A Mea Culpa by Mark Cuban

By Dan T. Rosenbaum

Mark Cuban in his blog presents a fascinating discussion of how the financial realities of the NBA, along with his misunderstandings of these realities, eventually resulted in him waiving one of his best friends - Michael Finley. This blog entry should be required reading for every NBA front office executive. It is a textbook example of why teams need more than a "capologist" who understands the ins and outs of the collective bargaining agreement. Teams need to understand how the details of collective bargaining agreement, trends in revenue across the league, and the structure of team salaries and player contracts will come together to form a market for trades and free agency. Seeing how that market will develop and how it can be exploited is worth millions (if not tens of millions) to teams.

I have had the good fortune of having dozens (and maybe hundreds) of e-mail exchanges with Mark over the years, as well as meeting him for lunch last Spring. He is a very impressive person - friendly, smart, insatiably curious, and always thinking.

(As an aside, my wife who is better at judging this than me was impressed by how down-to-earth he was. As an example, he remembered details about my wife that I had briefly mentioned to him in an e-mail several weeks before. This despite the fact that he handles hundreds of e-mails a day. Also, he generously offered to assist on a personal matter that we never in a million years would have thought about asking his assistance with.)

Mark also has as good or better an understanding of the collective bargaining agreement as anyone that I have run across in the league or the player's association, for that matter. This is especially true when thinking about the implications of the rules as Mark is a damn good economist. (He is also a very good stats person.)

That said, Mark has so many irons in the fire that sometimes he just does not have the time to think carefully through the implications of every last detail. Combined with his aggressive decision-making justified by his remarkable life story, this can lead to mistakes - especially as new realities start to unfold. He alludes to this in his blog.

"The model for success in the NBA has changed over the past 6 years I have been in the league. When I first got to the Mavs, there was no luxury tax, revenues from TV and the league went up every year, as did the salary cap. That changed dramatically with the leagues new TV deal and it changed even further with this years new collective bargaining agreement. Rather than an environment where salaries could go up because the cap and revenues were going up, we entered an environment where trades were made almost exclusively for financial reasons and rarely for basketball skill reasons.

The Mavs tried to take advantage of the situation. When the annual league revenue increases stopped and a luxury tax loomed, teams adjusted their financial profiles. To get under the tax threshold, they offered good players packaged with horrible contracts. We took them. We hoped the talent would get us a championship before the number of bad contracts we took on in trades caught up with us.

It didn't happen."

In the end trying to buy a championship is too expensive in the NBA. It may occasionally work for the Yankees in baseball, but in the NBA the salary cap and luxury tax make it prohibitively expensive to go that route. Trying to buy a championship also tends to lead to teams with too many scorers and too few role players, another point Mark now realizes.

"More importantly we have gone from just trying to acquire talent to have assets that in turn might be traded for better talent, to making sure we have players that fill a role for Coach Johnson’s vision of the team. Today, and for the future with young players that we can develop to fill those roles on future Mavs teams."

The problem with the idea of "acquiring talent to have assets" is that too often these "assets" have large contracts. But if a player produces less than his contract is worth, he is not an asset to the Mavs or any other team that he might be traded to. This reality becomes more important in a league with a luxury tax that doubles (or more than doubles) the costs of adding a player. In essence, we get back to the principle that a player is an "asset" only if his marginal productivity exceeds the marginal cost he adds to the team.

And players who don't fit into a role on a team, i.e. don't have high match quality, to use an economics term, run the risk of seeing their asset value fall over time. Players who are poor matches often are not going to be happy in their roles. This leads to reduced productivity for the team and the perceived value of that "asset" starts to fall. Putting players into roles where they can succeed probably is THE most important task of coaches and front offices. It leads to more wins and increased asset values for player contracts.

To that end, I have one final suggestion for Mark Cuban. Last year Seattle exceeded all expectations not because they got better players (very little change from the previous year) or got a new coach (the coaching staff stayed about the same), but because they did a better job putting players into roles where they would succeed. Part (but not all) of the reason for that is because they added Dean Oliver. Dean is a great stats expert and good basketball person and his specialty is helping coaches and front offices put teams together that best utilize their players' talents.

I know that Mark is not a big fan of Dean's book, but that is somewhat beside the point. Look at the evidence. Seattle improved by 15 games without significant changes in personnel or in the coaching staff. Historically, spending more on players has on average cost about $3 or $4 million for every extra win. Even if Dean had only a one tenth probability of being responsible for a third of those extra 15 wins, he would be worth $1.5 million a year. Wouldn't it make sense to take a tiny chance and spend one tenth of that and have Dean helping you?

Last updated: 3:00 PM, August 17, 2005