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BAYLOR ECONOMISTS TAKE ON THE NBA DRAFT LOTTERY ó ARE TEAMS ìLOSING TO WIN?î

WACO, Texas ó With Saturdayís National Basketball Association draft lottery looming, two Baylor University economists have released their findings on tournament incentives in pro basketball, specifically the time-honored notion that teams ìlose to win.î

Dr. Beck Taylor, assistant professor of economics at Baylor, and Justin Trogdon, a recent Baylor honors graduate and a doctoral student at Duke University, examined the 1983-84, 1984-85 and 1989-90 NBA regular seasons to test the predictions of tournament theory ó whether team performance responded to changes in incentives when the NBA introduced and then restructured the lottery system to determine draft order. Both said their results show strong evidence that NBA teams are, in fact, more likely to lose when incentives to lose are present.

ìThe structure and rules of the NBA draft changed significantly during the years we studied,î Taylor said. ìOur research found that, depending on the nature of the draft, teams may be responding to incentives in ways that go against the leagueís desire for teams to display quality on the court night after night.î

Taylor and Trogdon first studied the 1983-84 season, collecting data on the performance of NBA teams from several sources, such as USA Today, The New York Times, The Chicago Tribune and The Los Angeles Times. The draft rules in place at that time allocated better draft selections to teams that finished with worse win-loss records. ìAfter a team had been eliminated from playoff consideration, it had strong incentive to try to obtain a worse record,î Taylor said. ìWe controlled for both team and opponent quality and venue (home, away, neutral), and our study found that NBA teams, once eliminated from playoff consideration in the 1983-84 season, were approximately two-and-a-half times more likely to lose than their playoff-bound counterparts.î

It was also the 1983-84 season that fell under intense media and fan scrutiny as several NBA teams took part in an apparent ìrace for the bottomî in order to obtain the services of Akeem Olajuwon, then with the University of Houston. Recognizing this, the NBA introduced its new draft lottery during the 1984-85 season, in which each non-playoff team was given an equal probability (1 in 7) of obtaining the first draft pick. Taylor and Trogdon found that this new draft procedure seemingly took away any incentive for non-playoff teams to decrease their winning effort on the court. Under the new system, it was no more advantageous to be the last-place team in the league than the best non-playoff team.

ìOur study shows that the NBAís new procedure at that time was effective. We found no statistically significant difference in the probability of winning between playoff and non-playoff teams,î Taylor said. ìUnfortunately, the new system may not have allocated new talent efficiently in the sense that now it was possible for the best non-playoff team to receive the first draft pick. Clearly, league parity was potentially sacrificed for a system that promoted winning effort on the court.î

In 1989-90, the next season in the Taylor and Trogdon study, the NBA drafted another new lottery draft policy. Under this new method of allocating amateur talent, each non-playoff team ó now 11 because of league expansion ó was given a probability of obtaining the first draft pick that was a function of its league record. ìTeams with worse win-loss records were given a greater chance of getting superior draft selections,î Taylor said.

While this new weighted-lottery system ó which is still in effect today ó addressed some of the parity concerns the previous system ignored, it also brought back the incentive to lose in order to obtain higher draft picks. ìIn fact, our study shows that non-playoff teams in the 1989-90 season, once eliminated from playoff consideration, were more than twice as likely as playoff-bound teams to lose games,î Taylor said. ìAgain, we estimated this effect while controlling for other factors that should have influenced the outcome of any game, such as venue and team quality.î

Overall, Taylor and Trogdonís research found substantial evidence that NBA teams do respond to tournament incentives in predictable patterns. By examining game outcomes from seasons over which tournament incentives were changing, they were able to confirm the popular view that NBA teams, once eliminated from the playoffs, lose in order to secure higher draft choices.

ìThe NBA, like any other sports league, is concerned with the quality of its product,î Taylor said. ìThat quality depends on several factors, such as the effort level that each team exerts in order to win games and the competitive parity across the league. If fans perceive that NBA teams are not exerting total effort, or that some teams, even when exerting full effort, cannot win, the league suffers.

ìIt seems that the NBA must attempt to achieve an optimal balance between the effectiveness of allocating new talent to losing teams and the potential for teams to exert less winning effort on the court,î Taylor said.

In addition to their findings on the draft lottery, the study also found that an NBA teamís home-court advantage may be even stronger than most had anticipated. Taylor said his and Trogdonís research showed that teams playing at home during those sample years won nearly four-and-a-half times more often than teams playing on an opponentís home court.

Taylor and Trogdonís study is currently under review for publication by The Journal of Labor Economics. They also presented their research to labor economists in April in Fort Worth at the meeting of the Western Social Science Association.

For more information on ìLosing to Win: Tournament Incentives in the National Basketball Association,î Taylor can be reached at his office (254) 710-4549, at home at (254) 420-3242 or at [email protected].

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NBASTUDY/SPECIAL/LSF