Paying to Win?

When Russian billionaire Mikhail Prokhorov bought the Nets in 2009, the only fact known by most American basketball fans was that he was extremely rich. Four years into his tenure as owner, his willingness to spend money has become obvious: this year alone, the Nets’ salary is $102 million, putting them at the top of the pile of NBA team salaries. This extraordinarily high salary reflects, on top of large salaries for Joe Johnson and Deron Williams,  the team’s trade for Paul Pierce and Kevin Garnett this past off-season. He himself, following the trade said that It’s not (my) way to wait 10 years for championship.”

Can an owner buy wins? Bulls fans often complain that owner Jerry Reinsdorf is particularly tight-fisted, and that given the income stream the Bulls bring in, he should open his wallet to ensure a championship team. And there really is quite a bit of variation in how much teams pay, as you can see below. The Nets top out at over 100 million, and the bargain basement Phoenix Suns set the bottom at roughly 53 million this year.  (Note: all data comes from http://storytellerscontracts.com/).

salaryPlot

 

Does a bigger salary translate into more success? The playoffs aren’t over, so I’ll focus on regular season performance (with the strong caveat that there may be a difference between a team that excels in the regular season and a playoff-oriented team). Below is a plot of every team’s total salary this season and winning percentage. Almost all of the teams line up near the middle on a positively sloped line, except for four teams that I’ve highlighted: the Nets, Lakers, Knicks and Celtics.  It’s possible to construct a lot of stories about these four teams — the Lakers are a cautionary tale of injuries (big injuries to Steve Nash and Kobe Bryant), while the Celtics took on several big contracts from the Nets in the trade this off-season (although last season they also had a large salary hit as well).

salaryWins

If we exclude these four teams, we get a strong relationship. While not perfect, this simple linear fit explains about 50% of the variation in win rates. According to this model, for every million dollars spent by a team, they should expect to increase their win rate by roughly a percentage point. A big caveat, of course, is that this is only one year of data. It may be that in other years that “big salary” teams like the Knicks and Nets do much better in the regular season and justify their salaries. The evidence seems to suggest that while higher salaries can translate to better performance on average it is no guarantee for success.

salaryWins2

Part of this may be due to restricted free agency and other parts of players contracts that make it possible for teams to hold onto the very best players. Hence, those players that teams like the Nets sign are free agents who are good, but not so good that they get held onto by their team. This would imply that drafting your superstar is extremely important (case in point: Tim Duncan). Alternatively, it may be the winner’s curse – teams bidding with incomplete information tend to overpay, and these big salary teams may be suffering from this (realistically, all players should cause the winner’s curse, but it may be that “superstars” cause more incomplete information).

In a future post, we’ll try to see how stable this relationship is, and how team salary relates to post-season performance.

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3 thoughts on “Paying to Win?

  1. Rather than leaving off the big spenders completely (which seems arbitrary), you could try to control for injuries. If you use games played as a proxy, you could subtract the salary of any missed games from the team’s payroll. For example, Kobe accounts for over $30M of the Lakers payroll, but only played 6 games. If you normalize for games played (6 * $30M/82) you can knock over $27M off the Lakers payroll. I don’t have the raw numbers, but it looks like they would be much less of an outlier in that case.

    • Absolutely, that’s a great idea. Adjusting the payrolls perfectly would be difficult (there’s awkward things like adjusting for mid-season trades and figuring out who pays for what, like Marcus Thornton) but it would be a very good idea. It would certainly help the Bulls out as well.

  2. Nice article! It’s pretty sweet that you guys are doing this, I hope you all keep it up. A few notes…

    The Celtics and Lakers are different cases than the Knicks and Nets–the Celtics and Lakers (the Celtics indirectly due to trade salary restrictions) still paid contending rosters in 2013-2014–really, they are still paying for formerly competitive teams that were constructed prior to the new CBA. Both will have cap flexibility in the near future (even though the Lakers handcuffed themselves with their Bryant deal). Meanwhile, the Knicks and Nets are plainly operating in a different fashion than other teams right now. Specifically, it doesn’t seem like they aren’t designed to be profitable entities in-and-of themselves, year-over-year. To the extent they are being treated as assets in a portfolio, their value is tied to franchise value–to that point, these “outliers” are 4 of the 5 most valuable franchises in the NBA (it might be interesting to plot franchise value against team salary). But really, more than any other owners, Prokhorov and Dolan treat owning an NBA franchise as a hobby.

    Another reason winning and salary is related is likely that it costs money to hold on to your valuable pieces–paying might not be framed as “buying” wins so much as having the opportunity–the talent available–to pay for wins. If a franchise has the opportunity to spend (reasonably) and improve, or stay good, it likely will, to a point. You allude to this when you discuss the value of drafting a superstar, but there is something tautological at play here, especially since, under the new CBA, most teams are more or less equally wary of the cap, and are managed similarly. Worse teams have the option of buying players in free agency who won’t move the needle significantly, but if they sign these players, they’ll potentially be hurting their bottom line AND reducing the chance they’ll be able to find a player who does move the needle via the draft. So now that most teams are using good business practices to construct their rosters, there should be a strong correlation here. And a related side-note, I’m not sure how valuable historical data would be given (1) the CBA is new and (2) management philosophies seem to have evolved rapidly over the past few years.

    I don’t think your strong caveat about being “constructed for the playoffs” (really, you’re talking about teams that are old) is really a caveat at all. I think it’s a mistaken assumption people make when looking at rosters. For the most part teams that don’t do well in the regular season don’t do well in the post-season. I just took a quick look through, and for the past 10 years pretty much all conference finalists have been at our near the top of their conferences. And as adjusted point differential is often cited as a better evaluator and predictor of performance than won/loss record (I believe b/c there are more data points and less semi-random noise, but you know more about math than me), it might make sense to plot that as well.

    To the previous thread–it’s definitely an interesting idea to account for injuries and games played when evaluating salaries. To play devil’s advocate though, injury risk is part of having a large salary–if you have an again star signed to a long term deal (i.e. the Lakers with both Nash and Kobe), you’re more likely to take a hit, but that shouldn’t be excluded from the discussion. It’s another peril of buying players in free agency (and the Lakers themselves are probably a poor example because I doubt they’d be a .500 team even if both players were healthy). And part of successful team construction is built around limiting that risk factor.

    Finally, along the lines of adjusting for games played, it could be interesting to look at each teams average salary per minute played, and perhaps compare with performance. That would be digging into a bunch of different factors, but might also get at the aptly named Marcus Thornton issue.

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