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A simple economic model of today's NBA
Given economic bad times, many teams have overspent. But they have lots of long-term contracts, plus there is a salary cap and luxury tax for going above that cap. Real wages ought to fall but most of them cannot fall right away. If a player becomes a free agent, few teams will bid and those players will absorb a disproportionate share of the required wage cuts (the pricing of complementary inputs had some indeterminacy anyway, plus there is an AC constraint).
The lower returns available mean that a given free agent is more likely to be a self-deluding trouble maker who has worn out his welcome (Artest, Gordon, etc.). This favors teams with dominant players (Cleveland), strong systems (Boston), and strong coaches. All those teams can swallow the troublemakers without cracking up. It also favors teams which suffer from well-defined "missing pieces." It favors already-good teams and indeed we see that Cleveland, Orlando, San Antonio, and LA have been major players in the free agent or trade markets.
I predict a greater dispersion of win totals for next year's season.
I am wondering to what extent a similar analysis applies to economics departments, or to teams of bloggers, or to other groups of complementary labor inputs.
Addendum: TrueHoop comments.
Posted by Tyler Cowen on July 3, 2009 at 07:33 AM in Sports | Permalink
Comments
What role do you think the 2004 finals played in this trend? That was the first year where significant late-in-their-career hall-of-famers (Payton, Malone) took huge pay cuts to go to LA, and it seemed to set a trend. On the other side, the Pistons had a strong, no-star system in place that managed to
a) get Rasheed Wallace to buy in, and
b) get a Finals MVP award for Chauncey Billups
Posted by: Gil Roth at Jul 3, 2009 7:48:19 AM
I guess I missed the part of Gordon's career when he was a self deluded trouble maker wearing out his welcome like Artest. Likewise I guess I was unaware that Detroit had a strong system, coach, and/or star player. You make a good point in the post but the facts don't really support your conclustions.
Posted by: td at Jul 3, 2009 8:51:06 AM
Yes, the free agent segment is where teams have salary flexibility. But no, that doesn't mean free agency selects trouble makers. For that you have to look at the advantage that the rules give to extant teams. Unrestricted free agents can be signed to their extant team on terms unaffected by the team's cap. Home teams can sign restricted free agents at 125% their previous salary without the cap binding. Isn't this why Vince Carter is still at Nets? Point being, home teams have an effective right of first refusal, and they're more likely to waive that with trouble making players.
A soft demand market will also favor younger players, whose maximum signing amounts are subject to tighter caps.
Posted by: Ed Lopez at Jul 3, 2009 8:55:46 AM
The best NBA and Economic analysis of players is (IMO) from The Wages of Wins. One book published, one in process, and a blog - http://dberri.wordpress.com/
Posted by: AOM at Jul 3, 2009 9:06:39 AM
The economic downturn favors teams with enough money to withstand the rough time (Lakers, Boston, Portland) or good enough to be ready to pay for a shot at a title (Cleveland, Orlando, San Antonio). It's not so much a "troublemakers" issue as a "why pay luxury tax to be mediocre when we're losing money?" issue.
Posted by: Charrua at Jul 3, 2009 11:25:27 AM
Uh, in what way is a Ben Gordon a self-deluded trouble maker? He is a class act on and off the court. As far as I know he has never said publicly said anything negative. Even yesterday, after being signed, his most negative dig at the Bulls was a subtle, "I'm so happy to be on a team that cares about winning."
Also wages of wins is crap. The weights that Berri assigns to each NBA statistic have a subjective foundation. If you accept his formula, then you also accept that Dennis Rodman was a better player, per minute, than Michael Jordan during the 97-98 season.
Posted by: Robert at Jul 3, 2009 11:57:21 AM
Ed Lopez: You make good points about the rules for free agents, but... uh ... the New Jersey Nets traded Vince Carter to Orlando last week in order to cut salary for 2010-11.
Posted by: Spider at Jul 3, 2009 12:31:10 PM
Any model of the current player market should take into account the fact that there is an above-average crop (LeBron, Wade, Bosh, et al) of Free agents coming in the 2010 offseason. Several teams (I believe the Nets fall into this category) are positioning themselves to be far enough below the salary cap to sign one or two of these players. So for long-term planning when it comes to free agents (Ariza got a 5-year deal), it's better to use that money next year than this year. This isn't a competing theory, it's just something to add.
Posted by: Patrick at Jul 3, 2009 1:09:09 PM
Berri does not use a subjective model. He regresses wins on teams stats to come up with his numbers (Or something like that, its been a while since I looked at his model). The problem is that he equates valuable team stats to valuable player stats. It results in him treating offensive rebounding the same as defensive rebounding and not considering usage rates. But he presents his results very clearly and he does a good job of selling his formula as being the best, as evidenced by AOM's post.
Gordon is not a trouble maker, but he only has one skill (scoring) and is not worth the money the Pistons gave him, esp. in a down market.
Posted by: johnk at Jul 3, 2009 1:23:48 PM
So here's a question. Should a guy like Trevor Ariza have taken the Lakers offer to continue building his own market value in a down economy that has clearly affected the NBA. If Ariza is healthy in 2010-2011 and the Lakers repeat, wouldn't he be in a better position to negotiate a longer term deal with teams looking to rebuild and make strong pushes for the playoffs and/or contend for a title? It seems like the impatience of some players (i.e. Ben Gordon, Trevor Ariza, C. Villanueva) may be a sign of settling for less. I'm just trying to follow the logic of the post and ensuing comments.
Posted by: Norman at Jul 3, 2009 1:37:36 PM
Probably shouldn't be making assertions about players (Ben Gordon) that you haven't the first clue about. I know you imbibe a great quantity of information but you sure missed the boat on the quality of this one, a player who has put up with getting paid less than and coming off the bench for many an inferior teammate, not to mention his treatment from management, all without causing a stir.
Posted by: Bryan at Jul 3, 2009 1:45:57 PM
I love watching him play. But why does this man garner no statistics other than points scored?
Posted by: Tyler Cowen at Jul 3, 2009 2:11:56 PM
I think Bill Simmons was the first to point out that, in that awesome game 2 shootout of the Bulls-Celtics series, Ben Gordon managed to put up 42 points . . . with one rebound and zero assists. It was one of the greatest one-dimensional performances ever.
Posted by: Gil Roth at Jul 3, 2009 5:46:38 PM
NBA attendance was up this year. So was merchandising. And the guaranteed TV contracts go up next year.
Am I missing something or is the NBA not in the dire shape that's been implied?
Posted by: Steko at Jul 3, 2009 7:05:54 PM
On troublesome players, see Todd Kendall's article (maybe fall 2008?) in the J of Sports Econ. In a nutshell he finds players misbehave b/c they can--the highest paid player on a team is more likely to draw technical fouls than the second highest paid etc.
Posted by: Dennis Rodman at Jul 3, 2009 7:54:58 PM
Gordon is one of those 30/40 players. He scores 30, the guy he is supposed to defend scores 40.
Posted by: DanC at Jul 4, 2009 9:50:52 AM
Steko, attendance numbers alone don't tell the whole story about tickets. Teams have all sorts of special offers that they can use to sell more tickets (after all, selling courtside seats for $30 would still be better than leaving them empty) which can inflate the attendance numbers. They tend to only use these methods during difficult times.
Posted by: Jerr at Jul 4, 2009 3:43:47 PM
td:
Likewise I guess I was unaware that Detroit had a strong system, coach, and/or star player.
Yeah, making the conference finals six out of the last seven years was just luck.
Posted by: Ted Craig at Jul 6, 2009 9:19:20 AM
