Returns to Popularity on NBA Contracts

Economic theory suggests that both athletes and team managers should trade off the security of a longer contract and annual salary when negotiating contracts. However, previous research on sports contract structure has established that in practice, there is generally a positive relationship between length and salary, even when controlling for performance variables. Research has attempted to solve this issue using instrumental variables with limited success. We suggest the key factor of player popularity as a potential solution for the endogeneity issue, and in the absence of suitable instruments, use the nonlinear structure of NBA contract length to identify the model. Using fan All-star votes as a proxy for popularity, we find that it is positively correlated with both length and salary and that popularity shows diminishing returns to both contract length and salary as a player increases in age.