Monthly Archives: June 2011

Taking a look at the numbers behind the NBA labor dispute

Posted on by
48

(Editor Dre’s Note: I took out an XKCD Comic here to insert my thoughts. This article is a great read with a ton of stuff to read over so I really wanted to insert some spoilers for those that may be scared of math)

  • Player’s salaries have stayed even with inflation. Essentially this means their pay has not been going up.
  • Owners have been increasing their spending. Management’s operating costs (per their own numbers) have been going up at five times the level of inflation (that’s a lot).
  • Even in the ideal case for the owners with the new CBA these problems will repeat themselves in 2020.
  • The Owners are asking the players to take a pay hit to make up for bad management practices.
(Editor Dre: Hope you’re still interested. Sorry for making you miss out on a comic. Enjoy the show!)

I’ve read/listened to a lot of stories recently about how the current NBA salary structure is threatening to put the NBA out of business. The system is broken these stories say and an out of control salary structure is threatening make small market teams extinct.

The stories are fairly easy to believe. All you have to do is close your eyes and think and very quickly a few examples of grossly overpaid player quickly come to mind.

Spoilers

As I was listening and reading an interesting thing happened. Massive warning bells went off in my head. My brain’s finely tuned financial bs detector, trained to spot where numbers don’t quite add up, called shenanigans. The owner’s claims that Player salaries are driving the NBA into the ground are simply not true. They’re hoping the people they’re bargaining with fail at basic math or aren’t paying attention.

Here, then, is my attempt at explaining what is actually going on. Before that you might want to peruse the following links for background:

I managed to source a link for:

  1. Larry Coon’s collective barganing agreement (CBA) FAQ at cbafaq.com
  2. Forbes list of NBA revenues by Team (http://www.forbes.com/lists/2008/32/nba08_NBA-Team-Valuations_Rank.html)
  3. Wikipedia entry on the NBA Cap (http://en.wikipedia.org/wiki/NBA_salary_cap#NBA_Salary_Cap_history)
  4. US inflation (http://www.inflationdata.com/inflation/inflation_rate/historicalinflation.aspx)

Back already? Good. Let’s get to the numbers.

The key fact to start with  is the following: Players salaries are a fixed Cost at  57% of League Gross revenue.

Let’s repeat that: Players salaries are a fixed Cost at  57% of League Gross revenue!

Any and all cap nonsense is a bunch of hot air. By being fixed to league revenues, player salaries cannot balloon out of control. The league in fact has controls in place in the CBA to keep that number fixed.  Those controls are:

  1. The Luxury tax limit, which is simply set by taking the league’s estimate of gross revenue for the season dividing it by 30 and multiplying by 57% (and adjusted against actual revenue using Control #2).
  2. The League holding back 8% of player salaries in escrow and using that money to make adjustments to guarantee the 57%. This is the fudge factor that allows them to keep Player Salaries at a fixed percentage of Revenue.

There is a simple equation then for determining how much money the league actually makes:

Profit Margin = League Revenue -Player salaries (a fixed cost) – Team expenses (Variable Cost)

The big problem with a lot of the analysis I’ve read is this is that not all of this information is public and it makes determining the truth somewhat hard. Writers and analysts are left scrambling for answers based on gut and feel because they don’t have all the facts.

This is a problem we can fix.  After all in the advanced stats world we deal with complicated equations all the time and this one is much easier.

Let’s lay out the relevant information:

  1. Using the Luxury tax limit numbers for each year we can figure out Player Salaries (Luxury Tax Limit times 30)
  2. We can determine  League revenue (Player Salaries/0.57).
  3. We can assume the league made money in 2005 (say 14 million per team or about $420 Million total)
  4. The League claims an operating loss of 300 Million this year.
Just by looking at those facts and without actually crunching the numbers, my contention is that If the NBA made money in 2005 and now they lose 10 million with a FIXED cost for salaries, then team Expenses are growing past the rate of inflation in a bad way. The problem then isn’t the players – it’s the owners, and they’re exploding their costs and spending money like drunken sailors. (Editor Dre’s Note: I wanted to replace this but I found the metaphor strangely appropriate)

 

The math does not disagree. Let’s illustrate it:
The simple takeaway from that table is that Player Salaries and NBA Revenues are growing exactly at the US inflation rate (score one for economists everywhere!). Team expenses are growing at a ridiculous five times that. The owners must know this. A new labor deal will not fix that.
Let’s illustrate this again:
Let’s operate under the following assumptions:
  • The owners get the 40% BRI number the union claims they want.
  • Player Salaries and revenues are  locked in at 2.4% percent increases tied to inflation (with one notable exception)
  • TV rights go up 21% as they did when last negotiated (the exception)

Under this extremely favorable scenario, the owners will still start losing money by 2020 and looking again at player salaries with evil intent.

In fact, if the owners move to a percent of the Net revenue and not gross revenue (as they also want to do), they can then manipulate the bottom line to bilk the players by for example borrowing against the value of the teams and charging the debt servicing to the team expenses.
Let’s illustrate this as well:
Here I assume a Net Revenue split of 50/50 and that the owners curtail their spending to 2011 levels. This yields a stable business model for the owners but it does so by knocking player salaries down to $3.2 million per player on average from $5.2 million now (a 40% net drop and a steadily decreasing share of the pie over time).

Ok, maybe the math is not so simple but the conclusion is clear. The owners are looking to take the money from the talent. Funny that it all comes down to simple incentives in the end.

-Arturo

Just Desserts: 100 Greatest Wins Produced Players since 1978

Posted on by
13

[Editor's note: Below is another piece by Arturo called "Just Desserts" where Arturo gives a very quick slice of data. Enjoy!]

Sometimes a picture is enough to tell a great story.

I was asked to update an old poster of mine featuring the 100 greatest Wins Produced players of all time. I love a good graph. I readily agreed.
As we are between datasets it was a lot of work. But it was great,great fun.

I hope you get a kick out of it too.

-Arturo

2010-2011 Top Underpaid Players

Posted on by
12

2010-2011 Top 30 Underpaid Players. Salaries and Values in millions. Salary Data from Basketball-Reference (who I believe rely on Patricia Bender)

A fun thing we like to do each year at the Wages of Wins Network is look at which players were paid too little and which were paid too much. For fun I’ll start optimistically this year. Above are the top 30 players that weren’t paid anywhere close to their output according to the Wins Produced metric. The method to figure this out is pretty simple. Last year there were approximately $1.94 Billion in salaries for the whole NBA. In a given season there are 1230 available wins, making the simple value of a win around $1.58 million. If we award a player $1.58 million for each Win the produce and then dock them their pay, we can get their net value (sorry for the Econ 101 everyone!)

The first set of players that very obviously stands out (thanks Arturo for highlighting them in green) are players on their rookie contracts. Kevin Durant and Derrick Rose are two players that have been rated at the highest level. This year combined both made less than Jason Richardson. We notice that Chicago and Oklahoma City, two teams considered up and comers, have taken advantage of this fact having multiple productive rookie scale contracts for next to nothing. A huge sting on this note is that Kevin Love – this year’s Most Productive Player (MPP) – made less than the mid level exception usually reserved for “role players”.

The next set of players are those simply too good to get paid their fair value thanks to the salary cap. Dwight Howard, LeBron James, Chris Paul, Dwyane Wade and Pau Gasol are all top players on their team and despite getting top dollar are still underpaid. What’s important to notice is that their are only a handful of players at this level in the league. Certainly many teams hope their top paid player (we’ll see a few on them in the Overpaid list) are worth the money but that is simply not the case.

The final set of players are those that contribute to team wins in less obvious ways. Rajon Rondo, Jason Kidd and Steve Nash are all point guards that are very good at passing and other facets of the game. Lamar Odom, Chuck Hayes and Kris Humphries are tremendous rebounders. Unfortunately their contributions to the team aren’t always noticed when it comes to things like play time and pay. Succesful teams tend to have players like these and we can notice that Kidd, Odom and Rondo have all contributed to a successful title run for their team.

Underpaying these players is beneficial to many other parties. The owners get cheaper labor. Other players have a better chance at getting paid well due to the current contract set up. As such when the dust settles on the new CBA it is unlikely that things will change for many of these players. The truth is that a majority of the players on this year’s list were also on last year’s underpaid list and we can almost certainly expect to see a few of them next year.

-Dre

[Editor's Note: Some of you may notice a portion of this article was rewritten. A last second change upped the number of players listed from 15 to 30 (lucky readers!) and some of the text didn't reflect that. Enjoy the added content and sorry for the mix up]

-Dre

Quick Takes: Atlantic Division Draft Grades

Posted on by
4

The other day I posted my quick take on the winners and losers of the 2011 NBA draft. Today I will be continuing with quick takes for each of the five Atlantic Division teams, a  division that conveniently features my favourite team, the Raptors, as well as perennial contenders like the Celtics and the Nets (just kidding).

My method is as follows: I have a spreadsheet with all the draft prospects, all the draftees, their PAWS/40, and (thanks to Arturo) the expected values of each pick. I also recorded the change in salary and wins obtained through draft day trades involving veteran players. Based on these numbers, I came up with the value that each team stands to gain if PAWS/40 can perfectly predict NBA productivity. Of course, PAWS/40 can’t predict NBA productivity perfectly, so the values I came up with aren’t infallible; I had to offer some subjective alterations to the raw scores. I won’t pretend that my evaluations are perfect, but nevertheless, I much prefer my methods to the vast majority of evaluations, which rely almost exclusively on subjective elements.

On to the grades!

Boston Celtics: B

The Celtics started out the night with the 25th and 55th picks and ended up with the 27th and 55th picks, as well as a 2014 second round pick. With the 27th pick the team selected JaJuan Johnson, a power forward who posted a PAWS/40 of 9.78 in the NCAA last year. With the 55th pick they selected E’Twaun Moore, an NCAA shooting guard who posted a PAWS/40 of 9.77 last year. These two players are right around the average PAWS/40 and are good additions to the team, but the Celts really need some help at the centre position. A 9.78 power forward should help take away minutes from Glen Davis, but there were still a couple of good centre prospects on the board at #27 that would’ve been better bets than Johnson. Netting two average players starting from a #25 pick gets Boston a B.

Glen "Big Baby" Davis crying

Sorry Mr. Baby, but you need to play fewer minutes

New York Knicks: B+

The Knicks had one pick on the night, #17, and also traded the ever-popular “cash considerations” for the Hornets’ #45 pick. With their own pick, the team selected an NCAA guard named Iman Shumpert (a name that has to be under consideration for the best name of the draft), who posted a PAWS/40 of 11.27 last year. Although the New York contingent of the live audience did not like the pick, Shumpert was another example of the Knicks’ good drafting ability; in terms of PAWS/40, he was ranked 19th overall among all drafted players. With the #45 the Knicks got Josh Harrellson, who played centre for Kentucky and posted a PAWS/40 of 12.15, good enough for 13th among drafted players. Two above average players, and one who plays centre – the team’s weakest position! Starting Harrellson would allow the Knicks to shift Amaré Stoudemire back to his natural power forward position, which would make him more productive. Of course, the Knicks may not want to start someone who was drafted #45, but they started Landry Fields (taken with the 39th pick) in 81 games last season, so you never know. Very good selections; the Knicks actually might end up making some noise in next year’s playoffs after all.

Toney Douglas, Chauncey Billups, Landry Fields, Carmelo Anthony, and Amaré Stoudemire of the New York Knicks

Better luck the second time around, eh?

Philadelphia 76ers: B

Philadelphia had the 16th and 50th picks this year, and came away with Nikola Vucevic and Lavoy Allen. Vucevic posted a PAWS/40 of 10.72 while playing PF/C for the Trojans last year and looks to have what it takes to become an above-average NBA player. Allen, on the other hand, posted a PAWS/40 of 8.08 and also plays power forward. While there were still some decent prospects available at #50 – and this is true almost every year – it’s hard to dock the 76ers any points for missing them. Overall, the solid first pick is enough to make me hand out a B.

Angry Andre Iguodala

Cheer up, Iggy; your team didn't do that badly!

New Jersey Nets: A

The Nets started out with the 27th and 36th picks, but ended up trading the #27 and a 2014 second round pick for the #25. With the #25 New Jersey selected shooting guard Marshon Brooks, who posted a PAWS/40 of 12.07. With the #36, the Nets picked Maryland centre Jordan Williams, who posted a PAWS/40 of 12.65. Both players are excellent prospects, and both play positions that the Nets need to improve. Now all that New Jersey needs to do is to make sure that they resign Kris Humphries-Kardashian, and they should be in the running for most improved team whenever the next season begins.

Mikhail Prokhorov as Ivan Drago

"I must break you"

Toronto Raptors: INC

With the 5th pick, the Raptors selected Lithuanian centre Jonas Valanciunas. Valanciunas didn’t play very many minutes last year and his stats are from overseas, so it’s hard to say what kind of a player he will turn out to be – but the stats that he put up were impressive. As far as PAWS/40 goes, he was the highest rated international player and had the 5th largest PAWS/40 of any player in the entire draft, at 12.95. Valanciunas was indeed a mystery box option, but he was the best mystery box option. Given that all signs were pointing towards Brandon Knight, Bismack Biyombo, or even Tristan Thompson, the Raptors certainly could’ve done worse. As a bonus, centre is the position that the Raptors desperately need to improve, and this pick points towards a Bargnani trade in the near future. Unfortunately, Valanciunas won’t make it here until the 2012-13 season. Given that bit of news and his small sample size, I have no choice but to give Toronto an Incomplete grade, even though I am a fan of the pick.

Bryan Colangelo with phones

Work those phones, BC!

Coming up next time: Central Division Draft grades.

- Devin

Just Desserts: The Greatest Wins Produced Seasons and The Wins Produced All NBA Teams

Posted on by
3

What is essential in war is victory, not prolonged operations. -Sun Tzu The Art of War

Andres likes to complain observe (Editor Dre clarification) that I take too long sometimes to get to the good stuff.

Philistine. Now go away or I shall taunt you a second time.

I decided that in his honor, I’m going to do an ongoing series in which I just give you dessert.

Today I’m giving you a poster of the greatest 150 Wins Produced Seasons of the Wins Produced Era (1978 to Now):

And the Wins Produced All-NBA Teams. The Wins Produced All NBA Teams are composed of the best player at each position for each season based on ADJP48 (Raw Productivity per 48 Minutes) for each player who played more than 2000 Minutes for that season. That (with some cool visualization effects) look like so:

I hope that hit the spot.*

If you want more verbiage just go here.

-Arturo

*Editor Dre’s Note: It definitely hit the spot :)