NBA Needs a True Free Market

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The NBA is a curious entity. The new basketball season opens to little fanfare in contrast with the chorus of hosannas that ring out on Week One of the NFL season. The playoff chases pale in comparison to MLB’s wild, and sometimes legendary, Septembers. Even the postseason is largely uninteresting until the final two rounds. It seems basketball is a sport primarily for hardcore fans.

In fairness, sports fans have plenty of choices during the late fall and winter. The NHL (normally) is grinding along and football games - college and NFL- air all week. Furthermore, the football hype machine runs nonstop on ESPN between NFL Live, College Game Day, and segments on SportsCenter. And after two quiet months, February and March, baseball starts in earnest.

But blaming competition is a poor excuse. The NBA is arguably the most star-driven of all the pro sports leagues. There is no reason a national NBA game involving the Los Angeles Lakers or Miami Heat should attract fewer viewers than a non-marquee NFL matchup on a Thursday. But therein lies the problem: there are few “others” because the best basketball resides in select cities.

Consider that nine teams have hoisted the Larry O’Brien Trophy since the 1979-1980 season; the Los Angeles Lakers, Philadelphia 76ers, Boston Celtics, Detroit Pistons, Chicago Bulls, Houston Rockets, San Antonio Spurs, Miami Heat and Dallas Mavericks.  In recent years, the Western Conference has epitomized this disparity: the Lakers, Spurs and Mavericks won every Western Conference Championship from 1999-2011. With the exception of the Oklahoma City Thunder, the championship will likely be won by one of those nine teams this season.  

In contrast to gleaming success, there is stark futility. Larry Bird’s Celtics won more crowns, three, than every team in history except the Lakers, Spurs, Bulls, Pistons, 76ers, and Warriors. Thirteen squads lack a title, seven have no Finals appearances, and six last reached the Finals at least two decades ago. Moreover, franchises can, and do, fall into perpetual irrelevance. The Golden State Warriors have one postseason appearance since 1994 in a league where half of all teams reach the playoffs. That also says nothing of the fact that some squads, such as the Toronto Raptors, last won a playoff series at least 10 years ago.

But today’s polarized circumstances, with a successful and failed class, did not emerge randomly. It originated from the league adopting flawed economic ideas under the banner of fostering parity. But an understanding of how the salary cap, enacted in 1984, and max contract policy distorts incentives reveals the futility of central planning.  

Pro athletes, like any form of labor, are assets an organization accrues, develops, and utilizes. Individual players, operating as a team to win games, make money for the franchise by selling seats and generating high television ratings. The players are then compensated, based on their skills and performance, through free agency or the possibility of it. And critically, free agency allows a player to leverage his employer for more money by threatening to play for a competitor. The result is dynamic competition on and off the court; players performing for top dollar compensation and franchises investing to win and rake in revenue. This is quite the opposite of the NBA’s present competitive sclerosis. 

The summer of 2004 in Los Angeles is an instructive example. After losing in the 2004 Finals, the Lakers looked different; Shaquille O’Neal, Karl Malone, Gary Payton, Derek Fisher and coach Phil Jackson departed. After opting out of his contract, Kobe Bryant received a seven-year, $136 million max contract and ended up playing alongside Smush Parker and Kwame Brown. That unhappy situation, culminating in Bryant demanding a trade in 2007, continued until the Lakers acquired Pau Gasol in 2008. The Lakers promptly reached three consecutive NBA Finals, and won back-to-back titles.  

Now imagine a free labor market existed, and the Clippers called Bryant with a proposal. By signing with them, Bryant could stay in Los Angeles, work with better talent, and receive more money and years. The Clippers would instantly acquire a cornerstone star to build around, sell more seats, and directly wound their co-tenant and rival. Recent NBA history would look very different if this scenario had occurred. But the artificial ceiling on pay dis-incentivized Bryant from leaving his purple and gold comfort zone. The Lakers eventually returned to the top, and the Clippers remained in the cellar.

It is fashionable, and erroneous, to criticize players for chasing every last dollar. People, pro athletes included, respond to incentives. If money is not the biggest inducement to go somewhere then another factor, such as playing with other stars in pursuit of a title, will replace it. Why did LeBron James choose Miami rather than sticking it out in Cleveland, or going to Chicago or New York? He knew his value and correctly surmised that teaming with Dwyane Wade and Chris Bosh offered him the best shot at a title.

Indeed, the NBA’s economic policies have created an existential threat to bad clubs in the form of talent concentration. Superstars are, by definition, rare because few possess their supreme athletic abilities. When paired with the zero-sum nature of talent acquisition, i.e. Carmelo Anthony is in New York and not Denver, any policies that encourage concentrating the rare few is dangerous. Unfortunately, the NBA has been marching down this road for years now. All the “Big Three” model represents is an extension of the two-star model that dominated the 1990s and early 2000s.

Money offers hope to losing franchises. If the biggest incentive for Player X is pay then every team has a relatively equal shot at acquiring him. Indeed, money is possibly the only asset a bottom-feeder possesses. What else can the Sacramento Kings use to lure a superstar? The Lakers have tradition, the Knicks play in the “Mecca of Basketball” (Madison Square Garden), the Spurs are known as the NBA’s best organization, etc. The key thing about money is spending it wisely. 

Supporters of the salary cap and max contract policies will invariably point to the Oklahoma City Thunder. They drafted well and signed to sign Kevin Durant and Russell Westbrook to affordable long-term deals at sub-market value. The once draftees are now stars with a legitimate shot at dethroning the Heat, the system worked.

However, it is important to recognize just how exceptional Oklahoma City is in the context of drafting and developing. The front office nailed three top-five first-round draft picks from 2007-2009 with Durant, Westbrook, and James Harden along with snagging Serge Ibaka. That is unprecedented success. No draft pick is a sure thing and a bad draft, particularly at the top, can set a franchise back years: just ask the Portland Trail Blazers.  

If David Stern desires competitive balance he should free the labor market. Abolishing max contracts and the salary cap will allow bad teams, backed by good ownership, to use the great equalizer of money. Fans, in any market, reward success and a free labor market will push owners to invest in building a good product or risk losing money. If that unnerves the likes of Kings and Hornets fans they should consider the current alternative, imprisonment in irrelevance.

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