A Substitute for War

Basketball philosophy

Developing an NBA GMing strategy: Entrepreneur/Net Worth Theory

with 2 comments

One question defines the search of NBA GMs and backseat fans alike:

“What’s the best way to improve this team’s position going forward?”

Of course this appears a near answerless question. Or else we wouldn’t argue so much about it. But the easy answers are “be lucky” and “make good decisions.” Most concede the biggest common denominator on championship teams are superstar players. Superstars are usually acquired via draft which is luck heavy. Thus luck is the most inarguable dominant factor in making succesful teams.

But it’s not everything. Success is luck + good decisions. The Cleveland Cavaliers’ failure after drafting Lebron, among others, prove teams that draft superstars need to make good decisions to win. Furthermore even if you believe ‘tanking’ for superstars is the best way to go about succeeding, this fits under the strategic decisions umbrella and as a plausible answer for the ‘good way’. Though it’d only explain how to start a team, leaving the other half of our strategy empty.

Thus in search of our definitive NBA strategy, we turn back to the question ‘What’s the best way to improve this team’s position going forward’:

Part 1 – How to value a team’s position:

First off, we can assume team’s positions “rank” in the league by how ‘well set up’ they are for the future, whether that means this year or the ones beyond. But as the NBA is made of both young  and win now teams and in betweeners, the criteria for judging position for these teams is completley different, making them hard or impossible to judge against each other. Neither a youth or win now strategy dominates. Most would prefer the Thunder’s position over the Mavericks’ because the value of the Thunder’s youth outweighs the Mavericks’ present superiority when healthy. But most take the Lakers over the Timberwolves, as the Lakers present superiority and chance at a title this season outweighs the Timberwolves’ youth. Thus we can say it’s not the youth or win now position that gives teams the edge, but how strongly they rank in both of those criterias. Thus what we need is another common denominator that can judge teams in all kinds of positions by the same criteria. I believe this common denominator is trade value.

Whether assets are young or win now and whether they’re paid or on rookie salaries, trade value reflects all. The value of a player is judged by the rest of the league. Since all players can be judged by trade value, this can be a common denominator comparing teams. We can compare the combined trade value of one team against another by simply adding up the value of all it players.

My analogy is this: Imagine NBA teams as entrepreneurs and all their players, draft picks, capspace, etc. are companies they own. The combined worth of all their investments adds up to the entrepreneur’s net worth. If they sell a company and buy another for the exact price, their net worth will remain the same. Two entrepreneurs with completley unrelated company types can be judged against each other by their net worth. In NBA terms, all of the team’s trade asset add up to a net worth. If a player is traded for another with exact value, the team’s position going forward is the same – even if youth is traded for win now players or the opposite. And two teams’ positions with unrelated strategies such as win now vs youth, can be judged against each other by whose combined trade asset is worth more.

I’m not a math guy, but I would lay it out like this

(b)X = (b)Y in an exact equal value trade where:

X = win now asset

Y = youth asset

b = trade value

Thus a win now asset with value b, should be able to be traded for a youth asset with value b and vice versa. Thus since teams can choose whether they want Xs (win now assets) or Ys (youth assets) and exchange an X for a Y whenever they want, what only matters is the value b. Whether that’s reflected through Xs or Ys is irrelevant because they can be swapped for another. Following this, the team with the most trade value b should always have being the best team in the league in reach if they made a team of all win now X players. Even a mostly young team with the most trade value must be close to the best team in the league. A team with the most trade value must be full of superstar talent, likely enough to contend.

What’s nice about this as well is the superstar theory fits in. Superstars are as much trade assets as everything else – they’re just by far the most valuable trade asset. Drafting a superstar puts a lottery’s winnings into the entrepreneur’s net worth giving them a terrific starting place to invest. Using another analogy, the team who drafts a superstar is a poker player starting with a huge stack of chips while the team who doesn’t get a superstar has the short stack. The short stack player can still win, but it’ll be much harder.

However, teams can easily lose their fortune from this good starting point, like the Cleveland Cavaliers after drafting Lebron. And other teams like the 2000s Pistons can start with no money and become the richest entrepreneur all the same. Thus after a team’s franchise players are acquired, building successfully comes down to making good decisions in the form of other drafting, trades, using capspace effectively, building good team culture, etc. In Part 2 I will show how trade value can be accumulated through these further forms:

Part 2 – How to increase team trade value

I believe Part 1 has proven success as a GM comes down to increasing your team’s trade value. Thus the question of “How do I improve my team’s position going forward” is rewritten into:

“How do I increase my team’s trade value?”

I see 4 clear ways a team’s balance of trade value can shift:

1.       The draft picks you get for free every year

Higher picks have higher value, but making the right pick is still the most important. Young players usually maintain value throughout their rookie contract. Nevertheless every team is given free value once a year to add to their bank. Like a Christmas bonus.

2.       “Winning” a trade against another GMs

This isn’t something you can plan for, but “steals” do happen and can have a large impact. Such as the Pau Gasol to LA trade or the Raptors somehow giving away TJ Ford, a 1st, and Rasho Nesterovic’s large expiring contract for Jermaine O’Neal’s negative value contract, a Nigerian scheme level value heist that was arguably the biggest nail in the coffin for their hopes to keep Chris Bosh

3.       Capspace

This is the most controllable of the four – and thus arguably the most powerful. Teams can use capspace in substitute for young players, which allows them to ‘win’ the balance of assets even in an equal value trade. The analogy I use is this: In a regular deal you might trade 5 Canadian dollars for 3 Euros, making no net difference. Capspace allows you trade 3 Canadian dollars and 2 Monopoly dollars for 3 Euros. Thus your net worth increases. Continuosly making these trades can consistently and reliably increase a team’s net worth. If consistent, many small additions to net worth makes up big increases. The Thunder are a great example of using capspace to create lopsided talent trades – getting Eric Maynor, Thabo Sefolosha, Serge Ibaka, and Cole Aldrich by this exact technique.

4.       Player value is not constant

Just as individual company’s values can drastically rise and fall while an entrepreneur owns them, the same is true with players. Opportunity and shot attempts, age, salary, injury, losing/winning stigma and culture can all alter trade value in a big way. Player value changes are extremely unpredictable. It’s the GMs job to monitor and foresee these rise and falls. This is the biggest counter against building solely on draft picks and capspace – having too many losing years will lower player value, both by losing stigma  and by players becoming expensive veterans instead of cheap youth. Players like Al Jefferson and Kevin Martin had their values dropped after losing seasons and were eventually traded for meagre returns. On the other end Michael Beasley is an example of a player bought for cheap and with more oppurtunity had his value wise. Furthermore one of the biggest reasons teams don’t freely lose and build around draft picks is finances. Many teams simply can’t afford to give away seasons. Though I’d argue mediocrity doesn’t sell more than youth and the best way to sell is to start winning. A team that makes the playoffs 8 years in a row and eventually contends is the ultimate financial goal.

In part 3 I will show the importance of expendable asset, which I call “money in the bank”.

Part 3 – Money in the Bank

Distinguishing between “untouchable core pieces” and “expendable” ones is important. Since every team with perenniel all-star talent such as Derrick Rose or Kevin Durant makes them untouchable and looks to build around them – the true GMing game comes down to the other assets on the team. Expendable asset is analogous to money in the bank for the entrepreneur, which can be invested into further companies. Without “money in the bank”, teams will struggle to improve themselves. There are no good trades available without good trade assets. An entrepreneur with no money in the bank cannot buy a new enticing company unless he sells a company he doesn’t want to to free up the asset for it.

Let’s look at the Thunder and Cavaliers one more time. The Thunder have horded assets for years, first by adding 3 other top 5 picks in Jeff Green, Russell Westbrook, and James Harden beside Durant, then using capspace for talent deals to get Eric Maynor, Thabo Sefolosha, Serge Ibaka, and Cole Aldrich. Combined with expiring contracts and picks in tact, the Thunder are loaded with money in the bank to build around their two stars Durant and Westbrook. If they want to go after players like Nene or Ben Gordon to take them over the top, they have the trade asset to get them.

The Cavaliers alternatively had virtually no money in the bank their entire tenure. Shortly after drafting Lebron they wasted their capspace on mediocore veterans like Larry Hughes, Drew Gooden and Donyell Marshall which forever eliminated the most controllable trade value accumulator. Lebron made them good enough immediately to not get good picks. Their best option to improve trade value was by winning trades, which they did in the Mo Williams for Luke Ridnour deal in winning the Varejao Orlando trade shortly after his draft. But only after years of waste did they have those 60 win seasons. The lack of trade assets prevented them from putting even good supporting players around Lebron until his final 2 seasons, let alone all-star caliber ones.

Another team who never had money in the bank is Kevin Garnett’s Timberwolves. The Joe Smith fiasco cost them 4 1st round picks, and then they never had capspace after Garnett’s monstrous contract. Without assets they had no way to put good players around Garnett.

The present Nets are a positive example of the value of money in the bank. Arguably their money in the bank consists of Devin Harris, Anthony Morrow, Derrick Favors, Troy Murphy’s expiring, and a whopping 5 1st round picks the next two years – to go beside their biggest ‘core’ piece Brook Lopez. As a result the Nets are on the verge of swapping just about all that asset for Carmelo Anthony. Regardless of whether they’re overpaying, the point remains they have enough expendable asset to trade for a superstar while keeping their best young player in Lopez. Something not many teams could do.

The 2008 Celtics built their title team by having money in the bank. Aside from their star Pierce, they had Al Jefferson, a #5 pick, Minnesota’s future 1st, Gerald Green, Sebastian Telfair, and capspace. This allowed them to make trades for Ray Allen and Kevin Garnett while keeping their core guy Pierce and one of their best prospects in Rondo.

You can even go back to the 80s Celtics and Lakers and 90s Bulls dynasties to see the impact of money in the bank. Magic Johnson, James Worthy, Kevin McHale, Robert Parish, Scottie Pippen, and Horace Grant were ALL acquired as a direct result of stockpiled picks. Thus a 50 W Laker team with Kareem got a #1 1979 pick and took Magic, then as a title team with Magic/Kareem they got a #1 in 82 and took James Worthy. The Celtics had the #1 pick in ’80 despite a 60 W team the year before, which they turned into McHale and Parish. The 88 Bulls were a 50 W team with two top 10 picks, which they turned into Pippen and Grant. Despite this strategy of banking future picks being defunct and impossible to replicate nowadays, the idea of these teams having money in the bank around their superstars still applies. It’s unlikely any superstar drafting team today will have such value in the bank, but nevertheless

And so forth. The history of the NBA overflows with examples of money in the bank either being the key to building a team, or a lack of it being the downfall of one.

I believe the Entrepreneur/Net worth theory is a dependable NBA strategy. Improving team position is related to improving trade value. Improving trade value is related to yearly draft picks, winning trades, capspace, and changing player value. Teams needs expendable assets to make positive trades, which is essential to rising in the NBA. If a GM could consistently improve his team’s trade value, just like if an entrepreneur consistently improves his net worth – then his team would eventually rise through the ranks. Which is the goal of a consistent NBA GMing strategy.

2 Responses

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  1. Julien – interesting read. I think we can simplify most of “GM strategy: and say that good players are everything. Sometimes they can be acquired in free agency (cap space), but they still need to be good and worth the contract. T-Mac to Orlando was good. Rashard Lewis, not so much. Draft picks are nice, but if they are squandered on bad players, it’s useless. “Winning trades” usually happens with young, unproven players.

    Ultimately, player evaluation is the most important element.


    January 18, 2011 at 10:02 am

  2. […] couple months ago, I wrote this column hypothesizing in short that NBA teams could best have their positions in the league going […]

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