Standing against the draft
The 2009 NBA Draft will be held on the 25th of June. Economists, according to Malcolm Gladwell, would not approve:
[T]he idea of ranking draft picks in reverse order of finish — as much as it sounds “fair” — does untold damage to the game. You simply cannot have a system that rewards anyone, ever, for losing. Economists worry about this all the time, when they talk about “moral hazard.” Moral hazard is the idea that if you insure someone against risk, you will make risky behavior more likely. So if you always bail out the banks when they take absurd risks and do stupid things, they are going to keep on taking absurd risks and doing stupid things. Bailouts create moral hazard. Moral hazard is also why your health insurance has a co-pay. If your insurer paid for everything, the theory goes, it would encourage you to go to the doctor when you really don’t need to. No economist in his right mind would ever endorse the football and basketball drafts the way they are structured now. They are a moral hazard in spades. If you give me a lottery pick for being an atrocious GM, where’s my incentive not to be an atrocious GM?
How, then, can this process be made fair and free of moral hazard?
I think the only way around the problem is to put every team in the lottery. Every team’s name gets put in a hat, and you get assigned your draft position by chance. Does that, theoretically, make it harder for weaker teams to improve their chances against stronger teams? I don’t think so. First of all, the principal engine of parity in the modern era is the salary cap, not the draft. And in any case, if the reverse-order draft is such a great leveler, then why are the same teams at the bottom of both the NFL and NBA year after year? The current system perpetuates the myth that access to top picks is the primary determinant of competitiveness in pro sports, and that’s simply not true. Success is a function of the quality of the organization.
Given the elasticity of the NBA’s salary cap, I have to wonder just how much it actually contributes to “parity,” especially since the Knicks have forked over $100 million in luxury tax over the past four years for exceeding the cap to a degree deemed excessive, and for what? They haven’t made the playoffs in five years.
TrueHoop’s Henry Abbott sees some sense to the Universal Lottery:
But I am intrigued by the idea of having every team in the draft lottery. I believe that some teams are poorly run. Putting every team in the lottery every year would put real pressure on owners of bad teams to innovate, and to find front office leaders and coaches who got real results. That process could not help but inspire innovation.
We will ignore, for the moment, any Thunder fans who will consider the lottery, in whatever format, an abject failure and/or a miscarriage of justice should OKC fail to obtain power forward Blake Griffin.
John Salmon »
16 May 2009 · 11:57 am
Well, there would be a moral hazard if losing teams made more money than winning teams-and Forbes says MLB teams with low payrolls and losing ways (like the Nationals) tend to be quite profitable.
Good thing teams can make big bucks by winning as well.
CGHill »
16 May 2009 · 12:39 pm
Each year Forbes attempts to list the franchises in order of estimated market value, and they currently vary over a two-to-one range: the Knicks rank at the top, a hair over $600 million, and several teams come in at $300 million or just below. Market size is of course a factor, though that doesn’t explain the Lakers at #2 and the Clippers, just across town, at #25.
Last year NBA Commissioner David Stern said that roughly half the teams were currently profitable, which is a step back from the latest Forbes figures, based on the 2007-08 season. And I find that only three teams that lost money that season wound up in the playoffs this season: the Mavs, the Nuggets and the Heat. (What’s more, all three of them, incidentally, paid the luxury tax for 2007-08.)