Thursday, July 10, 2014

Overpaying Is WORSE Than Walking Away With Nothing

A lot is being said right now about the "right" way to build an NBA team from a financial standpoint. The San Antonio Spurs, of ZERO max-contract players just dethroned (pants'd really) the star-studded Heatles and everyone is sure that the new way forward requires star players taking "discounts."

That is not the case. Too often front office decisions are made based on the premise that talent is rare and losing a "good" player is something that should be avoided at all costs. This is especially true for teams that don't have a lot of "good" players. That's why you hear people say "better to overpay (fill in the blank) than to lose him for nothing."  Great teams and great organizations do not think like this.  Well managed, cap-conscious teams make great efforts to ensure that every decision is favorable to the team's total formula.

To look at that you should know that last year in the NBA 2.025 BILLION dollars were paid out in salary and in exchange 1230 wins changed hands.  Those 2 numbers are important because teams that manage the cap well manage those 2 factors well: 1. How much (millions) am I paying? 2. How much (wins) am I getting?

The ratio of those 2 numbers is 0.61 wins for every million dollars spent.  That means if you are average at negotiating deals for top talent you can expect your team to win you 0.61 wins for every million dollars you invest.  Teams better at evaluating talent yield a higher number and teams that are bad yield a lower number.

To understand these numbers take a look at the cap/production of the New Orleans Pelicans:

  • Salary is in millions
  • The second column is "wins produced"; for more info on that see
  • The third is Wins Produced per million dollars, keep in mind that average is 0.61, anything higher means that player is outproducing his contract
  • The last column is "extra wins" or a total of how much that guy is giving you beyond what you're paying for; a negative number means he didn't earn his full salary
Anthony Davis5.411.72.28.4
Eric Gordon14.32.10.1-6.6
Al-F Aminu3.
Tyreke Evans10.33.70.4-2.6
Brian Roberts0.
Anthony Morrow12.32.31.7
Austin Rivers2.3-0.9-0.4-2.3
Jrue Holiday*
Ryan Anderson*


*= 20+ games missed due to injury

The Pelicans are a great team to look at because Eric Gordon was a guy about whom it was widely thought "better to overpay than to lose him for nothing." They are classically obsessed with "good players" over "valuable investments" to the point that I believe they have already squandered their chance to build a long term contender around Anthony Davis, a nuclear, super-powered mega-star.

In the case of Eric Gordon think about this: 
If you had a salesman at your company who was bringing in $100,000 of net revenue and he said "pay me 150k or I'm gone" it would be a no brainer. He'd be gone. It's better to be looking for new salesmen than to take a 50k loss just to know you have a "good" salesman. He's only good if he makes the company more successful on net.
Instead of passing on Gordon and having 14 million dollars that could have (on AVERAGE!!!) bought them about 8.5 more wins they got 2 from Eric Gordon. Good players don't make good rosters -- economical ones do.

Let's take a look at the most economical roster in the league, you guessed it...

Tim Duncan 10.3 9 0.9 2.7
Marco Belinelli 2.8 6.7 2.4 5.0
Tony Parker 12.5 3.6 0.3 -4.0
Boris Diaw 4.7 3.8 0.8 0.9
Kawhi Leonard 1.9 11.8 6.2 10.6
Danny Green 3.8 6.5 1.7 4.2
Manu Ginobili 7.5 5.9 0.8 1.3
Patty Mills 1.1 5 4.5 4.3
Tiago Splitter 10 4.2 0.4 -1.9


The Spurs are riddled with players who, while not phenomenal, are bringing net benefit to the team. This is compounded by the fact they get superstar production form Kawhi Leonard at a rookie scale 1.9 million dollars, but even without him they would have been a 50 win team while spending less than league average on their team.

If you're going to wrap up major money in a guy you need to believe that he will earn more than you're paying. Paying Eric Gordon 15 million, even in the best case scenario, is like having 25% of your stock portfolio buried in the ground.  You need to try and earn big dividends on every deal. Even the Spurs miss sometimes so it's important to have lots of +2 and +4 guys to round out the mistakes.

To build a great roster you have to think about every move through the lens of "does paying x for what this guy will give us make sense?" The Spurs have let many "good" players slip through their fingers over the years but almost all of those were sound financial decisions. Those guys, while good, were not worth the money on the table. In this offseason where guys are changing hands and your team is tempted to overpay for a guy because "it's better than walking away with nothing" ask yourself "is this a good investment?"

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