to pay? "What's fair and reasonable would be to make him the highest paid player in the game," Matt answers.
Sure, but by how much? The addition of Jordan would not only make any NBA team an immediate winner but would also guarantee that team a season of sellouts. "If no salary cap existed and there were no rules against player-owners, I guess we'd rename our team the Jordanaires and make him owner, general manager, coach and whatever else he'd want," says Pete Babcock, the general manager of the Atlanta Hawks. "It's almost impossible to put a dollar amount on Michael's worth."