Wednesday, July 21, 2010

What if the Best Teams Drafted First?

I am in the midst of reading the thoroughly depressing "The Elusive Quest for Growth" by William Easterly, which details how various attempts to help developing countries escape poverty have failed because of misaligned incentives.

For example, giving the most foreign aid to the poorest countries gives Third World leaders incentives to keep their subjects in poverty and therefore acquire even more aid. Alternatively, giving aid conditional on political or economic reforms doesn't work; when poor governments become increasingly corrupt, donors don't have the heart to stop giving aid. And on and on.

That got me to thinking: Do we try to improve the worst sports teams in the same incentive-perverting way that we're trying to help the poorest countries?

Professional sports leagues award draft picks in the reverse order of the teams' standings the previous year (there are some technicalities, such as the NBA's draft lottery and baseball's draft pick compensation for lost free agents, but the point remains the same). The idea is that the worst teams get first choice at the top rookies, thus enabling them to become competitive in the near future.

If the reverse-order draft did nothing to change teams' behavior, it would be an admirable policy. But statistical research has suggested that teams might be losing on purpose to improve their draft standings. For instance, each year the worst baseball teams trade away many of their best players in July and give ample big-league playing time to unpolished young prospects who otherwise would be kept in the minors.

I wonder if the Washington Nationals wish they had won a few more games during their horrid 2008 campaign. Because they didn't, and therefore finished dead last, they were awarded the No. 1 pick the next year and thus the rights to rookie phenom Stephen Strasburg. And all the sellouts, merchandise sales, and national media exposure that came with him. I'm sure they're devastated.

What did the Washington Wizards do this past year to deserve the No. 1 pick in the NBA Draft? From The Washington Post:

Grunfeld sat in the back room to watch the Ping-Pong balls bounce in favor of a franchise that finished 26-56 last season, enduring a trying campaign. Abe Pollin died of a rare brain disease in November; star point guard Gilbert Arenas was suspended for the final 50 games and received a felony gun conviction after bringing guns to the locker room in a dispute with teammate Javaris Crittenton; and Grunfeld detonated the roster with a flurry of trades at the deadline that shipped out former all-stars Antawn Jamison and Caron Butler, as well as Brendan Haywood and DeShawn Stevenson.

Setting aside the death of team owner Pollin, none of the above is behavior that the NBA or its fans want to encourage. Yet the team was rewarded with the No. 1 pick.

So while corrupt leaders end up with more foreign aid, incompetent team owners or upper management end up with top draft picks. How could these systems be improved?

In his book, Easterly suggests that the most aid should go to countries that have implemented the most economic reforms, not the ones who promise to implement them, thus making their commitment to improve credible.

In that spirit, why not give the highest draft picks to the best teams, rewarding them for winning? Or, for a less-extreme solution, why not make the draft order random? Either approach would remove the incentive to lose.

Of course, bad teams would suffer. After the losses began to mount, maybe the teams' management would be replaced by more competent personnel. Maybe teams that can't draw many fans will improve their on-field product, move to more lucrative markets, or go bankrupt.

Are these outcomes really that bad?


Josh Hattersley said...

A key difference being that sports are meant to entertain; poverty aid is meant to help those in need. I don't think anyone would argue that helping the country whose citizens are worst off is a bad thing (that is, assuming said aid is used properly, which as you point out as far from guaranteed). With sports, however, I'd bet many enjoy the fluctuating nature of the game, with various teams moving up and down the rankings each year and keeping the game interesting. Changing the "last is first" policy could result in a stagnant landscape that, eventually, might devolve into a handful of Yankees-like teams dominating year after year.

Greg Finley said...

It's hard to know how fluctuation in sports would change if the draft was reworked. But as it is now, about a third of the baseball teams are beginning to give up on this season, with attendance waning and fan apathy kicking in.

Sadly, if it's not done the right away, trying to help the poorest countries might even be a major factor in keeping them poor, if aid money is being usurped by government officials and perverse incentives are being created.

Millsy said...

Interesting discussion. And I agree that in sports like football or basketball it could be the case that they're purposefully losing up top, but the players are almost certainly giving full effort given that they are constantly being monitored by everyone and their mother on television, in the stands, etc.

On the other hand, even for Strasburg I'm not sure that happens in baseball. Most trades of the ilk you discuss often are trading present value for future value, despite the perverse incentives that may induce losing to get free stuff. I think it's almost impossible to tell which is which. BUT, it could be a good research question.

Perhaps look at deadline trades, and somehow look ex post at the ultimate value of those trades. Are small-market teams consistently trading 'too much' present value on the field for future value? Then it's either A. they're not very good at their assessments or B. perhaps they're doing it on purpose. Not sure if it's totally possible to do this, but might be interesting.

Greg Finley said...

You have a good point that the players themselves aren't likely to lose on purpose, because their stats affect their earnings and prestige the rest of their career. (But I bet it's harder to stay focused and motivated when your team is in last place as opposed to the middle of a penant race.) I was instead thinking about how much GMs are truly trying to put a product on the field that will win in the current season.

I think trades are very difficult to study. Suppose that the Red Sox trade a prospect for two months' of services from an established player. That prospect could turn into the next Jeff Bagwell, or he could turn into a career minor leaguer. It's hard to tell ahead of time, but perhaps there could be generalizations made in the aggregate about the expected value of prospects.

Millsy said...

Yeah, I don't think evaluating trades after the fact would be an easy task (and it would be even harder to convince people that whatever methods used are actually worthwhile). I was thinking about the possibility of finding differences across teams systematically...which is likely to be an exercise in futility. But, if you're up for a challenge...

I'm curious if GM tenure would have an effect on the 'dumping'. It's often such a short time in each team, every GM wants to win now. I imagine it depends pretty heavily on the leash they're given (and whether or not it's an owner's decision to punt now to get the prospect).