The NBA is experiencing many problems, but let’s focus on just one: load management. Load management is where players are unnecessarily playing reduced minutes or are outright sitting out games. I want to relate what’s happening in the NBA with an economic concept called the tragedy of the commons. With the tragedy of the commons, we have an open or communal resource that is used by a group. But the individuals within that group start to seek to maximize their own self-interest, and in doing so, they exploit the resource. As a result, the group as a whole loses because the resource is depleted, damaged, etc. On the whiteboard with me, I have a drawing of a pond that is surrounded by five landowners. What may happen is we have landowner five starts to draw more water. Landowner four notices this additional withdrawal, and then they start to draw more water until eventually, we get to the point where all landowners are taking as much water as they possibly can until the pond is depleted.
Another version of this is playing out in the NBA. The reason it’s playing out is because players, coaches, team owners, team management has all realized that it’s not in their best interest to maximize effort and wins. Many teams realize, hey, we don’t need to play our star players. We can rest them and maximize our chances at having a good playoff run. This is because the championship has become not just the gold standard but it’s the only standard. If you’re a winning team, you will commonly hear players say that you either win the NBA championship or the season was a failure. That is a really bad precedent to establish, and it has been established. On the other end, for the losing teams, they really want to maximize their chances of winning the lottery or at least winning a high pick. When we have losing teams, they seek to maximize how much they lose so they can increase their percentage odds of getting a higher pick. As a result, because the focus is on only a championship or only a high draft pick, we see players playing fewer minutes and fewer games played. This is because the optimal path isn’t necessarily to win as many games as possible. And the optimal path for the losing teams, maybe not even to win any games at all, maybe to lose as many as possible.
Now, the problem here is that while strategically, this may make sense for each individual team, player, coach, et cetera, it doesn’t work for the business of the NBA. The NBA is in the business of entertainment. What is happening is when fans patronize the NBA, they watch the games, they go to the games. When they start to realize that this product is being diluted, then they start to lose interest. The NBA makes money off of the interest. A lot of players disregard, or a lot of players don’t even know, is that this money that the NBA generates is not there just because the NBA is the NBA. This money is there because the NBA is entertaining to fans. So if the fan dollars, I have here a drawing of a basketball court, we have the fan dollars going in and the NBA revenue going out, and the players receive a share of that revenue. But if the fans start to lose interest and the fan dollars start to go down, ultimately what will happen is the players’ money will go down because there will be less money to disperse amongst the players.
So what is happening right now is the current players and the current teams, what they are doing is they are drawing from the commons. And I have here a rectangle pool of money. And this money recycles. When the NBA is up for new deals, it gets money from these new media deals, and it infuses the pool. But the media deals will be worth less if the NBA continues on this current path, because the fan interest will be less. And why does this happen again? Because teams have realized that the optimal basketball strategy is actually not the optimal strategy for the NBA as a business. And because of this, we have players that are playing fewer minutes and actually sitting out games. And so as a result, or what is happening is we have a misalignment between the fan interest and the team actions. So what needs to happen is these interests need to be better aligned. Because right now, who is being hurt is the NBA as a whole. And then we have the future players, and then we have the NBA brand, and then we have the NBA teams. Because this pool of money is going to decrease if this current trend continues. It has to. It has to. Because when the product is worse, then the fans coming in will pay less. And they will not only pay less, but they will start to lose interest. And that is where the NBA makes money.
So what needs to happen is the NBA needs to incentivize players to play. We now know, it is very clear that the love of basketball is no longer good enough for basketball players to play games. And, we also know that providing every last luxury is not enough. It doesn’t matter how nice the flights are, it doesn’t matter what the meals are, it doesn’t matter what the accommodations are. It’s not been enough. And the NBA players receive the first class of everything, and yet it’s still not enough for them to play more minutes and play games. And so what needs to happen is we need to see a reduction in the amount of guaranteed money in contracts. And what should happen is there should be a much lower percentage base. So that much money you are guaranteed, and then that money increases the more games that are played, the more minutes that are played, et cetera. So if this happens, then we will see a better alignment of interests, and suddenly players will be able to play in back to backs or they’ll be able to play over 35 minutes a game. But as it stands, we can see the trend. I’m not saying this is the case for all NBA teams or all NBA players. Some players genuinely want to play, but even within their own organizations, there may be discord. And so there may be an organization where we have the coach and the GM and upper management, they’re tanking, but the players want to play. The star players want to play, but the coach and GM and the management, they are thinking strategically, and they are thinking, how do we get talent as quickly as possible so that we can be better later?
So we really just have. Ultimately, what this all comes down to is we have a misalignment of interests. And what needs to happen for the NBA to go back to making more money thriving, is that the NBA needs to align these interests. And we’ve seen that the players do not respond to any number of things. And so really all it amounts to is, are gimmicks that, they’re not going to work and they’re never going to fundamentally resolve this misalignment. So what we need to do is we need to take away the guaranteed money. And by doing so, the players and the coaches and the teams are all going to start to come back in line with what the NBA needs.