A New Framework to Estimate Return on Investment for Player Salaries in the National Basketball Association

TL;DR

This paper introduces a novel framework to estimate the return on investment for NBA player salaries by combining a new game contribution metric with a standard ROI calculation, enabling better evaluation of player value.

Contribution

The paper presents the first comprehensive framework for calculating ROI of NBA player contracts using a new game contribution percentage and a systematic valuation approach.

Findings

Developed a new game contribution percentage (GCP) metric.

Created a dataset of GCP and salaries for 2022-2023 NBA season.

Illustrated ROI analysis with top and bottom performers.

Abstract

The National Basketball Association (NBA) imposes a player salary cap. It is therefore useful to develop tools to measure the relative realized return of a player's salary given their on court performance. Very few such studies exist, however. We thus present the first known framework to estimate a return on investment (ROI) for NBA player contracts. The framework operates in five parts: (1) decide on a measurement time horizon, such as the standard 82-game NBA regular season; (2) calculate the novel game contribution percentage (GCP) measure we propose, which is a single game summary statistic that sums to unity for each competing team and is comprised of traditional, playtype, hustle, box outs, defensive, tracking, and rebounding per game NBA statistics; (3) estimate the single game value (SGV) of each regular season NBA game using a standard currency conversion calculation; (4) multiply the SGV by the vector of realized GCPs to obtain a series of realized per-player single season cash flows; and (5) use the player salary as an initial investment to perform the traditional ROI calculation. We illustrate our framework by compiling a novel, sharable dataset of per game GCP statistics and salaries for the 2022-2023 NBA regular season. A scatter plot of ROI by salary for all players is presented, including the top and bottom 50 performers. Notably, missed games are treated as defaults because GCP is a per game metric. This allows for break-even calculations between high-performing players with frequent missed games and average performers with few missed games, which we demonstrate with a comparison of the 2023 NBA regular seasons of Anthony Davis and Brook Lopez. We conclude by suggesting uses of our framework, discussing its flexibility through customization, and outlining potential future improvements.