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Original Issue

The $40 Million Man

No matter how lucrative a contract free-agent-to-be Michael Jordan signs, he won't get what he's worth

When Michael Jordan, who will become a free agent on July 1,
said a couple of weeks ago that he would re-sign with the
Chicago Bulls only if they paid him at least $18 million for
each of the next two years, the immediate reaction was that,
given today's inflated salaries in sports, Jordan was selling
himself short. Not as short as he has been selling himself—the
$3.85 million Chicago paid Jordan for the 1995-96 season made
the best player in the game only the 31st best compensated--but
still short of his market value.

Jordan's salary is woefully low compared with the dollars being
thrown at the NBA's wanna-be-like-Mikes. The San Antonio Spurs'
David Robinson, who has been unable to get his team past the
Western Conference finals, made $12.4 million this season, and
his salary will rise to $17.1 million in 1999-2000. The
Washington Bullets' Chris Webber, who has been injured for much
of his three seasons, will aver- age $10 million through
2000-01. Playoff flop Alonzo Mourning of the Miami Heat, who
like Jordan will become a free agent on July 1, is reportedly
looking to re-sign for between $13 million and $17 million a
season. And the Orlando Magic's Shaquille O'Neal—he of the 10
ringless fingers—also will become a free agent this summer and
could command between $15 million and $20 million a season,
which works out to about a buck per missed free throw.

Given these numbers, what is Jordan worth? "You ordinarily try
to come up with some relationship between pay and performance,"
says Steve O'Byrne, an executive compensation expert with the
Manhattan-based consulting firm Stern Stewart & Co. "But in
Jordan's case, as good as his performance is, he's even better
at attracting fans."

Should one calculate his worth to the Bulls on the basis of the
three—probably soon to be four—championship banners hanging
from the rafters of the United Center? For the fannies he puts
in the seats? Or for the seats themselves, since the United
Center, a huge profit center for both the Bulls and the NHL
Blackhawks, would almost certainly not have been built, at the
cost of $175 million, had Jordan not played in Chicago?

In 1983-84, the season before Jordan's arrival, the Bulls,
playing in antiquated Chicago Stadium, averaged only 6,365 fans
a game--17,273 fewer than they now attract. (The Bulls have sold
out 434 consecutive games at home, a streak that goes back to
November '87.) At an average ticket price of $36, times 41 home
games, times 17,273, that's a cool $25.5 million in additional
annual ticket revenue that Chicago can attribute largely to
Jordan. Perhaps that's the number he should ask for, though it
doesn't take into account the dollars he generates through
increased preseason and playoff ticket sales, concessions
activity, stadium advertising and the leasing of luxury
skyboxes. (This season the Bulls and the Blackhawks split $24
million in revenue from the United Center boxes.) Nor does it
include the growing sums paid to the Bulls for their local TV
and radio rights. Nor does it factor in the appreciation in the
value of the Bulls' franchise during Jordan's tenure. The club
was worth $15 million when a group headed by Jerry Reinsdorf,
now chairman, bought it in '85. Today, as estimated by Steven
Matt, a partner in the Dallas office of the international
accounting firm Arthur Andersen and a specialist in evaluating
pro sports franchises, the Bulls are worth at least $200 million.

Were it allowed, which it's not, the other 28 teams in the
league should chip in to help pay Jordan. Chicago has been the
NBA's top road draw every season since 1990-91, except for the
one-plus seasons during which Jordan was off playing minor
league baseball. Perhaps NBC and Turner Sports, which televise
the NBA nationally, should kick in some dough too. The five
highest-rated regular-season pro basketball games on television
this year all involved the Bulls. How about the league itself?
The NBA sold more than $3 billion in merchandise in 1994-95,
with Chicago stuff leading the way. And although the league
refuses to say how much of the Bulls' merchandise is
Jordan-related, it seems safe to assume that much of it is. The
profits from those sales are divided among the 29 teams and the
National Basketball Players Association, and thus only
indirectly does any of that money trickle down to Jordan. And
the Players Association itself should kick a little something
extra Jordan's way, since the league's total revenues, which
include merchandise sales, TV income and gate receipts, are used
to determine the NBA salary cap. By boosting league revenues,
Jordan has increased the salary pool for other players.

Says USC finance professor and compensation expert Kevin Murphy,
"Eighteen million dollars a year sounds to me like a bargain.
You have to determine whether Jordan improves the revenues of
the Bulls by more than $18 million a year. I don't think there's
any doubt about that."

Actually, in the context of the next couple of seasons, there is
some doubt about that, according to Bulls season-ticket holder
and University of Chicago sports economist Allen Sanderson.
"Seen from Jerry Reinsdorf's narrow perspective, when he asks
himself, 'Can Michael Jordan add to my revenue stream next
year?' the answer is no," Sanderson says. "All the seats in the
United Center are already sold, and for anyone who cancels his
season tickets, there are 18,000 more names on the waiting list.
The skyboxes are all leased at least until the year 1999. The
local television contracts are in place. So Reinsdorf has
already sewed up most of the money he can earn from Jordan over
the next two years. It would be different if Jordan were 22
years old. [He is 33.] As it is, by the time the Bulls' TV
contracts are due to be renegotiated and the skyboxes are up for
renewal, Jordan will be gone whether he signs again with Chicago
or not."

The only incentive Reinsdorf has for signing Jordan--besides
wanting to win another championship or two--is to avoid being
forever vilified in the Windy City as the cheapskate who let the
greatest player in basketball history get away. That's a pretty
good incentive. "Clearly Jordan's been the most underpaid
athlete in all professional sports," says Matt. "At this point
Reinsdorf can justify paying him just about anything and tell
his partners it's for past services. It's a no-brainer. The
Bulls decline in value a minimum of $15 million the day Jordan
leaves. A minimum." So how much would Matt advise Reinsdorf to
pay? "What's fair and reasonable would be to make him the
highest paid player in the game," Matt answers.

Sure, but by how much? The addition of Jordan would not only
make any NBA team an immediate winner but would also guarantee
that team a season of sellouts. "If no salary cap existed and
there were no rules against player-owners, I guess we'd rename
our team the Jordanaires and make him owner, general manager,
coach and whatever else he'd want," says Pete Babcock, the
general manager of the Atlanta Hawks. "It's almost impossible to
put a dollar amount on Michael's worth."

Oh, let's give it a try. The Los Angeles Clippers were at the
bottom of the league's 29 teams in attendance last year,
averaging 10,111 fans while playing 33 games at the 16,021-seat
Los Angeles Sports Arena and eight at the 18,211-seat Arrowhead
Pond in Anaheim. If the Clippers signed Jordan, their first
change would be to move full time to the Pond (which they may do
anyway). Assuming 41 sellouts at an average ticket price of
$36--$10 more than Los Angeles charged last season--the Clippers
would immediately recoup $16.1 million of their Jordan
investment in increased ticket revenue. Assuming Jordan led L.A.
to the second round of the playoffs, the five more home games at
$49 a seat would generate an additional $4.46 million.
Luxury-box revenue? Stadium advertising? Preseason games?
Concessions and parking? All told it's reasonable to suggest
that Jordan would bring $25 million to $30 million in additional
revenues in his first season. Add to that the amount by which
the franchise would appreciate in value, and it's easy to see
why some people think Jordan should be paid at least $40 million
a year.

But that ain't going to happen. Jordan isn't operating in a free
market. Any team other than the Bulls that signs him has to fit
his salary--and those of the rest of its players--under the
NBA's 1996-97 cap, which will be $24.3 million per team. Only
Chicago is free to pay Jordan as much as it wants, thanks to the
so-called Larry Bird Rule, which allows teams to exceed the
salary cap by any amount to hold on to their own free agents.

"Reinsdorf knows that the league rules favor Chicago mightily,"
says one agent who requested anonymity. "But I doubt he'll take
advantage of the situation. My guess is he'll meet Jordan
somewhere in the middle, giving him less than what he'd have to
pay him if there were true free agency but more than he'd pay
him in taking an extreme hard-line position. If Reinsdorf takes
a hard-line stance, Jordan's in a financial position to just
pack up his bags and play somewhere else, even if it costs him

"Both sides have something to lose here," says Sanderson.
"Reinsdorf is a tough businessman, but he doesn't want to be
remembered as the man who let Michael Jordan leave Chicago.
Jordan doesn't want to appear greedy, because right now 90
percent of his [annual] income--$40 million of it--comes from
endorsements. Over the course of his lifetime, those
endorsements will be worth a billion dollars to him, so the
extra $10 million he might get from another team wouldn't be
worth it if it damaged his public image.

"What's interesting is that the NBA is exploiting Michael on the
court, because there's no effective mechanism for him to tax the
league for the benefits he brings to it in terms of TV ratings,
merchandise sales and ticket revenues. But off the court
Michael's exploiting the NBA, because there's no effective way
for the league to tax his endorsement income, which wouldn't be
so high if the NBA weren't so popular worldwide."

Jordan's income in 1995, on and off the court, was about $44
million, which is in line with what top boxers and entertainers
make. Next year his NBA salary should increase by about $15
million. The Bulls, thanks to Jordan, can afford to shell out
that extra cash. Jordan, thanks to the NBA, can afford to accept

Of course, it's meaningless to try to determine what Jordan, or
anyone, is really worth. JFK's golf clubs were worth almost a
million dollars to someone. There. Does that help? Hopefully,
we're all worth more than we're paid.

What this man's really worth is watching.

COLOR PHOTO: JOHN W. MCDONOUGH [Michael Jordan's head superimposed on $100 bill]