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Markets in everything: non-simultaneous trades
Via Al Roth, here is an NBA example which makes my head spin:
"Here is a more complicated example of a legal non-simultaneous trade: a team has a $4 million Traded Player exception from an earlier trade, and a $10 million player it currently wants to trade. Another team has three players making $4 million, $5 million and $7 million, and the teams want to do a three-for-one trade with these players. This is legal -- the $5 million and $7 million players together make less than the 125% plus $100,000 allowed for the $10 million player ($12,600,000), and the $4 million player exactly fits within the $4 million Traded Player exception. So the $4 million player actually completes the previous trade, leaving the two teams trading a $10 million player for a $5 million and a $7 million player. From the other team's perspective it's all just one big simultaneous trade: their $4 million, $5 million and $7 million players for the $10 million player. "
Posted by Tyler Cowen on May 15, 2009 at 06:55 PM in Sports | Permalink
Comments
This one deserves a diagram.
Posted by: Michael F. Martin at May 15, 2009 7:05:08 PM
My brain hurts.
Posted by: Colin at May 15, 2009 7:34:42 PM
Wouldn't the other team also need to pick up a four
million traded player exception?
Posted by: anonymous at May 15, 2009 8:12:00 PM
Anonymous,
I don't think the exception gets traded. Each team involved has to accept salaries less than 125% + $100,000 of what they're giving away. Because both teams are subject to this, it generally acts to keep the values moving in different directions in the same ballpark (in salary terms).
The exception isn't a commodity to be traded: it gives one team the ability to take on more than the 125%+100,000 would have specified. Theoretically, this team is benefiting by getting better players.
The other team has no use for an exception because they're the ones getting less salary than they're giving away. They're benefiting by cutting costs.
Posted by: darynr at May 15, 2009 9:54:49 PM
Can we have it in tabular form please?
Posted by: Christina at May 16, 2009 1:20:12 PM
And this helps the NBA, how?
This is the result of the collective bargaining mess that came out of the '99 player lockout. The biggest complication in sports business, it seems to me, is that the bottom line isn't paramount to some owners. When Mark Cuban bought the Mavericks, he said that making a profit would be nice, but wasn't essential. He's a billionaire with a big toy. Normal market rules don't apply when a number of owners don't care about making money. So the only way the owners could think to get real fiscal restraint was to codify it. But the Salary Cap has done real harm to the NBA product: the quality of competition has suffered considerably.
Severely restricting player movement and limiting their ability to sign free agents prevents teams from improving, so the league has a good number of crappy teams that can't get better until unwanted contracts expire, and (as or more importantly) a good number of good teams are prevented from taking the next step to being serious contenders, because their salary space is tapped out.
I don't know how much potential revenue the NBA has lost from the decline of its product, but I wonder if it offsets the money the owners think they saved by implementing a salary cap.
Posted by: Michael Mandlin at May 16, 2009 2:10:40 PM
I love your NBA example. Keep up the good work!
Posted by: TV stands at Nov 10, 2009 11:45:05 AM
Oh My God! These people are obviously involved in the math used to calculate 0bama care savings (LOL)!! new york bankruptcy records | do-it-yourself bankruptcy forms
Posted by: do-it-yourself bankruptcy forms at Nov 24, 2009 2:54:11 PM
