THE UNIVERSITY OF IOWA

HIRING DISCRIMINATION AT THE NBA GENERAL MANAGER POSITION

AN EMPIRICAL ANALYSIS
Ryan Volk 5/9/2012

Recent racial discrimination studies of the NBA have resulted in mixed outcomes. This paper will look at discrimination in the hiring of general managers using data from the 2001-2002 to 20102011 seasons. Convincing evidence for hiring discrimination could not be found. Rather, this paper questions the relationship of black general managers with players predominately white agents and concludes that further study should be performed in that area.

Introduction Early research on racial discrimination in sports has focused primarily on players since they provide a generally reliable, measurable output in the form of performance. More recently, research has also expanded to coaches as the sample of minority coaches has grown to a level that makes statistical testing relevant. However, one of the most important positions in sports is the general manager position, which has been widely ignored. Commonly, the general manager of a professional sports team is responsible for signing, trading, and drafting players, as well as hiring coaching staff. Forbes says The general manager is the most influential and scrutinized position in sports because he decides how the owner's money is spent on players.1 The National Basketball Association (NBA) has earned a reputation as having a racial and gender diverse office and executive staff. The UCF College of Business Administration The Institute for Diversity and Ethics in Sport (TIDES) publishes an annual Racial and Gender Report Card, giving grades to the various U.S. sports leagues. TIDES gave the NBA an A+ for racial diversity for the 2010-11 season.2 Richard Lapchick, director of TIDES and primary author of the report, said, Throughout the history of the Racial and Gender Report Card, the NBA has consistently been the leader on diversity issues in sport... Thirty-six percent of the professional positions in the League Office are held by people of color while women held 42 percent of the professional positions. Thirty-three percent of the coaches and 26 percent of the GMs are people of color. All these categories are higher than in any other mens professional league. Specifically at the general manager position, the NBA received an A grade for racial diversity. Comparatively, in TIDES most recent reports, the NFL and MLB received a B/B+ and

1 2

http://www.forbes.com/2007/03/02/sports-greatest-gms-biz-cz_jg_0302gms.html http://www.tidesport.org/RGRC/2011/2011_NBA_RGRC_FINAL%20FINAL.pdf

C, respectively. The NBA is able to offer more observations of black general managers than these other leagues, resulting in stronger statistical integrity within this paper. TIDES determination of grades is based on percentages and not any statistical analysis. This paper will attempt to draw a conclusion as to whether there is evidence for discrimination at the general manager position in the NBA based on regression analysis. This paper will also outline how black general managers in the NBA structure their team differently than white general managers, and bring forth a question regarding the relationship between players agents and team general managers. Literature Review There have been several papers monitoring racial discrimination of NBA players in the form of wages. Kahn and Sherer (1988) found a salary deficit of approximately 20% for black players when compared with similarly skilled white players during the 1985-86 season. Brown et al. (1991) and Koch and Vander Hill (1988) examined the 1984-85 seasons and found a wage gap of approximately 16% and 9%, respectively. However, Bodvarsson and Brastow (1999) claimed that the wage gap disappeared between the time period of the previous studies and the 1990-91 season due to institutional changes in the NBA. These changes resulted in increased mobility and reduced monopsony power that teams had over young players. Additionally, four new franchises entered the league between those time periods, resulting in increased competition among teams. Bodvarsson and Brastow concluded that at least part of the wage gap had been a result of racial discrimination by white team owners and managers, which contrasts with earlier studies that claimed the primary source of discrimination was from customers rather than management.

Furthermore, Price and Wolfers (2010) found taste-based discrimination in the officiating of NBA referees. They found that more fouls are called against players when they are officiated by an opposite-race officiating crew. They also found that the difference in foul calls is large enough that it affects players statistical averages as well as team winning probabilities. Previous research regarding wage differences used observable player statistics as an indicator for wage discrimination. Considering that a majority of NBA players are black and around two-thirds of referees are white, previous research may be skewed by biased refereeing in a way that underestimated wage discrimination against blacks. Finally, there have been recent studies on discrimination in the NBA at the head coach position. Kahn (2006) found no racial differences in entry, pay, or retention probability after controlling for payroll and team quality. Fort, Lee and Berri (2008) further this conclusion by creating an enhanced model that controlled for the talents of individual players. They determined that coaches are fired or retained based on their efficiency and there was no detectable racebased difference in this efficiency. Conclusions regarding discrimination at different levels of the NBA have been mixed. This paper will attempt to test for discrimination in the hiring practices of NBA franchises when hiring a team general manager. This paper will use a method similar to Szymanski (2000), which tested for player discrimination in English professional soccer. After controlling for a teams wage bill, Szymanski compared the proportion of black players on each team to that teams league performance. If there was no discrimination, we would expect that the proportion of black players would not significantly correlate with performance, as teams would spend equally for black and white players of equal talent. However, Szymanski found the proportion of a team that is black is positively correlated with team performance. This correlation implies that black

players are receiving a lower wage for their talents. This method has the advantage of ignoring factors relating to player productivity and simply assuming that there is an efficient market for talent. Rather than looking at racial composition of teams, this paper will examine whether the general manager being black affects a teams performance, measured by the number of regular season games won by a team. Description of Method and Data This paper will attempt to detect discrimination in the hiring of black general managers in the NBA by measuring the performance of NBA general managers and testing the significance of race on performance. Discrimination implies that if candidates are otherwise equal in ability, black candidates would be passed over for white candidates. This barrier to entry for black general managers would result in the average performance of black general managers being superior to white general managers after controlling for independent variables. To measure performance we will use a regression in which team wins in a season is the dependent variable. Independent variables for each team in each season include team salary (Salary), team market size (Market), number of games that players missed for any reason (Injury), how many years the general manager has held his position (Years), whether the general manager is formerly an NBA player (Player), and whether the general manager is black (Minority). Total salary is based on the total amount of salary owed to players on each team for each season. Due to the complications of the NBA salary cap and luxury tax, the total salaries paid to players may underestimate the amount paid by teams above the luxury tax threshold. However, total salaries paid are still relatively representative of team spending as all teams face the same penalties for spending over the luxury tax. Total salary is normalized as a ratio, computed by

averaging team salaries for a given season, and dividing each individual team salary for that season by the league-wide average team salary for that season. For example, if in Season X, team Y spends $75 million when league average for Season X was $50 million, team Y will have a total salary ratio of 1.5 for season X. This was done to normalize salaries across the observed period since, as a general trend, team salaries increased year by year. Injury is used as a blanket term for games missed due to injury, illness, suspension, leave of absence, etc. The final value of the injury component is found by taking the square root of the sum of the number of games missed by each player on given a team. A concave function is used since, presumably, the more games missed by particular players, the more a team adapts to playing without that player. The square root function provided the strongest correlation with performance among simple concave functions. Market size is measured as the surrounding metro population in millions. Whether a general manager has NBA playing experience may affect performance, and it is included it as a binary input. 1 denotes NBA playing experience and 0 denotes none. Whether or not the general manager is black was also input in a binary format. For a black general manager, the minority value is 1. For a white general manager, the minority value is 0.

Wins = 0 + 1 * Salary + 2 * Market + 3 * Years+ 4 * Player + 5 * Injury + 6 * Minority

We would anticipate that 1 is positive since teams that spend more money for players are likely to have better players. We would anticipate that 1 is positively correlated with 2, since a larger market is more likely to bring in more revenue for a good team, making them more willing to spend the money necessary for a good team. We would anticipate that 2 is either insignificant

or positive assuming that given equal salary offers, a player may be more likely to sign with a larger market team for the increased endorsement opportunities. The general assumption is that 3 would be positive, as more experienced general managers may be able to utilize their experience during any decisions they make. Whether 4 should have a positive or negative coefficient is uncertain. Having played in the NBA may mean a general manager is better at evaluating talent, or determining team chemistry when putting together a squad. However, a general manager without NBA playing experience may mean he has more business savvy and be able to sign players at a discount. We would anticipate that 5 is negative. When a player is injured, he is typically replaced by a lower quality player, resulting in lower team performance. 6 is the variable that would provide evidence of discrimination for or against black applicants. If 6 is positive and statistically significant then we would conclude that black general managers outperform white general managers after controlling for other independent variables. Thus, there may be barriers to entry for blacks at the general manager position that results in black candidates being passed over for white candidates of equal or lesser ability. If 6 is negative and statistically significant after controlling for other variables, we would conclude that black general managers perform worse than white general managers. Thus, there could be incentives for owners to hire blacks over similarly able or more able white applicants. If 6 is not statistically significant, we cannot reject the null hypothesis that there is no racial discrimination in the hiring of NBA general managers. Data on NBA team salaries was obtained from USA Today3, which lists team salaries every year starting with the 2001-2002 season. The number of wins and playoff results for each team in each season was obtained using basketball-reference.com4. Basketball-reference.com and

3 4

http://content.usatoday.com/sportsdata/basketball/nba/salaries/team http://www.basketball-reference.com/

Google Images were used to collect race and playing experience data on general managers. Injury data was obtained from BrewHoop.5 For market size, Forbes NBA team valuations definition of metro population6 was used. The unit of observation is the general manager of NBA teams by year. There are 297 observations from the 2001-2002 to 2010-2011 NBA seasons. Of the 297 observations, 54 are of black general managers. Data from the 2001-2002 to 2010-2011 seasons is used because that is the timeframe in which USA Today has reported team salaries. An attempt could have been made to obtain data from previous seasons, using other sources for team salaries. However, this paper uses the same source for all salaries in order to avoid any inconsistencies in salary calculations that may result from midseason trades, released players, or players that were brought up from or sent down to the NBDL, the equivalent of the minor leagues for the NBA.

Descriptive statistics of variables: Numerical Variables Wins Sqrt Injury Market Size (Millions) Year at Position Salary Ratios Total Salary Ratio Average Salary Ratio Median Salary Ratio Standard Deviation Ratio Binary Variables Former NBA Player Minority Former NBA Player and Minority Results N 297 297 297 297 297 297 297 297 297 297 297 Mean 41 8.499 5.391 5.135 1 1 1 1 Yes 149 54 42 Std Dev 12.22 2.648 4.770 4.341 .211 .2276 .3937 .2970 No 148 243 255 Min 12 2.236 1.1 1 .3163 .2623 .2634 .2363 Q1 33 6.671 2.1 2 .8858 .8575 .7191 .8076 Median 42 8.185 4.4 4 .9881 .9809 .9642 .9675 Q3 50 10.173 5.9 7 1.0917 1.1272 1.2182 1.1899 Max 67 16.340 19.1 23 1.7766 2.0842 2.3757 1.9540

5 6

http://www.brewhoop.com/2011/7/21/2180038/comparing-the-bucks-injuries-to-a-decades-worth-of-data http://www.forbes.com/nba-valuations/

Regression 1: Wins vs. independent variables Predictor Constant Total Salary Ratio Market Size Year at position NBA Player Sqrt Injury Minority R-Sq = 30.0% Coef 37.505 (0) 20.018 (1) -0.3227 (2) 0.0832 (3) 1.646 (4) -1.8484 (5) -2.290 (6) SE Coef 3.600 2.915 0.1296 0.1419 1.249 0.2307 1.638 T 10.42 6.87 -2.49 0.59 1.32 -8.01 -1.40 P 0.000 0.000 0.013 0.558 0.188 0.000 0.163

** **

**

Salary Ratio vs. Market Size Predictor Constant Market Size R-Sq = 2.6% Coef SE Coef 0.95843 0.01972 0.007710 0.002742 T 48.59 2.81 P 0.000 0.005

**

As predicted, 1 is positive and is strongly correlated with wins and 5 shows a strong negative correlation with wins. Unexpectedly, 2 is negative and significant. Market Size and Salary Ratio are also positively correlated, though not as much as may be expected. A population difference of 1 million predicts a spending difference of 0.7% of the league average for that season. In regression 1, the p-value for minority is not statistically significant. However, it is relatively close to being so. However, when average wins by each team are predicted based strictly on average total salary ratio over the 2001-2002 to 2010-2011 seasons, there are two clear outliers. The San Antonio Spurs (SAS) grossly outperformed expectation based simply on their team salary, and the New York Knicks (NYK) severely underperformed expectations based on their team salary.

Regression 2: Wins vs. independent variables (SAS and NYK removed) Predictor Constant Total Salary Ratio Market Size Year at Position NBA Player Sqrt Injury Minority R-Sq = 34.1% Coef 27.118 26.826 0.0845 -0.0421 1.870 -1.6316 -0.560 SECoef 3.884 3.112 0.1461 0.1392 1.232 0.2287 1.628 T 6.98 8.62 0.58 -0.30 1.52 -7.13 -0.34 P 0.000 0.000 0.563 0.762 0.130 0.000 0.731

**

**

Removing SAS and NYK, reduces sample size from 297, to 277, and reduces black general manager observations from 54 to 50. However, the samples of SAS and NYK skewed Regression 1 results. This is evident in the change of the Market Size coefficient, which becomes statistically insignificant. Regression 2 displays no evidence of discrimination in the hiring of black general managers in the NBA.

While there may not be evidence for racial discrimination in the hiring of general managers, further investigation of player salaries shows there are differences in the way black general managers structure their team. Regressions 3 and 4 show the effects of independent variables on the standard deviation of player salaries and the median salary for a team. Similar to Total Salary Ratio, Standard Deviation Ratio and a Median Salary Ratio are both ratios of the average for each variable in each season, with 1 being the average for each variable in each season.

Regression 3: Standard Deviation ratio vs. independent variables

Predictor Constant Minority Total Salary Ratio Market Size NBA Player Year at Position R-Sq=47.9%

Coef 0.04341 -0.10358 0.91270 0.004529 0.00928 0.005768

SECoef 0.06466 0.03429 0.06101 0.002710 0.02614 0.002929

T 0.67 -3.02 14.96 1.67 0.36 1.97

P 0.503 0.003 0.000 0.096 0.723 0.050

** ** * **

Regression 4: Median Salary ratio vs. independent variables Predictor Constant Minority Total Salary Ratio Market Size NBA Player Year at Position R-Sq=35.3% Coef -0.11487 0.12579 1.08122 -0.000634 0.08300 -0.006276 SECoef 0.09552 0.05065 0.09012 0.004004 0.03861 0.004327 T -1.20 2.48 12.00 -0.16 2.15 -1.45 P 0.230 0.014 0.000 0.874 0.032 0.148

** ** **

It appears that black general managers spent their money differently than white general managers. Black general managers have a smaller standard deviation among player salaries relative to white general managers and the median salary on a black general managers team is

generally higher. A lower standard deviation of player salaries with higher median player salaries, when controlling for total team salary, likely means that black general managers sign less big contracts with superstars and spend more on mid-level role players. Black general managers not signing superstars could be a result of different team structure preferences by black and white general managers. Given that 78% of black general managers in this data set were former NBA players, black general managers likely have similar basketball experiences and preferences as those in the former NBA players group as a whole, and should thus have similar ideas with regards to how to structure a team. However, the minority coefficient is still statistically significant in Regressions 5 and 6, when looking only at former players.

Regression 5: Standard Deviation ratio vs. independent variables (former players only)

Predictor Constant Minority Total Salary Ratio Market Size Year at Position R-Sq = 47.8%

Coef 0.08702 -0.13626 0.88833 0.008392 0.001650

SE Coef 0.09297 0.04236 0.08662 0.003902 0.003955

T 0.94 -3.22 10.26 2.15 0.42

P 0.351 0.002 0.000 0.033 0.677

** ** **

Regression 6: Median Salary ratio vs. independent variables (former players only) Predictor Constant Minority Total Salary Ratio Market Size Year at Position R-Sq = 44.6% Coef -0.2126 0.16220 1.2539 -0.006277 -0.000887 SE Coef 0.1272 0.05797 0.1185 0.005339 0.005412 T -1.67 2.80 10.58 -1.18 -0.16 P 0.097 0.006 0.000 0.242 0.870

** **

Regression 7 shows that standard deviation among player salaries is the most important salary measurement for predicting team success.

Regression 7: Wins vs. Salary Ratios Predictor Constant Total Salary Ratio Average Salary ratio Median Salary ratio Standard Deviation ratio R-Sq = 17.1% Coef 20.618 3.944 5.832 -0.902 11.490 SE Coef 3.186 6.855 8.355 3.070 4.644 T 6.47 0.58 0.70 -0.29 2.47 P 0.000 0.566 0.486 0.769 0.014

**

Regression 8 shows that when controlling for the standard deviation ratio, the minority coefficient is insignificant, eliminating doubt of different performance levels of black and white general managers when forming a team with a similar makeup of player salaries.

Regression 8: Wins versus independent variables Predictor Constant Std Dev ratio Sqrt Injury Market Size Year at Position NBA Player Minority R-Sq = 31.6% Coef 40.834 15.615 -1.6420 -0.3499 -0.0299 1.487 -1.099 SE Coef 3.077 2.101 0.2302 0.1285 0.1410 1.234 1.644 T 13.27 7.43 -7.13 -2.72 -0.21 1.20 -0.67 P 0.000 0.000 0.000 0.007 0.832 0.229 0.504

** **

An alternative to preferential differences between black and white managers with regards to signing superstars could be reluctance by superstars or their agents to sign with teams that have black general managers. The players in the NBA are around 80% black, which would seemingly rule out player animus due to race. But players agents are still largely white. Agents represent players and handle negotiations between teams and their player, and advise their client

much like a lawyer. Andre Farr, Chairman and Chief Executive Officer of the Black Sports Agents Association (BSAA), says "for years, not only in sports, but every area of professional management and business, [black athletes] would not do business with African-American [agents]. They felt like they might be locked out of the process, or that they wouldn't be able to negotiate a fair and equitable deal. That attitude hasn't vanished.7 There may be discrimination among some agents in signing their superstars with black general managers that results in relatively lower performance by black general managers due to the limited supply of players they can sign relative to their white counterparts. Further study needs to be conducted to draw any empirical conclusions. There are some limitations to this papers research and methods. NBA general managers salaries are not public information so we cannot test for wage discrimination. It is possible that equally talented black and white general managers receive different pay even if they are hired at the same rate. Also, while general managers have executive power over most aspects of a team, a team owner still has veto power. Therefore, some of the decisions a general manager makes may not reflect their primary preference. Additionally, newly hired general managers inherit many of the contracts and hirings of previous general managers. It may take several years before those contracts expire or a team can release a player without monetary penalty. Free agent signings are also a major part of general manager responsibilities. When free agents are deciding amongst contract offers from different franchises, there may be subjective factors that were not captured in the data, such as local climate, proximity to hometown, etc. Finally, since basketball rosters are relatively small, injuries to key players generally have a larger effect than in other sports. While attempting to control for this with the independent

http://sports.espn.go.com/espn/blackhistory2008/news/story?id=3268714

variable injury, this variable is a cumulative of all the players on a team. Clearly, the absence of different players will have varying effects. Conclusions Using a modification of Szymanskis method for detecting taste-based discrimination, this paper was unable to detect discrimination in the hiring of NBA general managers. The TIDES report card for the NBA general manager position gave the NBA an A grade and this paper found no evidence to dispute this grade. As with recent research that was unable to find racial discrimination within NBA franchises at the player and coach level, this paper is unable to find evidence of discrimination in hiring at the general manager level for the given period. This paper did find evidence that the composition of teams of black general managers is different than teams of white general managers. Black general managers signed fewer large salaried contracts and more contracts with middling salaries. Presumably, large contracts are made with superstar players, leading to the question of why black general managers do not sign as many superstars as white general managers. Preliminary expectations are that there might be a discriminatory factor in the agent-general manager relationship. The next step would be to determine whether there is in fact discrimination between agents and general managers, and if a method can be utilized to determine who the discriminator is. NBA franchises may not be able to afford to discriminate due to the heavy costs in a competitive field. Consequently team owners and executives seemingly did not discriminate during the given time period. However, the possibility of discrimination in the agent-general manager relationship and Price and Wolfers findings of referee discrimination may be a result of lack of competition in the agent and referee professions. Large agencies representing most

superstar players have abundant resources, established relationships, and connections that smaller firms do not, resulting in limited competition. The National Basketball Referees Association may decrease competition for refereeing jobs at the NBA level. The lack of competition within these entities may result in a lingering presence of discrimination in the NBA.

Works Cited Bodvarsson, Orn B., and Raymond T. Brastow. "A Test Of Employer Discrimination In The NBA." Contemporary Economic Policy 17.2 (1999): 243-55. Print. Brown, Eleanor, Richard Spiro, and Diane Keenan. "Wage and Nonwage Discrimination in Professional Basketball: Do Fans Affect It?" American Journal of Economics and Sociology 50.3 (1991): 333-45. Print. "The Business Of Basketball." Forbes. Ed. Kurt Badenhausen and Mike Ozanian. Forbes Magazine, 25 Jan. 2012. Web. 09 May 2012. <http://www.forbes.com/nba-valuations/>. Fort, Rodney, Young Hoon Lee, and David Berri. "Race, Technical Efficiency, and Retention: The Case of NBA Coaches." International Journal of Sport Finance 3.2 (2008): 84-97. Print. Gage, Jack, and Peter J. Schwartz. "Best General Managers In Sports." Forbes. Forbes Magazine, 02 Mar. 2007. Web. 09 May 2012. <http://www.forbes.com/2007/03/02/sports-greatest-gms-biz-cz_jg_0302gms.html>. Grinyer, Jacob. "Comparing the Bucks' Injuries to a Decade's worth of NBA Data." Brew Hoop. Vox Media, Inc., 21 July 2011. Web. 09 May 2012. <http://www.brewhoop.com/2011/7/21/2180038/comparing-the-bucks-injuries-to-adecades-worth-of-data>. Kahn, L. M. "Race, Performance, Pay, and Retention Among National Basketball Association Head Coaches." Journal of Sports Economics 7.2 (2006): 119-49. Print. Kahn, Lawrence M., and Peter D. Sherer. "Racial Differences in Professional Basketball Players' Compensation." Journal of Labor Economics 6.1 (1988): 40. Print.

Koch, James V., and C. Warren Vander Hill. "Is There Discrimination in the Black Mans Game?" Social Science Quarterly March (1988): 83-94. Print. Lapchick, Richard. The 2011 Racial and Gender Report Card: National Basketball Association. Rep. 2011. Print. "National Basketball Association Salaries." USA Today. Gannett. Web. 09 May 2012. <http://content.usatoday.com/sportsdata/basketball/nba/salaries/team>. "NBA & ABA Basketball Statistics & History." Basketball-Reference.com. Sports Reference LLC. Web. 09 May 2012. <http://www.basketball-reference.com/>. Price, J., and J. Wolfers. "Racial Discrimination Among NBA Referees." The Quarterly Journal of Economics 125.4 (2010): 1859-887. Print. Szymanski, Stefan. "A Market Test for Discrimination in the English Professional Soccer Leagues." The Journal of Political Economy 108.3 (2000): 590-603. Print. Tanber, George J. "African-American Sports Agents Address Challenges in The business." ESPN.com. ESPN, 28 Feb. 2008. Web. 09 May 2012. <http://sports.espn.go.com/espn/blackhistory2008/news/story?id=3268714>.