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Journal of Sports Economics
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Early Entry in the NBA Draft

The Influence of Unraveling, Human Capital, and Option Value

Peter A. Groothuis

Appalachian State University

James Richard Hill

Central Michigan University

Timothy J. Perri

Appalachian State University

In an influential article, "Unraveling in Matching Markets,"Li and Rosen (1998) note that the first 7 picks, and 17 among 29 first-round selections, of the 1997 National Basketball Association (NBA) draft were not college seniors. By 2004, the first pick was a high school senior, and 25 of the first 29 picks were not college seniors. We suggest that recent NBA contract provisions implemented to slow the early entry of talented players have instead provided additional incentives to both players and firms for early entry into the NBA. We explore two competing models that predict why teams choose a talented player sooner in the new rookie contract system: the human capital model and Lazear's option value model. To test why unraveling occurs, we use a panel study of all NBA players for 12 years, from 1989 through 2002.

Key Words: human capital • option value • NBA • unraveling

Journal of Sports Economics, Vol. 8, No. 3, 223-243 (2007)
DOI: 10.1177/1527002505281228
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J. Borland, M. Chicu, and R. D. Macdonald
Do Teams Always Lose to Win? Performance Incentives and the Player Draft in the Australian Football League
Journal of Sports Economics, October 1, 2009; 10(5): 451 - 484.
[Abstract] [PDF]