Why the NBA Draft System has Failed and Why They Should Adopt a Youth-Academy System

By Rob Weber

SECTION I: The NBA Draft System has Failed

            The generally agreed upon problem with the current NBA draft system is that too many teams are not trying to win so that they stay at the bottom of the standings and get better draft-picks, a process commonly known as tanking. This is made even more frustrating when teams don’t use the acquired draft-picks well and get stuck in the bottom tier of the league year after year.

            The most common construction of a professional sports league’s entry draft is one with the draft order as the opposite of the regular-season standings. This gives the bad teams the best chances to get the best young players and improve. In the NBA, along with other leagues like the NHL, a lottery system has been put in place that, instead of the draft order being rigid, the teams that didn’t make the playoffs are assigned increasing odds of acquiring the number-one pick in descending order of their regular season win total. This is done for two reasons; the first being that it’s fun and gives the fans something to watch and cheer along with, and the second being that teams that try to tank to get a top pick may have their efforts thwarted.

            How has this worked for the NBA in the past? In short, very well. Until the past 10 years or so, the NBA was not a reliably profitable business. There have been several stretches that the league, itself, was losing money. So, the front office of a team knew that if the team was losing too many games for too many consecutive seasons, people would stop buying tickets and the team would run out of money. This would cause the owner to sell the team, have the franchise relocated, or have their organization bust and disappear. So, tanking and purposefully losing was never really an option for more than a season or two.

But, as seen in Figure 1, the league has seen its landscape change less and less over the years. This is because the NBA television contracts have gotten more and more lucrative and, because of revenue sharing, every team in the league gets a piece of that pie. This also means that a team no longer has to be good and sell tickets in order to continue making money. Therefore, it makes the most sense for a bad team to continue to be bad and continue getting high draft picks until they have the personnel to get them to the playoffs and get playoff-revenue. Right now, franchises are literally being rewarded for this strategy with high draft picks.

Figure 1

            To explore whether there is evidence of a trend of teams staying bad for longer, I looked at NBA team’s win totals for each season since 1977 (via basketball-reference.com). That was the year after the NBA-ABA merger which changed the complexion of the league quite a bit, so I figured that would be a reasonable stopping point. From there, I narrowed down the data by grabbing only the teams that finished the season in the bottom quartile of wins in their respective season. Then, I found each teams streak of finishing in the bottom quartile in consecutive years. Below, in Figure 2, I included the percentage of the league that was on a streak of multiple seasons finishing in the bottom quartile of the league in wins. The upward trend is clear. It is also interesting that the only two periods that appear to be steady in terms of percentage of the league are the 90’s and this current era. Those are also the two eras in which the league has been the most profitable.  

Figure 2

            To investigate the relationship shown above, I fit a linear model with the percent of the league on a streak of multiple seasons in the bottom quartile of wins being predicted by year. I did this with a bootstrapping method in which I chose 20 random years at a time 1,000 times, each time recording the coefficient, the p-value associated with the coefficient, the root-mean-squared-error (RMSE), and the r-squared. The 95% confidence interval for the coefficient is [0.0017, 0.0057], which means that, for every one-year increase, it is estimated that the percent of the league in a streak of being in the bottom quartile of wins increased between 0.1 and 0.6 percentage points. That may not seem like a lot, but, as we’ve seen, it stacks up over time. Both bounds of the 95% C.I. for the p-value of the coefficient were below 0.05, suggesting that the variable is a significant predictor at an alpha level of 0.05. The 95% C.I. for the RMSE was [0.0378, 0.0717], or 0.4 to 0.7 percentage points. The 95% C.I. for the r-squared was extremely wide, suggesting that there may not be a tremendous amount of confidence in the strength of the relationship between the variables. In addition, the distribution of the residuals was mostly normal, suggesting that that assumption was not terribly violated.

            To tie it all together, the relationship may not be reliably strong, most likely because of the 4 or 5 outlying years, but it was found to be reliably statistically significant and the residuals were consistently not alarming. This suggests that there is reason to believe that the percentage of teams consistently in the bottom quartile of wins each season has increased over time. And, in my opinion, it would not be terribly irresponsible to extrapolate and assume this trend will continue in the future. That is, unless the current system, that has emboldened the behavior that is acting as one of the driving forces behind this relationship, is changed.

SECTION 2: A Foreign Solution

            Everyone in the basketball world agrees that there’s a problem and everyone in the basketball world thinks they know how to fix it — myself included. But, let’s look at some of everybody else’s ideas first. They typically fit in one of three groups: minor tweaks that wouldn’t upset anybody, major changes that ruffle some feathers and then get brushed aside, and slash-and-burn ideas that everyone has an opinion on (these are my personal favorite).

Minor tweaks include setting the odds of the first pick equal for the bottom four teams, only deciding the first overall pick through the lottery, only deciding the first five picks through the lottery, etc. These ideas are the kinds of ideas that could get implemented this season without most people noticing but would get talked about relentlessly by the draft night commentators as a “another example of the NBA being willing to make changes for the good of the sport.”

Major changes include setting all the lottery odds are equal, getting rid of the lottery entirely, etc. These are the kinds of ideas that would probably never get implemented because it would cause a lot of fuss without a lot of reward. By “fuss” I mean a boat-load of angry sports writers frustrated that things are changing without good reason, while in reality, it would barely change anything at all. These ideas typically get brushed aside pretty quickly because they are sort of fun, but not enough so that they stay in the spotlight.

Slash-and-burn ideas include reversing the non-playoff team draft order giving the best non-playoff teams the top picks, having those same teams play in an elimination tournament for the top two picks, etc. These are the ideas that tear down the current draft system and impose an insane hypothetical scenario that definitely got thought up by two guys arguing on the LIR about how the Celtics keep getting top picks every year. These ideas are typically poorly thought out and would cause so many residual problems that they would never actually happen.

My idea would technically fall into the “slash-and-burn” category, but it goes a bit farther, so I like to think of it as more of a methodically planned change. I think the NBA would benefit from adapting a global-style youth academy system. This plan would eliminate the draft entirely. For those who don’t know, in most professional sports in most other countries, instead of a draft process, they have youth academies to which they can sign kids as young as 11 or 12.  Then, regardless of age, when they feel that the player has gotten good enough to play with the regular team, they get brought up. I am aware, though, that this would not directly translate to the NBA, so there are some rules and structures that would need to be set up. I will go through my ideas for those rules through questions that would logically be asked by a person considering this idea, sort of like FAQs.

Will this turn the NBA into professional soccer/football, in which the richest teams get all the best players and nobody else can win? 

My answer to this is two-fold. First, this system would not get rid of the current salary cap structure in place. There would still be a soft-cap, luxury tax threshold, and hard-cap. The fact would remain that the only way for a front office to beat said system is to be so good at what they do, that players are willing to take less money (i.e. the Warriors). Second, there would have to be a scholarship-type system put in place. Meaning, each team would get maybe 10 to 20 youth academy contracts, all of them with equal value.

What’s stopping one team from getting all of the top prospects? 

This brings up one of the more interesting and important parts of this plan. This system would give more power and freedom to prospects and young players than ever before. The youth academy contracts would last either 1 or 2 years. Also, because the league consistently looks to make an effort to look out for players’ well-being, they would not be able to be brought up to the NBA until they graduate High School. During that time, they would be required to fulfill some training regimen during the school year, and during the summer, the youth-academy teams would play each other in a U-18 summer league. During the summer league, the players would have the opportunity to see the other players in the team’s youth academy at the same time that the team gets to see how their prospects are playing and developing.

So, how does this tie back to the original question? Well, let’s put the legendary 2003 NBA draft class in a system like this. And let’s say, for example, the Lakers ended up with Lebron James, Carmelo Anthony, Dwayne Wade, and Chris Bosh all in their youth system together (I know they weren’t all the same age so it’s not a perfect example, but just play along and assume they were). Let’s also say that all 4 of them were in that youth academy two years before, at 16, and Lebron’s contract just ran up. He just got an offer from the Cavs to move to their youth academy. So, since the Lakers are not allowed to offer anything other than an identical contract, Lebron would realize that there would inevitably come a time after they all get to the NBA that the Lakers would not be able to pay all of them and, we have to assume, that Lebron would go to Cleveland in pursuit of a better opportunity and a larger role.

 So, in summary, one team can’t end up with all of the best prospects on their U-18 team because we have to assume the players are going to act rationally as laborers and seek out the best opportunity for themselves, leading to a natural distribution of talent.

What if the players don’t leave? What if they stay and all get to the NBA at the same time? 

Well, there is already a max-contract system in place that is structured by age. So, I would suggest making it so a rookie contract, instead of being 2 years with a 2-year team-option on a draft-position decided salary, a two-year deal without a team-option and a set maximum value of somewhere between $5 and $10 million. Then, after that contract, the players would be able to sign contract extensions if both sides would like to, but if they reach free-agency, they would be able to act as restricted free-agents. So, the current team would have the ability to match potential contracts from other teams and keep the player if the situation arises. But, after that first contract, the player would be able to get the current max-contract available to players on expiring rookie contracts. So, even if the hypothetical 2004 Lakers from before were able do the impossible and get those 4 superstars into the NBA for two years alongside Kobe (and maybe still Shaq?), they would be completely unable to sign all of those players after two seasons. They would have to trade them for other assets after their first season or let them walk and enter free-agency. This would be an extremely effective means of distributing talent. So, to answer the question, even if they did all get to the NBA together, all but a couple players would have to leave after one or two seasons.  

What if a team like this hypothetical Lakers team kept signing all the best prospects every year and then trading them off after one year? Wouldn’t that turn into an endless one-and-done-like cycle for one power-house team? 

Well, I would argue that that situation would never arise, and even if it did, it wouldn’t be sustainable. The reason being that that, while teams may end up with the occasional “golden generation”, if a team were to rely on 18 and 19-year-olds every year before trading them away, they probably wouldn’t have any sustained success. While it may be cool to talk about how many games this hypothetical Lakers team would win, it must be met with the cold reality that a team with four 18-year-olds getting heavy minutes would probably crumble in the playoffs due to inexperience. But, even if they didn’t crumble and did win a ring, that was an extremely abnormal draft class. The odds that one team gets more than one or two players that could immediately be productive at 18 are pretty small. The odds a team can field an entire starting lineup with 18-year-olds that are productive is astronomically small.

If, instead, the Lakers had only Lebron and Wade and had trade one and pay the other, I would argue that that would be another example of talent getting effectively distributed. If a team were to go through that process every year, they would actually be contributing to the NBA labor market working at equilibrium. A market in which players are able to move to the situation that holds the best potential opportunity for them.

What if a prospect wants to play college basketball?

Well, if a prospect were to be paid by a team to be in its youth academy, they would be seen by the NCAA as a professional and they would sacrifice their amateur status and their ability to play college basketball. So, the player would have to choose whether they’d like to be paid for their skills or not. Also, I think it’s a safe assumption that if a young-person has a dream of playing college basketball, they’re also probably in a household with parents that went to college. Meaning, they probably don’t need the money from being in a youth academy the way others might.

So, the potential college basketball players would refrain from being involved with the NBA until they leave school and then be treated the way an undrafted free-agent is now.

If, instead, the player’s desire to get a college education and degree, then they would have the opportunity to take summer classes each offseason and earn a degree at their own pace, like many NBA players do now. Or, they could technically stay in the youth academy for 2 to 4 years after graduating high school while they get their degree and not play basketball outside of the summer league, but it would remain to be seen whether teams would keep them under contract for that time. The teams may decide that it’s not worth it to use a youth academy slot on them for another 4 years. It would probably vary by situation.

Can the prospects be traded since they are under contract?

Technically, yes, they can. But, it is worth pointing out that, since the players have ample freedom to move from franchise to franchise in pursuit of a better situation, it would probably be hard to convince a potential trade partner of the value in the contract of a player that may never play for them. Most of the players included in trades would probably be prospects who are on their last contract before graduating high school.

How would players go from the youth academy to the NBA? How much power would the team have?

There would likely have to be a set chronological order of who is able to negotiate with the player and his agent and when. The order would probably specify that the current team gets to offer a contract before anyone else and, if the player declines that deal, they could then hear contract offers from other teams as a restricted-free-agent.

What if teams have bad scouting systems or just have problems getting players signed in their youth system? How do bad teams get better?

I included this question last because I feel it is both the most important and requires all of the previously stated rules and regulations to answer. Let’s take the hypothetical super 04’ Lakers from before. The NBA salary cap typically allows for teams to have three max-contract players at a time. Let’s say that they win a championship in the first season. Then, in the offseason, they decide to give Lebron an extension and trade Wade, Melo, and Bosh. If the Heat traded for Wade, the Nuggets traded for Melo, and the Raptors traded for Bosh, then all three of those teams now have a 19-year-old budding superstar. Even though none of those teams had those players in that team’s youth academy, the team was able to acquire them at a young age and get a potential franchise player.

SECTION 3: Wrapping Up with Economics

In the current draft system, the assumption is that the primary motivation for the team is to improve as soon as possible and the primary motivation for the players is to play as well as possible and help the team improve. As long as these motivations line up, the NBA labor market is able to constantly correct itself and provide good players to teams that need to get better. The issue is that, for teams at the bottom of the league, their motivation has changed. Now, their primary motivation is to improve whenever the correct situation arises but, until then, they won’t try and win to improve their chances at a high pick. This disconnect between player motivation and team motivation is not allowing the market to sufficiently correct itself and talent isn’t getting properly distributed.

In this new system, the players would be able to act freely as individuals without the rigid structure of the draft. This new, open-market NBA would allow for the NBA labor market to constantly correct itself and redistribute talent. This is because there would never be any need for teams to change their primary motivation. Both the teams and the players would never have any reason not try to win as many games as possible.

And for those who hate how top heavy the NBA tends to be, while this wouldn’t keep teams from getting unfairly good by building super-teams, it would make the teams at the bottom a whole lot better and more competitive.

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Co-founder of First Line Sports Analytics

Published by Rob Weber

Co-founder of First Line Sports Analytics

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