Ed Note: Derek Bodner attended the Sloan conference at MIT this past weekend. Even more than the research presented on the "hot hand" "theory" and the previously reported EPV research from Kirk Goldsberry's crew, the hot topic of the weekend was tanking, with NBA GMs and fans and other observers asking what the NBA could do to curb incentives that cause teams like the Sixers to intentionally lose.
Derek saw this, and thought enough of it to write well over 3,000 words. It's well worth your read. - SO
The NBA draft is tough.
Anybody who has attempted to predict the NBA draft will tell you that trying to project 18- and 19-year-old kids playing against heavily varied levels of competition is far from an exact science.
Losing in the NBA sucks. You have to be pretty confident in your plan as a GM -- or far too desperate -- to make a sales pitch to your owner asking him to risk fan anger, apathy, decreased ticket sales, little team or player marketability, and decreasing your desirability as a work place to other players and front office personnel. This isn't a strategy for the squeamish.
So when the NBA talks about radical proposals on how to prevent teams from intentionally losing - losing games, fan interest, and the almighty dollar - all for the benefit of better draft positioning, you have to ask yourself: how did we get here? How did it get to the point where teams will be willing to shed assets, fans, and financial income in order to further rely on this inexact science?
While at the 2014 SSAC, tanking and the lottery wheel were once again popular topics of conversation, with Stan Van Gundy calling what the Sixers are doing "embarrassing" while Sam Hinkie sat in attendance. Even Daryl Morey, Hinkie's former boss and mentor, talked about the need to remove teams incentive to lose. All of this prompted the panel that included former Raptors GM Bryan Colangelo, Steve Kerr, Stan Van Gundy, Brad Stevens, Zach Lowe, and Celtics assistant GM Mike Zarren (the architect of the wheel proposal) to discuss fixing tanking through the proposed lottery wheel.
It was all rather ironic, considering Bryan Colangelo admitted to somewhat-unsuccessfully tanking, Stan Van Gundy's team was built off of the talents of a #1 pick, and Mike Zarren was with the Celtics during one of the more brazen tanking efforts in recent memory. Ultimately, the details on the proposal of the wheel are almost irrelevant, at least at this point in time. There are many more details to iron out, contingencies to be planned for, and, most importantly, buy-in to be obtained before it becomes paramount that we devote all that much time to thinking about its overall impact.
In a utopian scenario, I don't have a huge problem with the wheel. There's something intriguing about everybody having the exact same resources to compete. But there are problems with the wheel, as well.
The first problem is, this isn't utopia. All drafts are not created equal. A bad team in need of a talent infusion getting the #1 pick in 2001 and having to wait 4-5 years for another top 10 pick is going to be a tough proposition for competitive balance. The second problem, perhaps more importantly, is the wheel doesn't do anything to address why building the foundations of a team from the draft is a virtual necessity, and until that happens limiting the value of the biggest hope that the have-not's have at their disposal cannot happen.
The more interesting questions at this stage of the juncture are: how big is the problem, how did we get here, and is tanking the symptom or the problem?
First, A quick recap of some of the rules that have contributed to the current situation:
- 1983: NBA salary cap instituted, Bird Exception included.
- 1985: NBA lottery introduced. All non-playoff teams have the same odds.
- 1990: Weighted lottery system introduced. Worst record has 16.7% chance at top pick, all picks are drawn for.
- 1993: Present odds are introduced. Worst record has 25% chance at the top pick, only top 3 selections are drawn for.
- 1995: Rookie scale contracts introduced.
- 1999: Maximum salary contracts introduced
- 2005: one-and-done draft rule added
Limiting the risk in the draft
It was after 1993 that intentionally becoming awful really re-gained merit. Not only did you have a much higher chance of gaining the top pick - 25%, up from 16.7% between 1990-1994 - but you also secured a guaranteed top 4 pick.
Another curveball was introduced in 1995: rookie scale contracts. After Glenn Robinson commanded a 10-year contract that ate up nearly 20% of the Milwaukee Bucks cap space during his rookie season, the NBA instituted limits on the contracts rookies could earn.
This change made one obvious impact and another slightly more subtle one. First, it limited how much unproven rookies could earn, a huge win for management looking to limit risk at the top of the draft. Rather than commanding a similar 10-year, $68 million contract that Robinson received, Allen Iverson, the #1 pick in 1996, received roughly 3 years and $9 million.
The slightly more subtle impact was that, now that the top of draft was far less financially risky, GM's were more willing to take gambles on less proven talent. The impact, while perhaps not as expected, was just as prevalent.
Below is a chart showing the average age of lottery picks by year.
Another way to look at this is by the number of players under the age of 20 selected in each lottery. It was virtually unheard of for teenagers to be drafted in the lottery before rookie-scale contracts were introduced, but it became the norm afterwards.
One might argue that this increased willingness to draft less proven talent would cause the top of the draft to become riskier, at least in terms of missing on a draft pick. This would seem a fair trade-off, being that with unproven rookies now commanding far lesser salaries the misses would be less damaging to a franchises overall ability to field a competitive team.
At first glance, this would appear to be true. From 1990-1994, only 7% of top 3 draft picks created less than 10 win shares during their first 4 years in the league. This number jumped all the way up to 30% of top 3 picks between 1995-2004.
This prompted the one-and-done rule, which was instituted in 2005. This has brought the miss-rate down significantly, as since the rule was instituted only 20% of top 3 picks have created less than 10 win shares during their first 4 years in the league.
However, even that is misleading. Really what happened was the payoff was delayed. During 1990-1994, top 3 picks created, on average, 25.7 win shares over their first 4 years in the league, and between 1995 and 2004 this fell to 20.9 win shares on average. But the win shares these players created during their 5th-8th years in the league was virtually identical - 25.2 win shares over that 4 year span for players drafted between 1990 and 1994 and 24.8 win shares for players drafted between 1995 and 2004. The players ended up producing similarly during their prime years, but the return was delayed as the NBA became on the job training for some of these highly touted prospects.
The one-and-done rule certainly helps mitigate this even further, helping to push the prospects power band of usefulness towards the earlier years once again, although we don't yet have enough data to really make much of a determination. However, with guys like Derrick Rose, Kyrie Irving, Kevin Durant, Blake Griffin, et al making major contributions early in their rookie contracts, the impact of the rule change looks to be a positive one for general managers.
The end result is that front offices get to have their cake and eat it too. They get the guaranteed contracts to prevent the top of the draft from becoming financially risky, and they get to curb the trend towards drafting younger, less proven players.
Limiting the value of free agency for cap-conscious teams
However, you cannot analyze the importance of the draft by looking only at the draft itself, as its value is also determined based on how it stands in relation to other methods of team building. Over the last two decades, the NBA has introduced numerous rules that have impacted how teams can use free agency and trades to build the foundations of their teams.
The first rule that greatly impacts the usefulness of free agency and cap space in attracing a superstar is restricted free agency, giving teams with players coming off of rookie contracts the option of matching an offer sheet. This obviously greatly hinders (to practically nothing) the chances that a young superstar coming off of a rookie contract will change teams via free agency. This isn't necessarily bad, as it would be a huge blow for teams in small markets to lose a young superstar who was likely just starting to truly become dominant towards the end of his rookie deal, but it does greatly alter the value propositions of both building a team through free agency and building one through the draft.
Bird rights and the soft tax also greatly hinders the usefulness of using free agency to acquire top end talent, as retaining teams can disregard their cap position to retain their own free agent, while also offering them more years and better raises. Again, this was partly done to help franchises retain their superstars and to keep fans interested (although also largely done to increase the earning potential of players).
2014 NBA Draft
2014 NBA Draft
That being said, both of these rules show the disconnect and the reactionary nature of the NBA's executive offices. They want to promote a teams ability to retain their superstars, which limits how much of an impact free agency truly has, but they then want to condemn teams that recognize the reality of the situation and how much of an emphasis this places on the draft.
The biggest rule, however, is perhaps the maximum salary restrictions.
By limiting how much a player can earn on the open market, the league effectively limits how much impact free agency can have. Teams that have diligently managed their cap space now cannot have the edge they would have had if players can be paid fair market value. Without the climate, the chances to contend, or a superstar to join, a team like the Sixers has very little going for it that would make it a destination. The one thing it does have is an abundance of cap space.
Heading into next offseason with upwards of $30 million in salary cap room, the Sixers have positioned themselves to have as much cap space as anyone in the league. If they were able to use this cap space as they see fit, they could offer LeBron James something no other team could, something that would differentiate them from the pack. By lowering the amount LeBron (or any upcoming free agent) can earn, multiple teams will now have the ability to offer the exact same contract. By putting a cap on how much teams can offer a free agent, the league removes that advantage the Sixers have and again makes free agency about the destination, allowing for super teams to be constructed and limiting the ability of have-not's to become competitive through means other than the draft.
The process of luring established superstars to change teams now becomes much more about the destination than it is about fiscally sound management putting themselves in a position to capitalize. Whether that destination is created based on location or the presence of existing superstars, bad teams without a superstar already in place have a tough sales pitch to give to the transcendent stars of the time.
The NBA has spent the last 20 years limiting the inherent risks of the draft, both by restricting how much of a salary the incoming rookies can negotiate and by preventing GM's from drafting kids with no post-high school experience, and thus with lots of noise in their scouting report. They then limit the ability for struggling teams to use free agency as a legitimate means to attract franchise building blocks. And, oh by the way, throw in a restricted free agency that virtually guarantees that a superstar coming off of his rookie contract will re-sign with the team that drafted him during for his second contract, giving the original team very high odds of retaining a superstar during the first 9 years of his career, and most of their physical prime.
And the NBA wonders why teams without franchise players are lining up to draft near the top of the draft?
The top of the draft is the most valuable
And make no mistake about it, the top of the draft is still the best place to get the best talent. Sure, Paul George might drop to pick #10 and Roy Hibbert could anchor a defense at 17. However, if you look at all the drafts from 1990 to 2008 (2009+ removed due to insufficient data), the #1 pick generated the most win shares among all lottery picks, the #2 pick generated the second most win shares, and all of the 5 picks that generated the most career win shares were in the top 5 of the draft.
Now, obviously, the story is not fully told for some of these players, particularly those towards the 2008 end of the study. This isn't to say that you can expect 70 win shares from the top pick, but just to compare what the 1st pick has produced to what the 8th pick has produced, as they all have had the same amount of available seasons to draw from.
While there are some deviations (9th, 10th, and 13th pick), the general trend is the higher the pick, the higher the chances you'll get production, and the consistency that the top picks have outproduced those further down in the draft is fairly obvious. Not that you can only get a superstar in the top 5, but it's a lot more likely, and the miss rate is far less. With the influx of statistical minded general managers, they're not necessarily looking for guarantees, as a guaranteed method of team building has yet to be found. They're looking to increase their odds.
Speaking of miss / success rate, a similar picture is painted when looking at what percentage of picks produce during the first 4 years of their career. Why 4 years? It's not nearly enough time to determine whether a pick is a success or not, but it's the length of a rookie scale contract, and also tends to be a pretty good predictor of future success, particularly for younger players.
Players who were drafted as teenagers (in the lottery, between 1990 and 2005) and went on to produce 10+ win shares over their first 4 years produced, on average, over 32 win shares during the next 4 years of their career, up from the 22 win shares they averaged in their first 4 years. They by-and-large became impact players, whereas players who were drafted at 20+ years of age and produced 10+ win shares during their first 4 years produced only 21.9 win shares over years 5-8 of their career, which was barely an increase of the 21.3 they produced during their first 4 years. This further promotes the hypothesis that drafting at the top of the draft does not necessarily provide less of an opportunity, just that the gratification is somewhat delayed.
The below chart shows this, with the blue bar being what top picks produced in their first 4 years, the orange being what they produced in years 5-8, and yellow as the percent increase.
Below is a chart that shows which percentage of picks produced more than 10 win shares over their rookie contract, grouped again based on where they were drafted, looking at draftees from 1990 through 2008.
Once again, the top 5 picks are by far the most likely to be productive. So, if you have a middling team sitting at 35 wins and likely to draft 8th, you're more likely to get a productive player by losing a few more games and drafting in the top 5, at least based on the data we have currently looked at.
This all, of course, makes sense. If you have good management, it behooves you to be able to select from as many prospects as possible to try to eliminate luck, in this case whether a team in front of you will select the guy(s) you have pegged as the best long term prospects. The more you have to select from, the more likely you are to get the guy you want. The key, of course, is good management.
Is tanking a symptom of a problem?
My overall belief is that tanking is a symptom of a problem rather than the problem itself, caused by a combination of the very nature of the NBA and the impact one superstar player can have on a team, the team's desire to be able to retain their drafted player, and management's desires to limit the severity of their mistakes. I also believe it is currently being blown out of proportion, with many of the worst teams in the league getting there through their own merits and organizational incompetence rather than intentions. Is it somehow more frustrating to watch the Sixers intentionally not field a competitive team than it is watching the Bucks accidentally do so? Should the Bucks be rewarded for incompetence and the Sixers punished for a plan?
The draft is necessary for teams that are not currently destinations to get franchise altering talent. There are plenty of examples of franchise level players changing teams in recent years, but most of these players ultimately went to teams that already had superstars in place. From LeBron and Chris Bosh joining Dwyane Wade, to Chris Paul joining Blake Griffin (after nearly joining Kobe), to Kevin Garnett agreeing to go to Boston only after the Celtics acquired Ray Allen, superstars have been going to franchises that already have superstars in place. The draft has been the best place to get that initial superstar, that superstar that makes you destination, that makes you interesting to other superstars looking to find greener grass.
I'm not entirely sure what the fix is, nor do I think that this is a problem that should necessarily be at the top of the NBA's to do list. All of the solutions that would legitimately remove the problem have serious repurcussions. In order to legitimately fix the problem, to make free agency more attractive, you risk alienating small market teams who lose a superstar early on in the process. Other solutions that try to remove the incentive to tank without opening up their ability to attract a superstar in free agency threaten to screw up competitive balance even more.
I think the proposal of determining draft order based on average record over the last 3 years is a better place to start, as it will limit the impact intentionally losing for a part, or even whole, of a season will have on the draft order while still giving hope to those teams without a superstar caught in quicksand. I also think removing maximum salaries restrictions and limiting the nature of the soft cap could legitimately help, but the NBA would fight an uphill battle in order to get those past the ownership group (maximum contract) and players association (Bird Rights).
What I do believe, however, is that if tanking is a symptom, one caused by the combination of limiting the risky nature of the NBA draft while simultaneously limiting the odds of using free agency as a means to build the first pieces of your foundation, attacking the symptom while failing to address the underlying root causes will create more problems than it will fix, no matter what fix they end up settling on. Tanking sucks, but having no hope for the future sucks more.
Of all the problems that allegedly lead to tanking, changing the way in which the top of the draft is determined is the easiest. The one that more people can get behind, and that will face less opposition. But that doesn't mean it's right.