The night Michael Jordan accepted his fourth MVP trophy in a pre-game ceremony, the night he scored 25 second-half points to make the Orlando Magic’s 18-point lead disappear, the night the crowd chanted, “MVP, MVP, MVP,” as Jordan sank four free throws in the last 20 seconds, a fan was pictured on television holding up this sign:
M = Michael’s
V = Value
P = Priceless
Although Jordan said last week that he would settle for $18 million a year, economists tend to side with the fan’s sign. One even likens Jordan to men who can deliver world peace or spiritual fulfillment.
“Probably Michael Jordan, Bill Clinton and the pope have salaries that least resemble what they’re worth,” said Allen Sanderson, an economics professor at the University of Chicago.
“Priceless,” the word that even NBA Commissioner David Stern applies to Jordan, is a fine compliment but a frightful commencement to negotiations. Jerry Reinsdorf, the Chicago Bulls chairman, cannot afford priceless. His checkbook does not string zeros to the stars. So when this season ends and negotiations begin on a new contract for basketball’s best player-ambassador-rainmaker, Reinsdorf’s task will be this:
Assign a value to a man considered invaluable.
Heaven help him because economists almost certainly cannot. Neither can experts from other fields–for example, auction houses and insurance companies–that encounter the task of pricing the priceless, be it a painting by Picasso or Elizabeth Taylor’s eyes.
Of course, those in the business of assigning value to rare or unique items generally object to the use of words like invaluable or priceless.
“The only things that are priceless are people and emotions,” said Leslie Hindman, whose Chicago auction house is the Midwest’s largest.
If you want to know an item’s value, she said, “you put it up for sale at public auction. The definition of fair market value is what a willing buyer and a willing seller would (agree on), neither under any compulsion to buy or sell.”
That applies no less to Van Gogh’s “Portrait of Dr. Gachet,” which went for $82.5 million, than the Steiff teddy bear that went for $177,000 or the Pez candy dispenser that went for $1,500. All were items auctioned off in recent years.
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In estimating the value of unusual items, appraisers for the auction houses consider what similar items have cost–for example, other paintings by the same artist. Sometimes the job is made easier by having a prior sales price to use for reference.
Stephen Massey, senior vice president of the rare books and manuscripts department for Christie’s in New York, said that when the auction house put the Louisiana Purchase document on the block earlier this year, appraisers were helped by the fact that the 1803 papers had exchanged hands two decades before for more than a quarter million.
Estimates, though, can be wildly off. At Sotheby’s recent auction of the Jacqueline Kennedy Onassis estate, the desk on which John F. Kennedy signed the Nuclear Test Ban Treaty of 1963 fetched $1.43 million–48 times more than appraisers had estimated.
Like auction houses, insurance companies have little hesitation in assigning a value to the precious.
“When you have something that is unique or priceless, you would assign a value to it by determining what somebody would normally pay to recover it. In other words, ransom,” said Nick Doak, a spokesman for Lloyd’s of London.
Over the years, Lloyd’s has insured everything from Betty Grable’s legs to Bruce Springsteen’s voice.
Springsteen’s vocal chords were relatively easy, Doak said. Rather than employ the ransom theory–what would the Boss pay to have his voice back?–Lloyd’s computed how much money Springsteen, promoters and others would lose if his voice failed while on tour.
For one tour at least, the answer was $5.5 million.
Asked if Lloyd’s had ever been approached about insuring Michael Jordan, Doak answered with a question most Chicagoans would have difficulty believing.
“Who is Michael Jordan?” Doak asked.
A basketball player, he is told. The basketball player.
“Oh, yes,” Doak said. “That fellow.”
On this side of the Atlantic, few people ask who Michael Jordan is.
Jordan is the inverse of the sports-bar lament about the shortstop who hits .242 and gets paid $3 million per. Fans don’t think Jordan is paid too much. They say he’s paid too little–and has been for years.
He has brought Chicago three championships, burnished the city’s image worldwide and made it rain money on the city’s economy. Given that, the $18-million-a-year figure being kicked about last week seems a bargain, and his $3.8 million salary this year seems a steal.
A $20 million salary would put Jordan in the ballpark of the chief executives at U.S. Robotics ($18.6 million) and General Electric ($22.1 million), not to mention the New York Knicks’ Patrick Ewing ($18.7 million). It would equal what Jim Carrey and Sylvester Stallone make per movie, but would fall $10 million short of what Mike Tyson earned for his three-round knockout of Frank Bruno in March.
For two centuries, modern value theorists have debated whether an item’s value is determined by cost of production or utility–only to decide it’s really both and more. If economists struggle so mightily to decide how much a slice of bread is worth, what of Michael Jordan?
Wage theories have been debated just as strenuously. Even so, for most workers these days, setting salaries isn’t tricky.
For many, it’s enclosed within the range of a job classification. For the 10 percent or so earning minimum wage, it’s whatever Congress says it is. For the 15 percent in unions, it’s whatever the union and employer negotiates. For personal-injury lawyers, it’s a percentage of settlements or verdicts. For chief executive officers, it’s often linked to the company’s stock price.
But Jordan doesn’t fit any of those categories. And according to economists, using almost any analysis to determine an appropriate salary for Jordan can be slippery.
Bobby Calder, a marketing professor at Northwestern University’s Kellogg Graduate School of Management, said the most common method for setting salaries is comparable worth. What is the person making who does the same job for the competition?
But with Jordan, that doesn’t compute. He has no peer on the basketball court, and he has no peer off the basketball court. And with Jordan, any assessment of value should include both kinds of contributions.
Another possibility would be to think of Jordan in terms of replacement cost.
“Suppose you set out to create Michael Jordan,” Calder said. “What would you have to invest to do that?”
Reminiscent of Olympic training programs in certain countries, youths with any kind of athletic promise could be groomed in hopes of finding another Jordan. But the end result would have to include not only Jordan’s basketball skills, but also his charisma and character.
“The answer is that you would probably fail,” Calder said. “You would spend hundreds of millions of dollars and still fail.”
What about consumer satisfaction? Many businesses now hook employee salaries to surveys showing how pleased their customers are with the product.
“Imagine you did that with Michael Jordan,” Calder said. “Again, you’re off the charts. All roads lead back to the same place. He transcends any kind of economic analysis.”
Further complicating the Jordan scenario is the question of what Reinsdorf will be paying for. After Jordan told the Tribune last week that he would settle for $18 million for each of two years, his agent, David Falk, suggested that $18 million is not nearly high enough.
The offer, Falk said, should reflect Jordan’s contribution to the team and city for the past 12 years.
That could be a problem. Three years ago, shortly before Jordan left basketball to take a go at baseball, the chief economist for the Chicagoland Chamber of Commerce estimated Jordan’s worth to the region’s economy to be $1 billion.
Jordan pumps money into the economy in ways that range from the hiring of additional ushers at the sold-out United Center to contracts landed by local advertising agencies that have landed accounts for products Jordan endorses.
Since Jordan is a free agent after this season, it might be tempting to say his value is whatever the highest bidder bids, just like at auction. But in this case, the auction would be rigged by the NBA’s salary rules.
The league’s salary cap next year is projected to be $24.3 million. That would mean the most another team could pay Jordan would be $21,825,000, assuming each of the other 11 players made the minimum salary of $225,000–an assumption that is wildly unrealistic, to say the least.
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The only team that can pay Jordan any amount above the cap is the Bulls, since he is their own free agent. But talking strictly economics, Jordan is worth more to the league as a whole than he is to the Bulls.
“If Reinsdorf has all of his luxury boxes sold and tickets sold, then Jordan’s not worth very much to him,” Sanderson, the U. of C. professor, noted of the situation’s most crass economics. “Did Reinsdorf take a financial bath when Jordan went to baseball? I suspect not.”
The entire league benefits from Jordan’s presence because network television and merchandising revenue is split equally among all 29 teams, and also because attendance rises wherever he plays. All three factors are more valuable if Jordan sticks around.
The individual player, though, has no way to make money from all of those teams. Sanderson expects that Jordan will attempt to pinpoint his value to the league, which no single owner could afford, then compromise downward.
In effect, Jordan’s salary will be something above his value to the Bulls and something below his value to the league. It will be something that allows him to continue making outside endorsement money–there is no Nike money without the NBA money–and something the public thinks is fair.
“A few smart people sitting in a room will do this, and they will come to a number that they know is an artificial place and that they all can live with,” Sanderson said.
In the end, then, Jordan’s salary may be less a reflection of his worth than a number that will let everyone be happy and go on making money.
Besides giving economists fits, Jordan also puts the lie to poetry.
W.H. Auden once wrote:
Let us honor if we can
The vertical man
Though we value none
But the horizontal one.
With all due respect to Auden, Michael Jordan is the vertical man–and is he ever valued.
The only question is how much.