The Economics of the NBA

Year after year, we hear from NBA financial analysts such as Bobby Marks about player contracts and how changes to the league will affect the finances of teams. One big change was the super-max extension that Westbrook, Harden and Curry have all signed which was the first $200 million contracts in league history. The financial impact of contracts like this is intriguing to say the least, will it bring more good then bad? I feel that this era of the NBA and the current boom it is going through means that economic analysis of this period is going to be very interesting.

At this point, I feel that the league can be broken down into very clear categories that dictate the supply and demand amongst teams in the NBA, some teams may not fit perfectly into this criteria but that is to be expected with a subject that does not deal with perfect information. The most important element of the NBA economy as of right now is the cap-broker. A cap-broker is one of few teams that have cap to absorb bad contracts from teams looking to improve as they go through a long-term rebuild. A perfect example of a cap-broker could be the Brooklyn Nets who have aggressively used their huge cap-room to further their rebuild. Brooklyn has gained a possible franchise centerpiece by absorbing a big contract in the form of Timothy Mozgov and trading away the last remnant of a successful Brooklyn Nets team, Brook Lopez. D’Angelo Russell may not look like the superstar he was projected be but under Sean Marks’ management, it is likely he is going to improve, especially when you consider other young prospectives such as Caris Levert and Isaiah Whitehead who have grown into starters for a team that needs their youth to be good in order to succeed.

Furthermore Brooklyn’s playbook as a cap-broker has also been on point during free-agency. They have chased RFAs such as Allen Crabbe, Tyler Johnson and most recently Otto Porter during free agency and have thrown huge contracts at players who are currently role players. It is a smart move as the tactic focuses on the type of player all GMs want to keep, young guys who have shown enough to possibly see the future brilliance they may achieve. By forcing other teams to expend their capital resources in resigning these players, Brooklyn is worsening their opponents’ cap situation so that the Nets’ cap situation looks better . All of the players listed above all belong to teams that are over the cap which means it restricts the Trailblazers, Wizards and Heat’s ability to chase players in free agency like they might have done if they were not paying these players vast sums of money. In effect it means that they are removing any competition when it comes to competing for a big free agent. In Portland’s case it meant that they had to give up a promising wing player who shot 44% from the field in order to have a chance to chase players who can get them close to the Warriors.

For a cap-broker team like Brooklyn, these are good ways to acquire assets while you are currently rebuilding and provide time to incubate young players before chasing after stars in free agency. The perfect free agency class for a cap-broker team like Brooklyn would be the 2019 class in which they could potentially acquire two-way wings like Klay Thompson or Jimmy Butler which would rocket them up the Eastern Conference standings. Furthermore cap-brokers are a valuable commodity in today’s NBA. Most teams are massively over the cap and therefore do not have the room for hugely overpaid veterans. Therefore players such as Tyson Chandler, on the perenially-rebuilding Suns could be a good acquisition for a cap-broker for the simple fact it could mean another asset. The asset may be a pick or a young player who could possibly develop into something much better. A team like Atlanta would be wise to trade for these players as a treasure trove of assets improves the prospects of completing a cornerstone trade or getting a blue-chip prospect.

Trades involving franchise players such as Paul George and Carmelo Anthony can now be achieve for pennies on a dollar. Who would have thought that both of these players could be got for skilled but deeply flawed players in the form of Oladipo, Kanter and McDermott. Although these are examples of the negotiating wizard Sam Presti, other GMs have achieved the same result. Chris Paul, an incredibly highly valued point guard who was prized by the Clippers as their star player was achieved for Patrick Beverley, Montrezl Harrell and a collection of role players. Although the quantity acquired by the Clippers is huge, the quality lost in the Chris Paul is huge. For a cap-broker like Atlanta or Brooklyn, this could be the path to success.

Given the fact that big-name trades have gotten cheaper and easier to pull, it seems like a simple assertion to say that having more assets gives a better probability in closing a deal. The same I would argued applies to the draft. Having more picks in the draft is largely seen as unfavourable as not all of these players can be acquired due to roster limits and salary issues. However for teams with a strong development culture like Atlanta or Brooklyn, it gives a chance at landing more than one future franchise player. In this current iteration of the NBA in which superstars are stockpiled in order to compete with Warriors, it seems like a good idea to have more than one potential All-Star. Furthermore, the risk of the draft being a bust is lessened as the risk is spread among both players.

The cap-broker may be a minority in the NBA economy but it could be argued that this minority is becoming one of the most important influences in the NBA economy. Teams such as Atlanta, Chicago and Brooklyn who had cap space are unusual in an NBA where most teams are over the cap, even traditional fiscal conservative teams such as Minnesota and Oklahoma have gone over the cap to maintain their superstar cores. The question of why a cap-broker has become so important is more interesting than the actual X and Os. The current Superstar era of the NBA in which All-Stars join forces to try and take down the Warriors means that teams with overpaid players such as Allen Crabbe or Demarre Carroll had to be moved on so that enough cap was freed up so that they can afford other players who could be a better fit in terms of matching the Warriors. However, given the fact most teams are over the cap, the same amount of salary has to remain between the two teams. This means that a team like the Trailblazers would not be saving money but instead getting back an unknown role player. This same rule does not apply for a team who is under the cap and therefore can absorb the additional salary.

Then the NBA economic system has a collective of teams that can be just described as the ‘Middle’. ‘Middle’ teams in the Eastern Conference could be teams such as the Hornets or New York Knicks, teams that will drag themselves into the play-off but will consistently get bounced in the first round. In the Western Conference, ‘Middle’ teams are a little more murky. The West is stacked to a point where the ‘Middle’ is no longer actually a playoff team, in many cases these teams have fallen short at the last hurdle and have just missed the playoffs. One example of this could be the New Orleans Pelicans who have the missed the playoffs for three consecutive seasons despite having a demi-god in the form of Anthony Davis.

‘Middle’ Teams exist to make up the numbers and consistently try to make the play-offs with rosters that are not primed for deep runs into June. These are typically one-star teams such as the Charlotte Hornets who have Kemba Walker in the Eastern Conference, in the Western Conference things are slightly different, two-star teams such as the Trailblazers, Grizzlies and Pelicans are often fighting for the lower seeds in the West. However all ‘Middle Teams’ share one common goal, to land a piece who can move the development of the franchise forward. Unlike, Cap-brokers whose policy is to create a great position for a post-Warriors landscape, the ‘Middle Teams’ are attempting to contend during the present. These teams are unlikely to tank for picks due to a number of reasons.

The first reason is to do with the coaching staff, in many cases the coach is vehemently opposed to tanking in order to improve and therefore will drag their teams into the post-season. A good example of this is David Fizdale, an old-school coach who learned his craft under Pat Riley, a man who never took the easy way out. Furthermore, veteran players such as Marc Gasol or Damian Lillard do not want to tank as it means that they do not spend any time on the court. A good example of this was Phoenix sending Bledsoe home so that a top draft pick could be achieved, if a team is tanking, top players will not play. Psychologically it demotivates a player as a losing culture is created however it could have a tangible effect upon player’s value.

In theory, it could mean that a player like Marc Gasol who is in a contract year could tank in terms of value. The player knows that the more minutes that are played, the greater range of skills are shown and therefore appeal to a greater range of prospective free agency. However, if the player does not play any minutes or has been left out of the team, the memory of their talents fade. The ‘Middle’ in many ways could be considered the most confusing NBA class in terms of economic action due to the fact the teams are balancing many different aims. Team improvement, player morale and a chance to break away from the pack are all tantamount to the ‘Middle’ teams’ future success.

The ‘hoarder’ is a new mutant class in the NBA which has grown from the need for an All-Star nucleus. As the Warriors and the Cavaliers have proved over the last three years, a minimum of three All-Star players along with high-quality supplementary players are needed in order to reach the NBA finals. Winning the finals is a different matter which is what the Warriors found out in 2016. So they went out and got their differentiator, a two-way savant in the form of Kevin Durant who can do everything on the court and is probably the second best player in the league. Three All-Stars is just a buy-in, high quality role players such as Iguodala and Wade put you further along but that something different is needed in order to have a chance at destroying a dynasty in the making.

The ‘hoarder’ teams in the league, Boston and Philadelphia have seen that something special is needed to beat the Warriors and therefore have amassed as many picks as possible in order to create huge superstar trades. For an NBA GM, picks are possibly the most valuable asset as they do not carry a salary and are often valued by teams as it is an opportunity to bolster depth using cheap rookie scale contracts. Boston built its treasure trove by fleecing the Brooklyn Nets and gaining valuable such as the Clippers pick through the Jeff Green trade and a Mavericks pick in the Rondo trade. But the jewel in the crown was the Brooklyn picks which two were used to draft foundational pieces for the Celtics in a post-Warriors landscape. The current play of Jayson Tatum and Jaylen Brown provides a certainty that they will be very good bordering on great players in five or so years when the Warriors are on the downslide.

The other Brooklyn pick was used to carry out a monumental trade that has rewarded the Celtics with a possible MVP candidate in Kyrie Irving. The thought of Isaiah Thomas being traded in July was unthinkable, he was the man who had carried the team back to the Eastern Conference Finals, here was a Celtic who evoked memories of great players such as Paul Pierce, Larry Bird and John Havlicek. However, Danny Ainge did the unthinkable and the Brooklyn pick was the key leverage in the deal. Isaiah is a great player and so is Kyrie but to acquire a player who is entrenched in Cavs history as the Saviour in a dark, bleak post-Lebron world would take serious incentive such as the Brooklyn pick. This pick is almost certain to go in the top-5 and have the possibility of drafting a stud but for Cavs it also gives the possibility of doubling down and acquiring a star like Paul George or Marc Gasol.

The thing is that the Celtics have other picks that are of stupidly high value that could be used to form blockbuster trades. The Lakers currently look horrible and are likely to be a lottery pick but the Celtics own their pick. The pick will likely be high and highly coveted as a trade asset. The Celtics could use the value of this pick to acquire another All-Star wing such as Jimmy Butler or Paul George. The tough two-way play of both of these pkayers would be ideal for the long, rangy Celtics, it would give them the ability to switch everything on defence and still come out on top. It would mean that there is nowhere to hide Stephen Curry on offence and he would have to play Kyrie Irving, a brilliant isolation scorer 1 on 1.

The 76ers are in an even better position for a post-Warriors landscape as they have the best young centre in the NBA along with a dynamic point forward who can legitimately play four positions in his rookie year alone without a reliable jumper. The Ben Simmons/Joel Embiid two man game has been incredibly enjoyable due to the fact both players have freakish skills for young players, Embiid can shoot threes like a guard but block shots like Mutombo and has a post-game like Olajuwon or Kevin McHale. Ben Simmons on the other hand has a passing range and an on-ball IQ that most veteran players in the NBA do not have, he can honestly do everything on the court.

The much-maligned process produced a team of young players who are hungry, determined and close-knit. The 76ers have possibly the best young 3 and D wing in the form of RoCo and a very impressive stretch four off the bench in the form of Dario Saric, the type of high-quality role players who are needed to challenge for an NBA championships. The last Sixer who could be something seriously special is Markelle Fultz.

Fultz in his first season has had a rough time due to his shoulder injury and failing jumper mechanics but the former Washington Husky has fantastic promise. At college, he showed elite-level flashes in his ability to score and create opportunities for his team-mate while also having a game that is not totally dependent on his athleticism. He averaged 23/6/6 while shooting 41% from deep, his shot mechanics means it is likely that he can be a promising shooter from deep in the NBA and his lanky frame means it is likely he will be a good defender. Out of all of the Sixer players, Fultz has the highest upside, he is a legit MVP candidate with a few years of NBA experience.

The ‘hoarder’ has prepared for the future but the contenders are here to stand toe to toe with the Warriors. Teams such as the Rockets, Thunder and Cavaliers have all put their chips on the table in order to build rosters that can compete the Warriors and upset the reigning, defending champions. The contenders are in a win-now mindset and therefore will sacrifice long-term assets such as draft picks in order to try and take the championship now. This means that a team establishes a very short economic window in which the maximum yield of the team is possible, it is almost impossible for a core of players to stay together and reinvent themselves enough to consistently challenge for an NBA championship. Constant new additions are required to provide another dimension for a team so that it can surprise rivals, the Chris Paul addition is a great example of evolving a very good into greatness. D’Antoni’s fast and furious offence was superb with James Harden at the helm but Chris Paul’s pesky defence has unlocked a tight defensive unit. The PJ Tucker, Mbah a Moute and Ariza trio along with Chris Paul has created a switch all defensive unit that can feasibly slow down the trigger-happy Warriors instead of purely trying to out-score the Warriors. Houston has found another improvement that could be key in a seven game series against the Warriors.

The Thunder have managed to do something similar on paper, they added Paul George and Carmelo Anthony, a two-way wing and a scoring machine. Paul George will team with Roberson to form a tough wing tandem who will not allow points and stop players such as Kevin Durant and LeBron James. Melo will be incredibly useful as a jack of all trades who can score inside, take threes and win in isolation plays. Russell Westbrook is a top-3 point guard in the league. On paper, it is a combo that should work well but as we know the NBA is not played out on paper. The team is trash in terms of chemistry and it seems like there is too much Alpha play by Melo and Russell, they cannot keep chucking up shots and expect to coast by on defence alone. If the team can get it together, it should be a serious contender.

To surmise, there are four distinct NBA classes who all have different purposes. This contributes to the trends that we see in the current NBA such as stockpiling draft picks, huge blockbuster trades and team building around a specific opponent.