The tandem that could have been

As I continue to watch LeBron James struggle mightily to beat the best team in the Eastern Conference (literally, I think there are no other Cavaliers on the floor save Sideshow Bob), I can't help but reminisce about what could have been.

Tonight, as he has for most of his career thus far, LeBron had a sack of turds surrounding him on the court. But, as many NBA fans know, things could be much different.

The year before LeBron James arrived in Cleveland, the Cavs had made the very astute draft choice of Carlos Boozer in the second round at the 35th overall pick.

In the summer of 2004, the Cavs had Boozer under contract for about $700,000 for the following season. They claimed to have made a verbal agreement with Boozer that if they released him as a restricted free agent, he would re-sign with the Cavs for about $40 million over six years, keeping Boozer in Cleveland for a long time and giving Boozer a very substantial raise and a lot more security for the 2004-05 season. Never mind that they verbally negotiated this inside of a moratorium period when contract talks aren't allowed, they felt they had Boozer's trust and went ahead and released him as a restricted free agent.

For those who don't know and don't want to have to decipher the jargon of the NBA's collective bargaining agreement, this is basically how it works. A player who becomes a restricted free agent can test the open market, and if another team makes an official offer to said player, the team that had him last year can match it.

So, Boozer went out as a restricted free agent, only to have Utah, who had whiffed on signing several free agents the last few years, offer him a max contract, something Cleveland didn't have the salary cap space to match. So, Boozer, being a normal red-blooded human, signed for an absurd amount of money because...well...that's what you do when it is sitting there on the table. Gordon Gund, then owner of the Cavs villainized Boozer as betraying his trust, and the Cleveland fans really let Boozer have it.

It was a hairy situation at the time, and has since settled down quite a bit. Both Boozer and LeBron are both in their respective conference finals, and are both down 0-2 in each series. Each is the best player on their respective team, and each is likely looking at a quick exit after the deepest playoff run for each team in quite some time.

So, without laying blame on anyone (OK, screw it, the Cavs were idiots) let's play some number games. Right now, this is what LeBron's team looks like (playoff averages in parentheses)

F-LeBron James (24.5 pts, 8 reb, 8.2 ast)
F-Drew Gooden (11.6 pts, 9.3 reb, 1.4 ast)
G-Larry Hughes (15.6 pts, 5.1 reb, 2.8 ast)
G-Aleksander Pavlovic (8.9 pts, 2.2 reb, 1.8 ast)
C-Zydrunas Ilgauskas (15.0 pts, 10.1 reb, .9 ast)
F-Anderson Varejao (5.2 pts, 6.2 reb, .6 ast)

I'm not going to list the Jazz stats, because for the intents of this story, Utah is peripheral. Obviously, if Boozer was still on the Cavs, the rest of the team would likely look pretty darn different. The Cavs likely would have still refused to pursue a point guard, against every bit of common sense. But, let's play the "what if" game. Let's acknowledge first off that the Cavs would have LeBron and Boozer. Let's give LeBron a 15-percent scoring increase as another scoring option would allow him to be hassled less and score more like he did during the regular season against bad teams. Since LeBron now has someone worth a crap to pass the ball to, let's give him a 5 percent boost in assists. We'll leave him alone statistically otherwise. We'll also leave Boozer's stats alone since he currently plays on a team with a point guard and other scoring options, so he could probably be expected to have about the same stats. So that this whole thing doesn't get out of hand, let's not assume anything else except that Larry Hughes wouldn't have signed with the Cavs as they would have spent all their money re-signing Boozer. This is not such a bad thing. That's a bad contract on a player who can't stay healthy.

So, then, the Cavs look more like this right now:

G-LeBron James (28.2 pts, 8 reb, 8.6 ast)
F-Carlos Boozer (24.7 pts, 12.4 reb, 3.1 ast 53% FG)
G-Aleksander Pavlovic (8.9 pts, 2.2 reb, 1.8 ast)
C-Zydrunas Ilgauskas (15.0 pts, 10.1 reb, .9 ast)
F-Anderson Varejao (5.2 pts, 6.2 reb, .6 ast)
F-Drew Gooden (11.6 pts, 9.3 reb, 1.4 ast)

Now, given, they still have virtually no guard play whatsoever, but you're telling me that a statistical tandem of Boozer and LeBron rockin' and rollin' wouldn't give them a good chance at beating the Pistons, and ultimately winning a title? With both players entering their primes, this would be a nasty tandem for years to come. Also, you could probably assume that the Cavs would have gone out and signed another guard of a lower caliber that they could have afforded (which likely would have been a better signing than Hughes), so who knows what their backcourt would look like had Boozer stayed. Everyone loves to play the "what if" game about the NBA Draft Lottery, but sometimes it's more fun and practical to look at what could have been had someone not pulled an avoidable, bone-head move.

Reasonably yours,
Scooter
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Oklahoma City/Kansas City/Las Vegas Sonics face interesting situation

Despite the yearning desires of Celtics fans and ESPN, the franchise with the most NBA championships in league history came up very, very short in today's lottery drawing. With the second best chance to win the lottery (19.9%), Boston ended up with the fifth overall pick, the worst possible pick they could have gotten.

Two franchises in small markets came up large. My favorite is the speculation that almost always comes about concerning a fixed lottery drawing. It's always a bit refreshing when two teams that the NBA would really have no reason whatsoever to endorse end up winning the picks that matter. The Portland Trail Blazers won the first overall pick and the Seattle Supersonics won the second overall pick.

Portland is one of the smallest markets in the NBA, but have a reasonably rabid fan base when the team is competitive. But, for interest's sake, we'll focus on the Sonics. Sonics Chairman Clay Bennett has made his intentions to move the franchise out of Seattle less than subtle. Oklahoma City has shown itself to be a legitimate NBA city by its successful temporary hosting of the Hornets while New Orleans put itself back together. Some other cities, including Kansas City and Las Vegas have jumped into the fray also. Since Seattle and Washington state have basically told the Sonics that a new arena in Seattle isn't going to happen without substantial funding from the franchise, Bennett has sought to move the team elsewhere so that the team will be in a newer facility and have the potential to gain more revenue from a city that is hungry for a basketball team.

The Sonics without a GM and head coach, it seems that a completely fresh start is coming. With either Kevin Durant or Greg Oden soon to become a Sonic, the franchise really does find itself in a unique situation. They'll be in Seattle for at least the next season, so starting clean completely this coming season just won't happen. One of the most interesting subplots this coming season will be how the city of Seattle reacts to an exciting young player in a city that is preparing to have their long-time NBA team moved elsewhere. How Oden or Durant (whichever falls to them) reacts to the situation will be equally interesting. Now, if somehow a move to Vegas happens, expect me to have an aneurysm of interest in that situation. A potential post on the NBA's potential in Vegas is coming soon.

Reasonably yours,
Scooter
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Money≠wins

This utterly fascinating graphic is just too good not to share with the five people who actually visit our blog.

Some interesting observations:

The Indians and Brewers are my current salary heroes.

10 out of the 15 teams who overpay for their wins are in the American League.

Thus far, the Astros and Phillies get exactly what they pay for: mediocrity.

The Yankees are wildly overpaying for their record (not that it's news to anyone).

The Nationals are overpaying to be really, really, really horrible.

The Cardinals aren't very good this year (also not news).

Reasonably yours,
Scooter
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Football Association, big spenders and shrewd decisions

A friend of mine brought up an excellent point that I thought needed to be addressed. According to the tenets listed on this site, salary caps restrict teams from fully realizing their earning potential and running their business as they wish. I still believe this to be true, but there certainly seems to be another facet to that statement in relation to what Travis discussed concerning the Football Association.

With free agency and a lack of a salary cap, the long-standing tradition of balance among English soccer teams is in jeopardy, and that is of obvious concern to the league. However, the treatment of players as permanently indentured servants is no longer that case, which is obviously positive to the rights of specific athletes. As much as owners want to pay players their market value, players want to be paid that market value. And, if owners want to be able to push for profit more than competitive balance, then they can sleep in the bed they make.

My point is, if the owners want to modernize their league and treat it more as a business than a competition where wins are the chief commodity, then they should go right ahead and do it. Whether or not it will end up paying them the dividends or happiness they desire remains to be seen. I imagine that the disparity between the lower-revenue and higher-revenue teams will balance in a similar manner that baseball does. To that effect, lower-revenue teams can find success through the development of young players and a smart approach to player signings (see Oakland Athletics, San Antonio Spurs, Minnesota Twins, Indianapolis Colts, San Diego Chargers and, until the last few years, Portland Trail Blazers).

Of course, the Yankees (everyone's favorite Salary Satan) won several championships at the turn of the century, and since winning their last championship, their players salaries have increased by 175 percent, yielding two World Series losses and plenty of other playoff disappointments. Given, they are perennial contenders and make the playoffs every year, but George Steinbrenner is known for desiring wins at the cost of revenue. By spending more, he hasn't gotten what he really wants, and has gone about trying to succeed in a stupid manner. The St. Louis Cardinals, who spent less than half of the Yankees salary last year, won the World Series. In 2005, the White Sox had about 40 percent of the Yankees salary that year and won it all. In 2004, the Red Sox actually had a dip in player spending in relation to 2003 and 2005 and won it that year. The list goes on, but the point is this: you don't have to be the No. 1 big spender or even near the top to be a champion. The game fluctuates, and big spending isn't always a guarantee of success, shrewd moves are what makes a winner.

Honestly, the system that Major League Baseball has set up is a good one at its base level. There is a large amount of development that allows for lower revenue teams to compete by making smart decisions in drafting and player advancement.The Football Association may end up reflecting the MLB model, and that may not end up being such a bad thing for the league if they play their cards right. That is obviously the biggest question mark.

Reasonably yours,
Scooter
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Russian women's basketball toy

I came across a fascinating article about the WNBA yesterday. Admittedly, this is the first time that has ever happened, and my interest was piqued early on by a Russian women's basketball team owner named Shabtai von Kalmanovic, pictured right. He is referred to as the "Mark Cuban of Russian Basketball"... only if Cuban had ties to African diamond trafficking and spying for the former Soviet Union.

Either way, this guy is quite a character. Incredibly wealthy from a construction business in Africa, von Kalmanovic owns Spartak, a women's team in Russia and employs the likes of well-known American women's players Diana Taurasi and Sue Bird (no relation to Larry), both WNBA players. The crazy thing is, Bird makes makes four times as much in Russia as she does in the WNBA, and Taurasi makes 10 times as much in Russia as she does in the WNBA. Even with basketball easily playing a third hand in the U.S. to football and baseball, and even with women's basketball usually getting second-class citizen status among basketball fans, surely the U.S. could afford to pay more to players than a team that plays winters in Russia and all over Europe and parts of Asia, right?

Here's the catch: von Kalmanovic doesn't seem concerned with making money off the team. With loads of cash to throw around, von Kalmanovic estimates that his expenses for the season will be $5-6 million. They don't charge money for tickets to games (of which they average a measly 3,000 in attendance per game), they pay to have their games televised, and pay for travel among other expenses. He basically makes no money from owning the team. He compares it likes this:

"I have friends who go to casinos," von Kalmanovic said. "I know friends who risk on the stock exchange. I am Lithuanian — for me, basketball is everything. It is a hobby, a pleasure, a casino, whatever you want."

Completely contrary to virtually every other model of team ownership, von Kalmanovic basically holds his team as a toy. With the WNBA having a relatively short season and an incredibly restrictive salary cap based upon years of service, the opportunity for the top women's players is too great to pass up. In what adds up to no salary cap, owners such as von Kalmanovic can basically pay to have the best players in the world come play for them during the winter, often putting them up in a nice place to live and providing attractive amenities.

At the end of the article, von Kalmanovic talks about him and his fellow owners sitting down and agreeing on maximum salaries for players because "it becomes too much." We'll see how he likes it when another owner steals a player he covets because she likes the area the team plays in better than his own and he isn't able to pay more to draw her to Moscow because of the maximum salary limit.

The point to all this is that it really is quite amazing that an independently wealthy basketball fan basically just throws all the BS to the wind and strives to put together a toy that performs very, very well. Can you imagine a rich American basketball fan who didn't want to deal with the mess of purchasing an NBA team and instead opted to pay significant salaries to players who marginally miss NBA rosters and dominate through a league like the CBA or ABA? With little concern for profits, someone like that could make a lot of waves and could essentially build up their toy to win through a league full of spares as they wish. Mark Cuban, are you listening?

Reasonably yours,
Scooter
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FA to MLB

As this is my first contribution to this blog, it may be expected that I offer some detailed manifesto outlining my personal feelings on a variety of sports issues. That isn’t going to happen. I enjoy sports and I enjoy economics. In the coming weeks (years), I hope to show how well economics can contribute to our understanding of the off-the-field actions of professional and collegiate sports. The company you work for is not like a Major League Baseball team. There was never a bond issue so that you could work in a nicer office, nor is there a single employer for every professional in your trade. The efficiency and sustainability of these anomalies are best gauged in an economic context, so let’s get started.

An overview of the landscape of professional sports worldwide will undoubtedly result in the definition of two distinct league structures; a franchise system common to nearly all North American professional sports, and a relegation system common to the various soccer leagues around the world. In reference to the relegation system, this discussion will focus primarily on The Football Association (FA), the principal governing body of all professional football (soccer) teams in England. The FA consists of a variety of leagues organized in a hierarchical structure, the most elite of which is known as the Premier League. Each season, a predetermined number of poor performing teams in the Premier League are relegated to a lower-level league, and an equivalent number of teams from the lower-level league are promoted to the Premier League. It is not uncommon however for a team to play against teams in other leagues, or countries for that matter. The FA also organizes an FA Cup each year where teams from all leagues compete in a sudden death tournament to determine an overall champion, which seems to carry with it honors akin to winning the Super Bowl or the World Series. However, unlike the North American championships, every professional team in England that qualifies for the tournament, has a shot to be crowned FA Cup champions, not just the Premier League teams.

On the basis of pure competitiveness, the relegation system seems to be far superior to the franchise model that is prevalent here in the United States. If you want to be in the best league, you must perform at an elevated level. It goes without saying that FA teams who participate in the Premier League are rewarded with higher gate revenues and more lucrative television contracts, and demotion to a lower league can carry disastrous financial consequences for the owners. So this may be an example of a perfect model for the construction of competitive athletic leagues … maybe.

In order to make that determination however, there are a few other issues that we will need to look into. Throughout most of the FA’s history, individual soccer teams basically owned the rights to players outright, not dissimilar to the system practiced in Major League Baseball until St. Louis Cardinal Kurt Flood brought his case to the U.S. Supreme Court in 1972. Until 1963, the FA granted complete discretion to a player’s current team as to whether he was allowed to move, irrespective of its decision whether or not to extend his present contract. In 1963 this discretion became contingent on the renewal of the contract, and in 1978, an out-of-contract player became entitled to move without his employer’s consent (Dobson and Goddard, 2004). Regardless of league structure, it would never be in the best interest of any team to allow even moderate talent the ability to move to a potential competitor, however, in the relegation system, everyone is a potential competitor. This is where the effects of a similar labor policy can differ drastically between league structures.

In 1902, the National Association of Professional Baseball Leagues established the groundwork for what would later evolve into the “minor leagues.” A bitter feud between the American and National Leagues had resulted in the outright theft of a number of independent league players without any sort of compensation granted to the player’s former employer. This forced many of the independent league’s team owners to make a decision between becoming a formal member of a major league team’s organization or face extinction. As a result, competition for talent between teams really only consisted of a contest between 16 teams (until the expansion era) as opposed to competing against all professional baseball teams that played in North America. Across the pond however, professional soccer teams have had to compete for talent with 92 other teams. Because of relegation, even the worst teams had a theoretical chance at competing in the Premier League someday, and possibly winning the FA Cup, so there would never be any reason to let even a marginally talented player leave for another team. This allowed for a long period of competitive balance in English soccer. If you wanted good players, you were going to have to make them yourself, whereas in baseball, they could be purchased at will from the minor leagues. Another peculiarity of the British, and European system as a whole was their restrictions on foreign players. Until 1995, all of the professional English soccer teams were limited to three foreign players. Combined with a lack of free agency, this nationalistic restriction severely limited the talent pool, and made it very difficult, even for teams who had the means, to purchase talent that would improve the club.

The introduction of free agency to the FA has changed its competitive balance significantly. Premier league teams can now use their revenue-generating advantage to purchase better talent in the free-agent market, and as a result the disparity in revenue between Premier League teams and lower league teams has grown. According to Dobson and Goddard, in 1926 the Premier League’s ticket revenue accounted for 32.8% of the ticket revenue of all professional leagues, and 1999, the Premier League’s share had grown to 43.5%. If those figures were to include revenue from television rights ad merchandise, it likely would show even more disparity. Dobson and Goddard also show that over the same time period, higher league teams have become more and more likely to win inter-league matches such as FA Cup games, and as a result, spectator interest, measured through ticket revenue, has fallen as the outcome of these matches has become more predictable.

As the labor market in English soccer has become less regulated, the competitive balance of the Football Association has fallen. Big-city teams with more money have been able to out-spend their smaller-market rivals, and as a result, been rewarded with consistently higher league positions and gate revenue. The apparent competitive balance that existed for a good portion of the Football Association’s history was more the result of an over-regulated labor market than of the relegation system. This does not imply however, that the franchise system is superior in any way, but it seems that the landscape of English soccer is looking a little more like Major League Baseball every year. In other words, some teams will become permanently relegated to the dregs of the Football Association, and simply serve to farm talent for the bigger clubs, while other teams will become perennial contenders. So basically, as the amount of regulation in English soccer has been reduced, the result has been a convergence to a Major League Baseball style arrangement. Why is this the case? Well—and this is just my opinion—for most of the Football Association’s history, team owners have lost money or just barely broken even, while nearly all of the North American sports teams have been consistently profitable. So it would obviously not be in the interest of any North American team owner to push for their league to organize itself more like the Football Association. Basically, the 1902 agreement in Major League Baseball essentially mandated what the markets would have figured out eventually, but the motive for that mandate was profit, something we would expect owners to want. For whatever reason, the British motivation for having a good soccer team was beating the team in the next town, not making any money. As the Football Association players have earned the right to demand their true market value, only the teams in larger markets can afford to pay the best players, so it may end up that the franchise system is closer to the true market equilibrium than it would otherwise seem.

Travis
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Credit where credit is due
-Dobson, Stephen and John Goddard. “Revenue Divergence and Competitive Balance in a Divisional Sports League” Scottish Journal of Political Economy, Vol. 51, No. 3, August 2004.
-Haupert, Michel J. “The Economic History of Major League Baseball” EH.net, found May 9th, 2007.

An introduction to laissez-faire ball

Several weeks ago, I got home after a night out and started flipping around the channels looking for something interesting. As is routinely the case at 2:30 in the morning, there was little on beyond SportsCenter that even mildly piqued my interest. But, I continued to flip.

Eventually, I landed on a repeat of a congressional hearing on C-SPAN from earlier in the week that included John Kerry lecturing to DirecTV heads about their prospective
$700 million deal not being fair to fans. Kerry argued that it was a disservice to baseball fans everywhere that fans would either be forced to switch to DirecTV if they wanted to have access to the Extra Innings package, or subscribe to MLB.tv and watch games on their computers.

I switched off the TV and went to bed letting my distaste for John Kerry simmer. When I woke up, I realized I was downright angry about this. What right does he have to tell Major League Baseball that they can't reach an exclusive deal to show its product with whomever they choose? If the deal ends up turning off baseball fans because of a lack of access, that is their right as a business. As long as the owners of the teams agree to it, where is the harm? We don't have some kind of intellectual right to enjoy a specific sport, and if we want to see or experience something that we deem worthy, we can make the necessary sacrifices to do so. Nobody has the right to deny Major League Baseball that right except the people who own the teams, especially not Congress.

Then, I realized, this is all part of a larger issue that encompasses so much more. There is a very pervasive attitude in sports that carries all the way down the line. Sports owe people something. We care about their product, and thus it entitles us to try and control what those sports do. In reality, the only thing that team owners care about is your passion for their team - as it relates to revenue. In the end, they could really give a damn whether you are a hardcore fan who watches every game and spends $400 a year on team-related endeavors (tickets, T-shirts, etc.) or if you are a passive fan who watches one game a year and drops $400 in one day at the ballpark. If you're an owner worth your water, you'll believe such in your heart of hearts.

I'm being long-winded to get to one main point - fans do not hold some kind of intellectual property of a sport or team.

However, every day, fans complain about what happens with their favorite team/sport and don't realize that the only way they can really enact change is with their pocketbooks. If an organization (sports or otherwise) isn't doing what you want it to, then stop giving it your money. This is how the market works, and few people realize that this is their only true recourse.

As I started going over these thoughts and organizing them, the first person I thought of that agreed with me is one of my best friends, Travis, who now lives in St. Louis. He and I believe that the less the government is involved, the better. It's a simple concept, but unfortunately, it doesn't seem to be as popular in America as it used to be. His educational background (Bachelor's degree in Economics and a minor in Mathematics from Webster University, currently a graduate student at University of Missouri-St. Louis) gives him a lot more special knowledge of the ins and outs of economics, and my educational background (Bachelor's degree in Print Journalism) give us a semi-unique perspective of the sports world.

Most of the subjects you will find here will be finance related, but I imagine that as this project progresses, it will broaden some, and it's impossible to predict where it will go.

Under each post, you will find either my signature, or Travis'. Although he and I agree on many issues, always remember that just because I write something, it doesn't make it Travis' opinion, and vice versa. He may agree with everything I am saying, but don't just assume that.

This blog is dedicated to common sense and free markets.


The Tenets of Free Market Sports

1) The concept of free-market economics can be successfully implemented into sports in all aspects.

2) Sports is an entertainment business and should be thought as such by players, fans and especially the government.

3) Fans do not hold intellectual property of a team or sport and can only hold sway with the money they spend.

4) Government regulation of sports in any facet is intrusive and unnecessary.

5) The funding of sports stadiums either partial or fully by taxpayers without a popular vote is undemocratic.

6) Athletes are entertainment commodities and are not overpaid. The compensation they receive is the result of a demand for their services and is a reflection of the markets they serve.

7) Profit sharing is counterintuitive and does not encourage lower-revenue teams to improve their product.

8) It is not the public school system's responsibility to train young athletes. The model the rest of the world uses works much better.

9) College athletics are government-funded monopolies that employ a broken system and are an extension of the broken high school system.

10) Salary caps prevent franchises from freely running their business and thus unnecessarily restrict them from fully utilizing that franchise's learning potential.

Reasonably yours,
Scooter
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