Twenty-Four Months Of Perspective On Trades

Back in February 2008, three big trades altered the balance of power in the Western Conference:

(1) The L.A. Lakers traded Kwame Brown, 2007 first-round draft pick Javaris Crittenton, 2007 second-round draft pick Marc Gasol, a 2008 first-round draft pick, and a 2010 first-round pick to Memphis for Pau Gasol and a 2010 second-round pick.

(2) Phoenix traded Shawn Marion and Marcus Banks to Miami for Shaquille O'Neal.

(3) Dallas traded Devin Harris, Desagana Diop, Trenton Hassell, Maurice Ager, a 2008 first-round draft pick, and a 2010 first-round pick to New Jersey for Jason Kidd, Malik Allen, and Antoine Wright.

Each of these transactions was roundly slammed at the time for its one-sidedness: Folks thought that the Lakers, Heat, and Nets fleeced their respective counterparties. However, assets in the NBA (i) are relationship-specific, i.e. their value changes depending which team gets them, and (ii) have dynamic values that can change significantly over time. Ultimately, each of these trades turned out to be far fairer than once thought.

LAKERS-GRIZZLIES (Gasol, Gasol)
We know that Pau Gasol helped propel the Lakers to two NBA finals and one championship (after successive first-round exits in 2006 and 2007), so the trade was a home run for Los Angeles. Yet the deal now looks better for Memphis than once thought. Marc Gasol, hardly mentioned in initial accounts of the trade, now performs rather equinely every night, regularly turning in double-doubles and serving as a scary defensive presence. He was mentioned by several pundits as worthy of a 2010 All-Star spot. Moreover, the 2008 first-round pick in that trade became Darrell Arthur, who is now Memphis's only decent forward off the bench. Memphis, at 30-29 and unexpectedly striving for a playoff spot, is one of the most surprising squads of 2009-10. It is actually hard to imagine now that Memphis could have done significantly better in the trade, given the teams bidding to acquire Pau at the time. Chicago allegedly offered Joakim Noah and Tyrus Thomas, but neither of those guys has Marc Gasol's dominant offensive instincts.

SUNS-HEAT (O'Neal, Marion)
Early in the 2007-08 season, following a first-round sweep by Chicago the previous spring, Heat watchers declared Shaquille O'Neal "done". O'Neal, though, recovered from early-season doldrums following his trade to Phoenix and improved his rebounding from 7.8 per game to 10.6. Phoenix lost in the first round of the playoffs that season to San Antonio, which eventually beat the Hornets in the second round and lost to the Lakers in the conference finals. Whether Phoenix could have surpassed the West's best that season is uncertain. The Suns could not get past San Antonio with a full complement of Nash, Stoudemire, and Marion in the 2007 playoffs, so it is uncertain whether they could have reversed their luck in '08.
In 2008-09, O'Neal was selected to the Western Conference All-Star team and was voted to the All-NBA third team in June. That Phoenix struggled in the 2008-09 season and missed the playoffs was largely the fault of their new coach, Terry Porter, who failed to run a system suited to the run-and-gun, pick-and-roll strengths of the team's biggest stars, Nash and Stoudemire. O'Neal turned in a very good year, featuring his best scoring rate since 2005-06 and his best free throw percentage since 2002-03.
Meanwhile, Marion, once called the most athletic player in the NBA, is no longer thought of as a top 10, top 15, or even top 30 superstar. After the big trade in February 2008 he seemed to sulk, playing under his supposed potential on Miami and later Toronto. Now a starting small forward for Dallas, he is merely a top-notch role player who once was great.

MAVERICKS-NETS (Harris, Kidd)
Is there any controversy here? The Nets are 6-52 and Dallas is 38-21. The 2008 draft pick that the Nets picked up became Ryan Anderson (who was eventually flipped, with Vince Carter, for Courtney Lee), who is a decent ninth man. Save for Hassell, all the other role players in the 2008 draft — Diop, Ager, Allen, Wright — now play elsewhere. Jason Kidd turned in a 19-17-16 game on Friday night at nearly age 37. Following the 2008 trade, he helped the US Olympic team to a gold medal in Beijing, followed by a second-round playoff showing in 2009, knocking off the hated Spurs. This year he averages 10 points, 9 assists, nearly 2 steals, and 42 percent from long range. Looking beyond statistics, he is the unquestioned general of his team and often appears spryer than men nearly half his age. Harris had a nice 2008-09, finishing a very close 2nd in the Most Improved Player voting, but this year he is shooting under 40% from the field -- as a point guard -- while, again, leading his team to a 6-52 record.

More On McGrady Trade

Well, the deal I wrote about yesterday came to fruition, with the added wrinkle of Sacramento's involvement. Sacramento sends Sergio Rodriguez to New York and Kevin Martin to Houston. Sacramento receives Carl Landry and Joey Dorsey from Houston, along with Larry Hughes from New York. Otherwise, the basic outlines of yesterday's trade still hold: New York receives McGrady, while Houston receives Jared Jeffries, Jordan Hill, New York's 2012 first-round draft pick, and the right to swap first-round picks with New York in 2011.

This is a win-win-win. New York clears 2010-11 salary and is able to audition McGrady for two months. Houston gets Martin, potentially a star shooting guard in the mold of Reggie Miller and Richard Hamilton, plus a strong defender in Jeffries and a lottery prospect in Hill. Sacramento receives the very solid Landry and also cuts salary; their payroll for 2010-11 is now low enough that they also could potentially sign a "max" free agent this July. Who wouldn't want to play with Tyreke Evans?

The Knicks also come away from today with an influx of young talent. Though they gave away 2009 lottery pick Jordan Hill, they received Sergio Rodriguez, plus J.R. Giddens and Bill Walker from their Nate Robinson trade. To date, Donnie Walsh has done a very good job of shepherding the team into the new decade. If he can sign top stars this summer, we will be obliged to give him an A+.

Assessing Potential Knicks-Rockets Trade

Today's reports indicate that the Knicks want to trade Jared Jeffries, Jordan Hill, and Larry Hughes, plus a couple draft picks, to Houston for Tracy McGrady.

If completed, this would be an excellent deal for New York. Hill has not shown much promise in his first 50 pro games. Jeffries is a versatile defender, but probably replicable, and at a cheaper salary. Shedding the $6.88 MM contract of Jeffries and the $2.67 MM contract of HIll would shave $9.55 MM off the Knicks' salary roll for 2010-11, leaving them with just $17.78 MM in committed player pay for next season. Looking at a salary cap of approximately $53 MM, the Knicks would have approximately $35 MM of uncommitted cap space to sign free agents in July. With a maximum allowed salary of approximately $16 MM annually, the Knicks could bring in two top-level players from the pool of James/Wade/Bosh/Johnson/Stoudemire, and possibly sign a third top performer to boot. Perhaps McGrady would re-sign with New York at a low rate. Let us not forget that T-Mac has earned All-NBA honors six times, including two seasons on the First Team. And he is only 30 years old. If he can perform at 50% of his peak, that's still better than anyone else presently on the Knicks.

Under this scenario, the Knicks would have only four signed players for 2010-11: Chandler, Gallinari, Curry, and Douglas. Only the first two guys of that list are good, and they both play small forward. Thus, signing LeBron James seems unlikely. A likelier combination would be plucking (i) one top guard: Johnson or Wade, and (ii) one top big: Stoudemire or Bosh.

Of course, Miami, Chicago, New Jersey, Oklahoma City, and the L.A. Clippers will compete to sign these same free agents. Also, the Knicks would have a troublesome time filling in the rest of the 15-man roster after signing two studs. (They have no first-round draft pick in 2010, having traded it away in 2004.) It would help if Eddy Curry could get in shape and return to his form of 2006-07, when he averaged 19.5 points and 7 rebounds on 58% field-goal percentage. This seems unlikely, though.

UPDATE: Somewhat relatedly, I just became aware of this New York Times article, an interesting analysis of the financial fortunes of Madison Square Garden Inc., parent company of the New York Knicks. On February 9th, Madison Square Garden Inc. became a separate business entity from its parent, Cablevision.

Friends To Know, Ways To Grow

My Thanksgiving posts are rather hasty, as I am currently family-ing it up.

Here is my question. Which of the following stars (or near-stars, or former stars) will get traded first? And to whom?

Elton Brand, Gilbert Arenas, Tracy McGrady, Chris Bosh, Kevin Martin, Stephen Jackson, Troy Murphy, Carlos Boozer, Rip Hamilton, Tayshaun Prince, Monta Ellis, Tyrus Thomas.

Off the top of my head: Houston could use Rip Ham or K-Mart. Phoenix could use Murphy, Ty Thomas, or McGrady. Chicago and Atlanta could use Brand or Boozer. Utah or Boston could use Prince. Cleveland, as widely noted, covets S-Jax. Denver wouldn't mind Murphy. The Cavs could also use Martin, though they probably cannot afford his price. Atlanta could use Prince or Thomas or McGrady.

The greatest prizes, potentially, are Arenas and Bosh. (Let's not forget, too, that McGrady is a two-time NBA scoring champion and former MVP vote recipient.) The Wizards and Raptors, respectively, are unlikely to trade those guys unless things are going horribly in February. There are many teams that could use Arenas and Bosh. Don't count out the Oklahoma City Thunder, which have stockpiled a ton of tradable assets.

As a side note, why do trades happen (or what makes a team inclined to trade a star player) in the first place? Several factors may underlie such transitions, including (i) overestimation of the player's ability at the time the team signed him to a contract or attempted to build around him (Baron Davis 2005); (ii) overestimation of the teammates brought in alongside that putative star (Mutombo 2001); (iii) surprising progress in basketball performance by other teams, making your own team suddenly a dinosaur; (Billups 2008); (iv) a personal dispute between the star player and other players/personnel of your team (Shaq O'Neal 2004, Jason Kidd 2001); (v) external economic factors making your team not profitable even as a winner (Ray Allen 2007, Pau Gasol 2008); (vi) stochastic disasters like a season-ending or career-altering injury to the star or a complementary teammate (Chris Webber 2005); or (vii) a simple failure by the supposed star to grab wins (Garnett '07). Many of the above factors apply in the case of Bosh and Arenas.

What do you think?

On Stephen Jackson

Incidentally, wouldn't it be cool if I could demand a trade from my employer?** I would insist on a warm-weather city where I could play a featured role and reunite with my college buds. I would act "disgruntled" and refuse to bill any hours until my demands are satisfied. I would be curious to see if I would be traded for a rookie fresh from law school, or a grizzled vet playing out his contract as an "of counsel".

Darn at-will employment.

As academic theorists and lay observers have noted, guaranteed contracts provide poor incentives to employees, and make it very difficult for employers to sever relations with non-performing workers. Guaranteed contracts that include provisions allowing limited firing, "for cause", inevitably give rise to costly disputes about whether the agreed-upon cause was triggered. In turn, this makes employers more reluctant ex ante to hire. Extensive due diligence on prospective employees is one partial solution to the incentive problem with guaranteed contracts; in a way, this may help to explain (to answer my blogmate's recent query) why NBA owners support the age limit. No one wants to gamble on a raw 18-year-old, hand him 10 million dollars, and see him wither away to twigs.

(**I don't mean to suggest that I am anything but content with my current employer.)

Gog and Magog

The potential clinching game of the NBA Finals is tonight. Yet why is this the headline on ESPN's NBA homepage? Weren't these guys finished weeks or months ago? Note that to find content about the Magic and Lakers, one needs to click the link just below "The Taking of Pelham 123". Funny enough, that movie was originally released in 1974, shortly after Shaquille O'Neal's birth.

Always Be Closing

With the Iverson trade, Joe Dumars proved again today why he is the best general manager in the league. In the last 8 years, he has completed the following deals, each of which was seen as a risk at the time. By risky I mean that the possible volatility of outcomes was wide; the deal could have been a strikeout, or a home run. What’s more, in several of these cases, observers saw only the negative possibility, and not the positive. Other than the Darko selection (and perhaps letting Okur migrate to Utah), each of these decisions was ultimately vindicated. Only time will tell whether the last two on this list were wise decisions.

· Trading an injured Grant Hill for Ben Wallace (who?)
· Hiring Rick Carlisle (who?)
· Signing journeyman Chauncey Billups
· Trading Jerry Stackhouse for Rip Hamilton
· Drafting Tayshaun Prince over NCAA champions Lonny Baxter and Carlos Boozer
· Drafting Darko Milicic (who?) over Wade, Bosh, Anthony, Hinrich, Ford
· Dumping Carlisle for Larry Brown after two 50-win seasons
· Trading for the fiery Rasheed Wallace
· Letting Mehmet Okur walk away for nothing
· Signing washed-up Antonio McDyess
· Dumping Larry Brown for Flip Saunders after two NBA Finals trips
· Drafting Amir Johnson from high school
· Trading Darko before he established his potential
· Letting Ben Wallace walk for nothing
· Drafting Rodney Stuckey over, among others, the All-American Alando Tucker and the top college shot blocker Sean Williams
· Re-signing Billups at $12 MM / year
· Dumping Flip Saunders for Michael Curry after three conference finals
· Trading Billups for Allen Iverson

A basic principle of finance is that consistently higher risk is required for consistently higher returns. Yet Dumars always seems to win these bets, save for the Darko selection. Were they truly risky? Perhaps with the benefit of ex post analysis we can see that contemporaneous observers were wrong about the possible outcomes of these deals. Perhaps Dumars has better information than the market: he clearly knew something about Hill’s ankle injury (and something about Ben Wallace's ability) that Orlando didn’t, and he saw potential in players like Billups and McDyess that no one else perceived. Or alternatively/additionally, perhaps Dumars always has a really good hedging strategy on his bets. Carlisle was seen as a tightass, but luckily Dumars was able to reach out to a Hall of Fame coach to replace him immediately when the players began to chafe. The first Billups signing in 2002 was surprising, but the contract sum was relatively low, and trading a former #3 selected point guard is not difficult. Darko was a risk, but teams always salivate over big men with untapped potential, so Dumars knew that he could easy dump Milicic on another team (the Magic again! … hmmm) if he didn’t quickly blossom. Rasheed Wallace was prone to explosions, but at the time of the February 2004 trade, his contract was soon to expire; at the least, Dumars could leverage him into a quick run to the Finals in a weak East. Amir Johnson was an unknown figure, but he was chosen late in the second round when there were no other obvious gems on the board, and Detroit’s deep frontcourt of the Wallaces and McDyess meant that Johnson could develop slowly. Sure, he might go bust, but then Dumars would not lose a lot of investment principal.

If Dumars wants to switch to a second career with Goldman Sachs, I am sure there is a seat waiting for him. Remember that only Goldman survived the subprime mortgage crisis unscathed... and they did it by some smart hedging.