Malcolm Gladwell: The Moral Hazard of the NBA Draft

May, 14, 2009
5/14/09
11:04
AM ET

Perhaps you have already read the super long and interesting e-mail exchange between Malcolm Gladwell and Bill Simmons (complete with Gladwell's tale of blowing off Jennifer Aniston in a Miami coffee shop). In Part 2, Gladwell suggests that the league should not reward teams for performing badly, as they do by giving worse teams better draft picks. 

The consistent failure of underdogs in professional sports to even try something new suggests, to me, that there is something fundamentally wrong with the incentive structure of the leagues. I think, for example, that the idea of ranking draft picks in reverse order of finish -- as much as it sounds "fair" -- does untold damage to the game. You simply cannot have a system that rewards anyone, ever, for losing. Economists worry about this all the time, when they talk about "moral hazard." Moral hazard is the idea that if you insure someone against risk, you will make risky behavior more likely. So if you always bail out the banks when they take absurd risks and do stupid things, they are going to keep on taking absurd risks and doing stupid things. Bailouts create moral hazard. Moral hazard is also why your health insurance has a co-pay. If your insurer paid for everything, the theory goes, it would encourage you to go to the doctor when you really don't need to. No economist in his right mind would ever endorse the football and basketball drafts the way they are structured now. They are a moral hazard in spades. If you give me a lottery pick for being an atrocious GM, where's my incentive not to be an atrocious GM?

I think the only way around the problem is to put every team in the lottery. Every team's name gets put in a hat, and you get assigned your draft position by chance. Does that, theoretically, make it harder for weaker teams to improve their chances against stronger teams? I don't think so. First of all, the principal engine of parity in the modern era is the salary cap, not the draft. And in any case, if the reverse-order draft is such a great leveler, then why are the same teams at the bottom of both the NFL and NBA year after year? The current system perpetuates the myth that access to top picks is the primary determinant of competitiveness in pro sports, and that's simply not true. Success is a function of the quality of the organization.

Another more radical idea is that you do a full lottery only every second year, or three out of four years, and in the off year make draft position in order of finish. Best teams pick first. How fun would that be? Every meaningless end-of-season game now becomes instantly meaningful. If you were the Minnesota Timberwolves, you would realize that unless you did something really drastic -- like hire some random sports writer as your GM, or bring in Pitino to design a special-press squad -- you would never climb out of the cellar again. And in a year with a can't-miss No. 1 pick, having the best record in the regular season becomes hugely important. What do you think?

Even as I don't totally buy this, I'm intrigued.

First of all, does the NBA really have a lot of teams locked in the cellar? In fairly recent memory, every team still alive in the playoffs has been either pretty bad or really bad (Remember when Magic Johnson was resigning as Laker coach, Antoine Walker was getting booed in Boston, and the Cavaliers were a laughingstock?). All kinds of traditional powerhouses (Pistons, Spurs) are asking hard questions as they look forward. And teams that have been seen as inept, like the Hawks and Warriors have had their thrills in recent years.

No, I'm not optimistic about the Clippers -- but I can't see changing the whole league for them.

Also, it really would be hard to watch the NBA champions tack on a Kevin Durant or similar every year. I don't love the idea of alternating between a lottery and a draft with best team's first -- essentially you'd be making some regular seasons more valuable than others. With three games left, if you're close to getting homecourt advantage throughout the playoffs, do you rest your banged up superstar for the post-season or not? In this system, that would depend on the year ... Which is weird.

But I am intrigued by the idea of having every team in the draft lottery. I believe that some teams are poorly run. Putting every team in the lottery every year would put real pressure on owners of bad teams to innovate, and to find front office leaders and coaches who got real results. That process could not help but inspire innovation.

One other idea that has been on TrueHoop before, and that Gladwell brings up: How about no lottery at all? What if there was no draft, and every rookie was a free agent? That would make things very interesting. Perhaps you'd need to give everybody the same budget -- $5 million max for rookies or something. You can spread that around as much or as little as you'd like. But there's no way that wouldn't be interesting as hell.

UPDATE: Also, on his website, Gladwell addresses criticism of his New Yorker article about the full-court press and underdog strategy.

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