Strategies to Raise the First Contract Price for New Unrestricted Free Agents in the NBA

Abstract

This paper analyzes how National Basketball Association (NBA) rookies should perform in their initial four seasons to maximize their fifth-season salaries. I decided to research this topic because NBA rookies are like new workers in an industry who have enormous potential to get promoted. Additionally, this paper can help me to determine what is the effect of performance on wage is for rookies. The reason to choose rookies as the sample is because the new free agent contract usually represents a significant shift in a player's career. By using the player data from the 2005-2010 NBA draft players, this paper builds a regression model to analyze how a rookie’s fifth-year salary is affected by both personal characteristics and performance during the first four seasons of his career. By constructing a wage equation model for each position, the results suggest that players in different positions can apply different strategies to maximize their fifth-season salary. Additionally, the players’ initial draft ranking is not a significant factor for their fifth season contract; however, teams do prefer younger rookies to the older ones.