The truth behind Wade's $50 million bet

In a free market where there are no caps on salary, how much would teams pay annually for a superstar in free agency? Dwyane Wade gave Yahoo Sports! his answer on Wednesday.

"I'm sure it would get to $50 million," Wade said.

Fifty million!? Per-season!? The outrage!

Well, Wade's not too far off actually. In fact, there's reason to believe Wade is understating the value of the elite.

Why? Before we dig in, we need to start asking some general questions. How much is a basketball player worth? It's a tough question which involving a dizzying number of complicated variables. But there is a shortcut. I'm talking about a little thing called: the free agency market.

History offers lessons. Let's take a look at last offseason for instance. An NBA team (the Hawks) felt that Joe Johnson was worth a six-year deal worth $120 million, a total that equates to $20 million annually. Johnson is a fine NBA player -- a 5-time All-Star even -- who was exiting his prime. He's a big-time scorer who can distribute the ball and play pretty good defense. When we put all his statitistics together in the season prior to hitting the market, and we find that he was worth approximately eight wins compared to some guy on the end of the bench. We find that by calling on Wins Above Replacement Player (WARP), a sturdy player value metric developed by ESPN Insider and Basketball Prospectus author Kevin Pelton.

So, here we have one data point. Johnson was awarded an annual 20 million after he produced 8.2 WARP in 2009-10. That's about $2.5 million per win. Did they pay too high or too low?

Using WARP as a handy guide, we can look at some other market-dictated deals. Step right up, Travis Outlaw! The Nets gave him a contract that would pay him an annual $7 million after he produced 0.9 WARP for the Blazers. That's about $7.8 million per win. Ouch. How about Darko Milicic? The Timberwolves decided to pay him an annual $5 million after he delivered a whopping 0.2 WARP in the previous season. The Timberwolves felt he was worth about $32 million per win, if we use this metric. That's a steep, steep price.

Of course, those guys represented some of the worst valuations of last season's market. There were some bargains, believe it or not. Dorell Wright signed a deal for $3.7 million per year after he produced 3.6 wins for Miami. Huge bargain at about $1 million per win and that's before he broke out last season. Raymond Felton produced 5.8 wins in 2009-10 and netted a contract that paid him $8.3 million annually. Another steal for his parent company.

As we can see, there were some good deals and some bad ones. But once we put all the deals into focus (like I did last offseason), we can make some general inferences about how teams value players as on-court assets. I found that teams paid roughly $2 million per WARP last offseason, judging by the dozens of signings last offseason. (The free agency period a year before that yielded similar results.)

But that $2 million/win estimation only considered players whose salaries weren't artificially capped by the max contract rule. As a way to curb spending, teams, by rule, can only pay so much for a player. I didn't consider the contracts that players like Dirk Nowitzki, Dwyane Wade and LeBron James signed because they don't accurately reflect how spenders value the product.

Consider this: LeBron James produced 25.4 WARP in his final season in Cleveland and if James were paid like his peers ($2 million/WARP), James would have warranted a contract that paid him something like this:

$50.8 million.

But wait. That's before we even consider the boatloads of off-court revenue that superstars like LeBron generate for clubs. Think about the extra merchandise. All those LeBron jerseys that Miami fans scoop up to wear and Cleveland fans purchase to burn? Teams make money off those.

Think about the extra eyeballs that create monster TV deals like the one that the Lakers just signed that will make the organization $150 million in revenue per season. And then there’s the bonus of creating a winning atmosphere that will attract other players like a mosquito to a floodlamp. Darko Milicic won’t lure other players to your team, but Dirk Nowitzki will.

Accounting for all the extra benefits that a team enjoys, superstars of LeBron's caliber are probably worth far more than $2 million per win figure that most players are subjected to.

Let's go over this again. In the Summer of 2010, the average player was paid about $2 million per win. LeBron's pricetag? $0.7 million per win. Dwyane Wade? $0.9 million. Chris Bosh? $1.5 million. Not only did Pat Riley sign three superstars, but he signed them at Costco prices.

Can you see why Wade’s $50 million declaration is a reasonable one? If not, just imagine if this happened to you. Think of a colleague who shares your job description. This colleague was hired to the same position as you but this fellow colleague is only half as good at said job as you are. Now, imagine that this person gets paid on a scale that pays him double what it pays you. Or how about triple? You’d be pretty upset right?

You want the money you deserve. Sure, this may be an over-simplification but the point remains: you and Wade are no different, really. You both want what you’re worth. Joe Johnson is probably half the player that Wade is, yet Johnson receives a larger paycheck. Seems backwards, doesn’t it? And this is not to beat up on Johnson; there have been plenty of Joe Johnson Contracts handed out. He’s just the most recent example.

So when Wade says superstars could make upwards of $50 million per season if there was no cap, don’t be outraged. Wade is not a martyr. No, Wade is merely observing actual market behavior and making a logical prediction based on what he sees. And what he sees is a twisted system that underpays its most valuable employees by tens of millions of dollars.