2016: It’s All About the Game, And How You Play It

(This article initially appeared at DEEPishThoughts and is reproduced here for completeness only.)

Hello, and welcome to my first article over here at DEEPish Thoughts.  Thanks to Chris for inviting me.  For those of you who don’t know me, I’m Buster Ducks, aka TheDuckyNinja.  I’ve been writing about the NBA Draft since 2014, and you can find everything I’ve written (including my 2016 Draft Series to date) over on BusterDucks.com.  Now, you may be asking yourself, “hey, doesn’t Kaiser do the draft analysis around here?”.  Kaiser writes great stuff, but for one, we don’t fully agree on everything, and, maybe, more importantly, my approach is much more theoretical – I only spend a few weeks discussing the actual prospects in the draft.  Why?  Well, as I always like to say, projecting prospects is really, really hard. Which means I’m much more interested in the process than the results.  A good process, will, over time, lead to better results.  And so I seek the best process. That’s ultimately what my Draft series is all about.

Where does that take us this week?  It takes us to a deep discussion of the draft itself.  People have written about the success of prospects by draft slot (I think the most well-known was this one by Aaron Barzilai), but the draft is a game, and it seems like nobody ever thinks about it like a game.  I guess this is where I warn you that I am a major nerd, as if you didn’t pick up on that already.  There’s honestly few things I enjoy more than determining optimal strategy given a set of rules. So we have the rules of the NBA draft.

First, the contract rules.  First-round picks get a guaranteed two-year contract with team options for the following two seasons.  If both of those options are picked up, the team can tender a qualifying offer, which makes them a restricted free agent, meaning they get the right to match any offer for that player in free agency.  International players selected in the first round who do not come over within three seasons are not limited by this cap.  Second round picks are not made under the rookie scale and are subject to NBA salary cap rules.  This is why the vast majority end up on rookie minimum contracts.  Second round picks do have the option to sign a one-year minimum tender rather than accept whatever other contract they are offered, although this rarely happens (KJ McDaniels is the only recent example I know of).

Now, there’s an additional wrinkle.  Most of the time, team options on contracts need to be exercised the offseason before the season they are for.  Rookie contract options, however, need to be exercised the offseason before the offseason before the season they are for.  That is, a normal team option for 2016-17 needs to be exercised in the Summer of 2016.  A rookie contract team option for 2016-17 needed to be exercised in the Summer of 2015.

Why are the contract rules the most relevant? This is where we have to treat the draft like a game. Let’s take a really simplified version of the draft.  Each player costs an asset (a draft pick), takes up a roster spot (a limited resource), and uses some amount of cap space (semi-limited).  There are also other costs: not drafting a different player, playing time and coaching and player development time that could go to other players, etc. These are all real costs.  In the context of team-building, getting usable NBA talent on rookie contracts are the second most valuable assets behind players who deserve max contracts.  Knowing the contract rules is important to determining both costs and potential value.

Yes, the counter to costs is value produced.  Each player produces some amount of value (whether it be negative or positive) each year they remain on the roster.  As stated above, they can remain on the roster on their rookie contract anywhere from one to four years.  Each prospect has a range of outcomes, I’m going to call them A (worst) through E (best) for purposes of this article.  Again, to keep things simple, let’s just stipulate that each prospect has a 5% chance of reaching E value, 15% chance of D value, 15% chance of C value, 35% chance of B value, and 30% chance of A value. I think that’s a generally fair breakdown of how players pan out.  Most players bust or never realize most of their potential, a few hit a slightly higher ceiling, a few hit a higher ceiling than anybody thought they had, and a tiny few really exceed all expectations.

So, the NBA draft is a game.  You want to generate the most value possible, knowing that you get at most four years to extract real value from these players unless you find a superstar.  Unlike many games, this is one where every team will have different costs, and each team will want to think about how much they’re willing to spend on the NBA draft.  Different teams in different situations will have a different calculus, and the spreading of draft picks means that teams are limited in how much they can spend at the draft.  Optimizing cost in the NBA draft is probably better discussed in the context of a full team-building article, which is something I may write as free agency approaches, but which I am less concerned about here. Suffice it to say for purposes of this article that there are costs and costs are real.  So, then to maximize value, we need to find maximum value players.

And who are the maximum value players? Players who either have some value if they have an A/B outcome or players who have the potential to be a superstar. Which makes it incredibly befuddling why so many teams draft so many players who have neither A/B value nor superstar upside. Who are these players? “Players with potential”, especially freshmen. Put simply, most players don’t have potential superstar value.  In an average draft, you’re looking generally at one guy who has superstar value starting at C or D and maybe a handful of guys (2-4) who have superstar value at E. So if you’re not getting one of those guys, you should be looking for guys who are ready now, as they are the ones likely to produce the most value on rookie contracts.  That means drafting older players over younger players, which is about the exactly opposite of what NBA teams currently do.

NBA Draft
Kevin Durant was the only 18-year-old in this example who went on to become a star.

Now, you may be saying “hey, wait a second, don’t Freshmen get drafted higher because they have higher upside?” That is why they get drafted higher, but…this is where the conventional wisdom is just flat-out wrong.  I took a look at the top 20 college players by MAC to see who becomes a top player most often. Of the top 20 college players (which removed LeBron and Manu), there were 4 Freshmen, 7 Sophomores, 5 Juniors, and 4 Seniors.  So by year, there’s really no reason to prefer freshmen to other players, and there’s really no indication that Freshmen are “higher upside”. In fact, if you take a closer look at the Freshmen, you’ll discover that two were 19 at the start of their freshman season (Love and Jordan) and one was 20 (Whiteside).  The only 18-year-old who went on to become a top player was Kevin Durant.  At a quick glance, expanding the sample is not going to change the general breakdown – if anything, it would likely tilt the breakdown more towards sophomores and juniors. Now, I’m not going to say that teams should never draft 18 or 19-year-olds, but teams should not be ascribing them extra value because of their age.

And there’s a simple reason for that: they’re not as good, so they have more upside relative to where they’re starting, but most guys never reach their maximum upside, so not only do they typically have lower ultimate upside, but they also don’t reach it any more often than other players. The bias towards younger players is completely unjustified and the biggest source of draft misses. With the exception of the 1-3 freshmen who project as potential superstars, freshmen are the lowest expected value: their A/B value tends to be low or non-existent, while their C-E value isn’t high enough to justify the risk.  It is especially painful in the context of the draft because wasting a pick on a young player who doesn’t develop is a huge cost where significant value could have been gained but wasn’t.  Basically, teams are biased against players who take their big leap while still in college while trying to draft players who will take their big leap while in the pros.  Quite frankly, it’s inexplicable.  It is intentionally punishing players for providing more information or for getting better in a way that an NBA team can’t take credit for or something.  NBA GMs take the mystery box instead of the boat because it could be a boat.  NBA teams largely act about as intelligently as Peter Griffin.

There’s another major problem with the guys who top out in the “NBA quality but not a superstar” range – free agency.  These players are typically not deserving of a max contract but are young enough to demand a higher contract than they’re worth because of their “potential”.  These players often get the contract they are looking for, but those contracts are for market value.  The problem with market value contracts for guys in this range is that there is no added value, and overspending on those guys is the easiest way to stop your team from being real contenders – ask the Cavs if they wish they weren’t paying 28M to Tristan Thompson, Iman Shumpert, and Timofey Mosgov. Getting under the luxury tax would be a huge deal for the Cavs given the lack of flexibility brought on by the luxury tax apron.  Instead of going into this offseason looking at potentially having 10-15M in cap space, they’re still going to be well over the cap.  Those contracts tend to be absolute killers.  Look at teams like the Warriors and the Spurs – these contracts don’t exist there.  Now look at the Thunder, paying big money to Enes Kanter.  Championship teams simply can’t afford to overpay merely average players and still expect to win a title.  And because these guys are available in free agency for market value (or a little over) anyway, there’s no real benefit to drafting them other than exploiting them for a few years while they’re on their rookie contract, so you want guys who you can exploit while they’re still under that rookie contract..

Whew, okay.  So, there’s one more key rule that is routinely ignored by NBA teams that cost them significant value: positional scarcity.  It’s funny, everybody who plays fantasy sports knows that players have more value if they play a position that’s scarce and less value if there’s not a lot of difference between them and players who can be picked up in free agency.  So why don’t NBA teams ever seem to take this into account?  There are always far more viable big men prospects in the draft than non-bigs, and there’s usually less distinction between them.  Now, there are occasionally bigs who profile as good enough to warrant a high pick, but most of them are fungible. Why spend a high pick on a guy when you can get 90-95% of his expected value in the next round or even UDFA?

Put another way, you can’t just play 5 bigs.  You need players to fill all roles.  And it’s harder to find value for other roles.  So in most cases, even though there is more raw expected value to be gained by taking a player at a certain position, there may actually be more gained expected value to be gained by taking a lesser player at a more scarce position.  Again, typed formally like this, it sounds a little wonky, but it’s really nothing more than “a SS who provides 90% of the offensive production of a 1B is more valuable than the 1B because there’s a bigger dropoff at SS than at 1B”.  Just replace “SS” with “3-point shooting wing” and “1B” with “non-shooting big”.

So, the draft is nothing but a value maximizing game.  NBA teams routinely target the exact opposite guys they should if they want to maximize value, and they fail to prioritize positions that are more difficult to fill.  They stick to the maxim of younger is better when the maxim is both blatantly false and counter to the best way to play the game.  NBA teams who play this game the right way will win games on the court more.  NBA teams who play it wrong will continue to draft high year after year.  It’s that simple.

You play to win the game.