The Draft Pick Edition
On markets, value, and leverage
Noah here. About a week ago, the NBA offseason was thrown into a tailspin by the surprising trade of the 7’1” French center Rudy Gobert. The tailspin wasn’t exactly a result of trading Gobert—Utah, his former team, had been sending signals around the league for some time that the “Stifle Tower” was available. But the haul the Jazz got for the defensively-focused Gobert was pretty far beyond what anyone in or around the NBA thought was possible for a guy who, while certainly a top talent, exists in a decidedly lower stratosphere than more offensively dynamic names like Curry, Lebron, Durant, and Giannis who headline today’s NBA.
Gobert was traded to the Minnesota Timberwolves, who, in exchange for the right to pay the Frenchman about $170 million over the next four years, gave up a host of role players (many of them still young enough to improve) and four first-round draft picks.
Why is this interesting?
Professional sports create their own markets. Players sign contracts that become assets that can be bought, sold, and traded by their teams (at least in the US). On top of that, at least for the most popular US sports, the draft creates an additional asset type. Each year the worst teams in the NBA get the best odds at landing the first pick of the best non-NBA prospects in basketball. These draft rights can be traded. If I owned a team and traded my 2023 first-round pick, then the draft position my team eventually landed in that year would now belong to my trade partner. They could then select their favorite young talent in that spot. Some years those top prospects are guys you’ve never heard of, while others contain Michael Jordan or Lebron James—players who can single-handedly change the trajectory of a team. Getting an extra shot at these future stars is worth quite a bit. Though the exact value is a moving target decided by the market of 30 professional NBA franchises.
Back in the early-80s, one NBA team owner thought so little of draft picks that he traded away five consecutive picks in just a few months. The NBA eventually put a rule in place that prevented teams from trading consecutive picks, essentially protecting dysfunctional teams from themselves. At points throughout the history of the league, various teams have made bad decisions with their picks and also tanked (purposefully put out a subpar team) in order to put themselves into a better position to pick the league’s next star. In 2013, the Brooklyn Nets famously traded away 3 first-round picks and 1 pick swap to the Boston Celtics for the then-aging hall of fame duo of Kevin Garnett and Paul Pierce. That Nets team never reached the heights its executives hoped, and those picks eventually became the core of a Celtics team that made the NBA finals this year. (In a fun twist, the Gobert trade was overseen by Danny Ainge, who used to work for the Celtics and is most famous as a general manager for fleecing the Nets in this deal.)
After that 2013 trade, teams started to be a lot more careful with their picks. In part, this was probably because no general manager wanted to risk their job and reputation recreating the Nets calamity and partly because NBA draft picks have capped wages—and the pre-negotiated rates in the prior collective bargaining agreement were bargain-basement even if your high pick didn’t manage to achieve star status. (All the athletes in major US team sports are represented by player's unions.) The age of pick hoarding came to be, as nearly every team tried to collect as many chances as possible to add a superstar to their roster.
But now, the pendulum that is the value of draft picks seems to have swung back. No one is quite sure why, but the list of possible factors is fascinating. One theory is that “the process,” in which the Philadelphia 76ers purposefully maintained a subpar roster for multiple years in order to land a top pick, has failed to produce a championship as of yet (and got its architect, Sam Hinkie, fired). An even simpler explanation is that when the NBA renegotiated with the players in 2016, the amount that first-round picks get paid grew by quite a bit, meaning the deals weren’t quite the same as they used to be. Another likely component is that NBA players have found new leverage over teams in recent years to demand trades despite contractual obligations. In recent years superstars like Anthony Davis, James Harden, and now Kevin Durant have all requested trades away from their teams. In the case of Davis and Harden, their teams acquiesced and were paid handsomely in draft picks for their troubles. (Durant just requested his trade a few days ago, so we will have to wait and see how that one ends up.) This ability by the game’s biggest stars to dictate their location, even when under contract, has created a new market dynamic that, on one hand, has made teams willing to mortgage their future to win now. It has also created (at least in theory) a kind of backstop for a team like the Timberwolves, who, if it all goes to hell, can try to trade away their own stars for a new bunch of picks to replace the ones they lost.
Like any market, it’s impossible to pin down a single factor that has caused this particular asset to see its value move so much. But this kind of dynamic creates a fun additional wrinkle to keep nerdy fans like me engaged during the offseason. (NRB)
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Thanks for reading,
Noah (NRB) & Colin (CJN)
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