NBA Contract Phenomenon: Performing When It Matters

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Warlick, Jordan
McDonough, Sean
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Scholarship Sewanee 2021 , Economics , Contract , Contract Phenomenon
The contract year phenomenon is when professional athletes'-performances increase in their final year of a contract in hopes of securing another deal. In this paper we estimate the effect of a contract year on NBA players’ performances. Our data set is composed of 2,397 players from the 2012-2017 seasons. We measure performance by the player efficiency rating (PER), which is a per-minute rating that adds all the player’s positive accomplishments and subtracts the negative ones. When removing the outliers of superstars and players who did not play at least 40 games from a fixed effects regression model indicate that performance increases 2.83%. These results are statistically significant at all conventional levels. As a robustness check we added retirement into the regression and found that it had no effect on performance. However, when we include the outliers contract year it has no statistically significant effect on performance.