More thoughts on NBA economist: spending and wins

I linked earlier to this interview of economist Kevin Murphy regarding the NBA lockout.

http://www.nba.com/2011/news/features/steve_aschburner/10/27/lockout-q-and-a-kevin-murphy/index.html  It's in the player’s interest to have as few restrictions as possible on spending so it isn’t surprising that Murphy brings up the weak correlation between spending and wins.  But beyond management skill there may be other reasons why the link between spending and wins is weak.

Wins is a simplistic measure of outcomes.  There is a pass/fail element in the NBA that just looking at wins misses.  The most notable is making and missing the playoffs, and closely related, finishing in the top four of the playoff teams and being in the bottom four.  Because the league is split into two conferences and those conferences aren’t of equal quality the payoff for wins isn’t equal and thus the incentive to spend is also unequal. 

For example, in the East, Indiana made the playoffs with a 37 – 45 record, while Houston (43 – 39), Phoenix (40 – 42) and Utah (39 – 43) missed the playoffs in the West.  It would make sense for Indiana—and by extension other marginal teams in the East—to pay more for wins than a comparable team in the West because the payoff will be greater, namely a spot in the playoffs.

Teams that are badly situated will have to overspend.  Players are likely to want to play for franchises that are likely to win, are located in desirable cities, and have nice weather.  So bad teams or teams located in small and or cold cities are going to have to spend more to attract comparable players.  If you’re offered the same amount to play in Miami or Minneapolis during the winter, where would you go?

Rookie contracts:  There are only 30 teams so it wouldn't take all that many outliers to result in a weak link between spending and wins.  One factor that would result in a high ratio of wins to money spent is landing a high quality player through the draft.  Getting lucky in the draft lottery can result in a team (see Chicago, Oklahoma) having a key player or two who is significantly under paid.  And as Murphy points out, because there are only five players on the court and no limit on how much the top player handles the ball or shoots this can have a large impact on wins to spending.

Multi-year contracts:  The existing labor agreement and market results in no cut contracts for multiple years.  Thus, it shouldn’t surprise that spending won’t tie very closely with winning since franchises aren’t able to adjust quickly to the lack of results.  For example, Cleveland is stuck with players and contracts that might’ve made sense with Lebron James on the team but don’t without him.  Once a player signs their second or third contract for more money they may get hurt or more likely lose interest in the game but the team still has to pay them.

In short, it doesn’t surprise me that spending more doesn’t result in wins in a particular season but that result should be treated skeptically. I would suspect that the correlation would be greater if you looked at a longer time frame, say five or ten years.  It would also help if you allowed for other factors like draft position, climate, and expanded the definition of success by taking into account making or missing the playoffs.

Weak field argument isn't about the field collectively

Over at Commentary/Contentions Peter Wehner makes the point that it is the nominee not the field that matters in regard to current discussions over a weak Republican field.  http://www.commentarymagazine.com/2011/10/28/weak-gop-candidates/   Wehner is being far too literal here.  The weak field complaint isn’t anything like a collective score measurement or even an average. 

Earlier in the day on the same site an upcoming column by George Will was brought out.  In it Will says of Romney:

“Romney, supposedly the Republican most electable next November, is a recidivist reviser of his principles who is not only becoming less electable, he might damage GOP chances of capturing the Senate: Republican successes down the ticket will depend on the energies of the Tea Party and other conservatives, who will be deflated by a nominee whose blurry profile in caution communicates only calculated trimming. Republicans may have found their Michael Dukakis, a technocratic Massachusetts governor who takes his bearings from “data” … Has conservatism come so far, surmounting so many obstacles, to settle, at a moment of economic crisis, for THIS?”

http://www.commentarymagazine.com/2011/10/28/george-will-romney/

That neatly sums up Romney, but when you a look for an alternative to him among the other candidates you come up empty.  If there were a viable alternative Romney would be getting blown out, instead he looks inevitable. That’s what’s driving the weak field meme, not whatever it is that Wehner is addressing.

NBA lockout and business of sports

I’ve thought for a long time that coverage of sports would be markedly improved if it brought in a different group of reporters.  The standard reporter loves sports and has a journalism degree, which is all well and good, but it results in a limited perspective.  My two years getting a masters degree in business has made a huge difference in how I view and think about sports.

A good example of what I have in mind is this excellent interview between Steve Aschburner and a renowned economist who is assisting the players in the NBA labor negotiations. http://www.nba.com/2011/news/features/steve_aschburner/10/27/lockout-q-and-a-kevin-murphy/index.html  The whole thing is well worth reading if you are interested in professional sports, but I want to focus on two points in particular.

First, the revenue percentage that the players were looking for (57% in the expired deal, 52% is their current position against managements 50%) didn’t strike me as very high.  Having worked in service businesses on the financial side I know that compensation costs with the firms I’ve been involved in all ran higher than that, although I realize you’d have additional compensation costs that would have to be added to the players in order to get the total.  The economist makes the same point:

NBA.com: Many people understand that NBA players as a select group of specialized, highly skilled workers. Are there many many instances, though, in which labor commands more than 50 percent of an industry's costs?

KM: In certain sectors, there's a ton. You go to a law firm, most of its cost is labor. You've got to remember, labor is 60-something percent of the economy. In the service sector, it can be much higher than that. And these people really define the product. These are the ones people come to see.

What separates the NBA from a different basketball league? Well, it's the players. The basketball's' the same, the court's the same, it's the players who really are the distinguishing feature. That's not to say that the league doesn't have value. But the defining characteristic and the scarce resource, if you think about it from an economic point of view, is the talent. It's not unlike Hollywood, the music business or any of the other ones where the thing that distinguishes one person from another is the talent.

Second, when you hear that most of the franchises are losing money you tend to lean a bit towards the owners.  But then you see that people are still willing to pay record prices when a franchise is sold and wonder what is going on.  I think a big part of it is that these aren’t normal businesses but rather a mix between a business and a rare luxury good.  It’s been a while, but I seem to recall from reading Buckley’s books on sailing that owning a yacht was a money losing venture too.  So what?  That doesn’t mean people aren’t going to want yachts.  I don't know, but I doubt people make money from a membership into Augusta National. How many people knew or cared about George Steinbrenner before he owned the Yankees?  Or Mark Cuban?  Here again the economist makes a similar point (after going through the franchise appreciation benefit) he says:

KM: Secondly, it's a lot of fun to own an NBA franchise...

NBA.com: The "psychic benefits" Malcolm Gladwell touts.

KM: The psychic benefits are not trivial. Third, there are benefits outside basketball. Like who got a casino? Who got a land deal? Who got real estate? You start looking around, you say, 'There's a lot of benefits to being an NBA owner." You put all those pieces together, it explains why those people spent all that money for those franchises.

We are told all the time that sports is a business.  True enough, but we need to keep in mind that it is a very particular, peculiar business so that easy generalizations from what we think we know about the business world are likely to lead us astray.

Republican race

I can't remember when I've ever been really happy with the choices available for the Republican nomination but I'm sure I've never been this disappointed.  Conservatives roundly skewered Democrats like the governor of North Carolina when they suggested that maybe we should skip elections for awhile, but if this is the best we can do it's hard not to concede they have something of a point.

This column by John Podhoretz gets at what I would hope is the general dismay at the current slate of candidates on offer. http://www.nypost.com/p/news/opinion/opedcolumnists/pack_of_nonsense_eKQaBolCs3rTAEIWKzppiN
I still don't see how anybody can beat Romney at this point which makes his failure to come out on the Ohio issue involving public employee bargainning rights particularly distressing.  If he isn't going to stand up on something like this, why should anyone think he will fight for anything controversial if elected?  Is it too late to start over with a new group?

William Colby, The Man Nobody Knew

I saw The Man Nobody Knew last night at the Siskel Theatre.  The film is a superb documentary on William Colby by his son Carl.  While parachute training for World War II Colby signs up for more hazardous duty and thereby launches his career as a spy and spy master.  Colby goes from operating behind the lines in Norway, to working towards the victory of the Christian Democrats in Italy, to South Vietnam, concluding with being the CIA Director during the last days of the Nixon administration and into the Ford administration.

We are taken through Colby’s life both professionally and personally and learn that there isn’t much of a distinction between the two.  His wife tells of entertaining a couple in Italy and then when they run into them the next night being told by her husband “we don’t know them.”  A family picnic becomes an occasion for a drop.  Well says his son, he didn’t lie; we did go for a picnic.

The key event in Colby’s career is South Vietnam.  It is there that he develops a counter insurgency strategy which was abandoned in favor of a military approach but is later used by the U.S. in Iraq.  Particularly interesting to me was the film’s coverage of the coup against the Diem administration including an embarrassingly bad discussion of the issue in the Kennedy White House with Colby contributing a wonderful neutral non-neutral assessment.  Going through the relative strength of the forces aligned for and against the coup he tells the group that they are even enough “for a good fight.”

Colby finds himself as the Director of Central Intelligence at the conclusion of the war in Vietnam and in the aftermath of Watergate.  It is William Colby that testifies in front of the congressional Church Committee in the most riveting part of the film.  The deeply catholic Colby, perhaps atoning for his own sins, ends up sharing with Congress and the wider public the sins of his agency.  The pressure on the man here is palpable; running a large agency, facing a hostile Congress (seemingly on a daily basis) and press, and without support from the White House who believed he was out of control and sharing way too much.

At the end of The Man Nobody Knew you feel as though you still don’t know the man at all.  Ordinarily that would be an indictment of the film but in this case it only speaks to how thoroughly enigmatic its subject.   Throughout William Colby is tough to get any kind of handle on but then the really big surprises come out and you’re left with only the conclusion that the title is well chosen. 

Beyond that the film is incredibly rich in stories, tidbits, and observations.  It is rare to see a documentary with a strong story line where you come away with the impression that “the plot” is wholly secondary.  Colby’s insights into spying, glimpses into how policy is made at the highest level including a classic exchange between Times Abe Rosenthal and Gerald Ford, and the seemingly endless issues that arise from Colby’s career make for an excellent film and the relief that we weren’t William Colby’s son.

How does Romney become inevitable?

We still haven’t gotten to the point of an actual primary so one should be a little cautious about making pronouncements, but as things stand right now we are looking at a candidate—Mitt Romney--who is not liked or trusted by conservatives cruising to the nomination of the party supposedly dominated by those self same conservatives.  How does someone who can’t crack 25% establish himself as Mr. Inevitable? Easy, when none of the conservative candidates are credible.

In no particular order, what I believe conservatives would like to see in a challenger to Romney and aren’t is:

a)      An articulate and solid debater who can make the case for himself and conservative policies with fluency. [out Perry, Cain]

b)      Someone with solid, unquestioned allegiance to conservative principles without being an unbending ideologue. [out Bachman, Paul]

c)      A candidate who is well versed in domestic and foreign policy matters. [out Perry, Cain, Bachman]

d)      A happy warrior, someone with an appealing personality while running for office [out everyone but Cain]

Off hand I can think of one person who fits that profile to a tee and that’s William F. Buckley.  But as Rick Pitino noted in another context “he’s not walking through that door.”  Oh, well at least it isn’t an important election or anything.

Liberalism and Occupy Wall Street

As part of a symposium on Occupy Liberalism Fred Siegel provides a interesting look at liberalism.  While praising The New Republic’s editors for arriving at the right conclusion in not supporting the protests, Siegel makes the point that their way of arriving at this conclusion is wrong.  What Siegel particularly disagrees with is the notion that liberals are capitalists:

“Herbert Croly, the founder of TNR [The New Republic], understood himself as a radical for whom the use of the then uncommon term “liberal” was merely a euphemism for an American sort of socialism. Croly spoke of his seminal book, The Promise of American Life—the founding document of American liberalism—as “socialistic.” It’s true that it was only in the 1930s that many at TNR openly referred to themselves as socialists. But looking back, in 1931, Edmund Wilson argued strongly for liberals to give up Croly's "gradual and natural approximation to socialism" and to embrace socialism openly.”

And he goes on:

“Since then the distinction between liberalism and anti-capitalist radicalism has been continuously effaced by the rise of a vast regulatory state staffed, in part, by public sector unionists. Statism in America eschewed a European-style ownership of the means of production. Rather its aim has been, in the name of good and defensible causes such as a cleaner environment, to run as much of the economy as possible through government, directly and indirectly. The upshot is that the American percentage of GDP devoted to government has reached European levels”

No doubt liberals will dispute this history and characterization, make a claim that modern liberalism is more or less socialistic and every liberal I’ve know will laugh at the very notion and usually point to the lack of government direct ownership as the all defining measure of socialism and therefore a clear rebuttal to the charge.  This has always struck me as a far too formal definition of socialism.  Political thought rarely if ever comes with black and white delineations, but rather shows itself in tendencies and presumptions. 

The Siegel piece can be found here:

http://www.tnr.com/article/politics/96415/occupy-wall-street-liberalism-socialism-tnr-1968-bureaucracy-mcgovern