Betting against an opponent's future is the NBA's market inefficiency
A DECADE AGO, NBA teams searching for an edge embraced new philosophies that injected the game with analytics. That pursuit is carrying on with an advancing new trend among forward-looking franchises.
Last season, when the Golden State Warriors -- owned by Joe Lacob, a partner at one of the nation's preeminent venture capital firms -- traded D'Angelo Russell to the Minnesota Timberwolves, the deal was rather nakedly structured around betting against the Wolves' future.
The primary assets coming back: the Wolves' first- and second-round picks in the 2021 NBA draft. The Warriors are wagering that the first-rounder would not only be in the lottery of a draft projected to be deep with talent -- Minnesota has missed the playoffs in 15 of the past 16 years -- but that sending Russell would not change that direction.
Increasingly, front offices have taken on the role akin to venture capital firms, fund managers or even old-fashioned stockbrokers, spreading wide nets and hoping for one angel investment to hit or simply "shorting" the future outlook of trade partners.
It could be a progression the Houston Rockets, a team with a history of innovative deals, examine as they flush out trade options for James Harden, the latest MVP who could be on the move.
"That's why there's a marketplace," one general manager said, "because you have buyers and sellers just like the stock market."
MOST OF THESE types of transactions are getting more sophisticated. In a series of trades over the past two years, the Oklahoma City Thunder have amassed 18 first-round picks and three pick-swap options to improve their draft position in various years through 2027.
"There's a lot of ways to shy away from these types of decisions, but ultimately we have to put the Thunder first," Thunder general manager Sam Presti said. "I feel passionate about relentlessly pursuing a bright future for the organization."
By collecting such a volume of picks, Presti is hoping to strike it rich on the couple that do succeed. And to increase his chances, when he traded away stars Paul George and Russell Westbrook to the LA Clippers and Rockets, respectively, he pushed the limits of the returning picks as far out as possible. This was to increase the likelihood that the Rockets and Clippers would be further removed from a contending window. When the picks came due, the chances of being a higher selection would be improved.
But, of course, that isn't enough -- Presti also built in options. The first-round picks from Houston for Westbrook don't arrive until 2024 and 2026, but Presti asked for a pick swap for the Rockets' pick this upcoming season (top-four protected). In the event of a black swan event -- like, say, Westbrook and Harden demanding trades within a year -- the Thunder had another way to capitalize.
A pick swap, though, is valuable only if you expect to be more competitive than your trading partner. Already preparing the Thunder for a rebuild, Presti negotiated into the swap a clause that allowed for the 2021 Miami Heat pick that Oklahoma City also owned as a substitute.
Presti has also positioned the Thunder to have both the lowest payroll in the NBA and three large trade exceptions, opening up options to do more arbitrage-style deals in the near future as the organization enters into a full rebuild after making the playoffs in 10 of the past 11 years.
"What you see OKC doing is how most teams have to do business these days when realistically looking at how to build a team," a rival Western Conference GM said. "Even if there is a superstar available by trade, how many teams can really sit at the disgruntled star table and hope he wants to play there? Five teams? Six maybe.
"This is something that has evolved in recent years as the league has gotten smarter and the stars have taken more power. We have all pushed the boundaries, I'm not sure we can push them much more."
The Thunder are at the forefront of this trend, assembling deals that weren't part of front-office repertoires. A seminal moment happened when the Boston Celtics acquired three first-round picks and a pick swap in sending Kevin Garnett and Paul Pierce to the Brooklyn Nets in 2014, a deal that changed the way teams think about trading franchise players.
These sorts of all-encompassing deals have not only started to become more common but also more complex. Now, league executives say, it isn't unusual for there to be days of negotiations over pick protections and delicate swap rights.
"There's a disparity in the access to elite players -- and it's getting wider," one team vice president said. "These deals that are happening now are a function of reality because even when star players come available via trade, they are more and more controlling the trade market. This is not a strategy of strength, it's a strategy of 'no other way.'"
THE NEW ORLEANS Pelicans have also gone down this path as they've traded away stars Anthony Davis and Jrue Holiday over the past two years. General manager David Griffin now has 10 first-round picks through 2027 and the right to swap two others. When he sent Davis to the Los Angeles Lakers, he also created a new type of asset: the option to take the Lakers' first-round pick in 2024 or 2025, whichever the Pelicans ultimately decide is more favorable when the time comes.
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Understanding that sending Holiday to the Milwaukee Bucks might increase the chances that two-time MVP Giannis Antetokounmpo re-signs long term, Griffin negotiated for pick swaps and first-rounds picks from 2024 to 2027, when the Bucks' situation might be different.
This doesn't fit the classic definition of "shorting," or wagering against the performance of a stock, but it is a gamble with the same thought process. Most NBA teams are rarely able to maintain an elite level of contention for more than four or five years, even those with star players atop the league. And this is the bet Griffin, like Presti, has entered into with these deals.
It's a position Griffin has an easier time taking because the Pelicans already had a seminal event, winning the lottery and the ability to draft Zion Williamson in 2019. That made it easier for Griffin -- who has also added Brandon Ingram, Steven Adams and Eric Bledsoe to help the team's short-term competitiveness -- to make future-oriented deals with teams that are trying to contend in the present.
"It's about adding to the sustainability of our future," Griffin said. "As often the case with a player of [Holiday's] caliber or of Anthony Davis' caliber, the best teams are the ones interested in those players ... so we're grateful we were able to put together the packages we were."
FORMER GENERAL MANAGER Sam Hinkie seems to have played a significant role in popularizing this approach during his complicated tenure with the Philadelphia 76ers. Hired by 76ers owners Josh Harris and David Blitzer, who help run two of the largest private equity firms in the world, Hinkie was essentially given a mandate to apply those tactics to the building of a basketball roster.
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Most of the attention centered on the dismantling of the 76ers roster in an attempt to secure a high draft lottery position. But the trade innovations have had a more lasting impact on today's evolving methods.
Teams can trade picks up to seven years in advance, and when Hinkie ran the 76ers, he and his staff ranked the relative value of all 420 of those picks in a guide for asset acquisition. Years before the Pelicans traded Holiday in a similar move, Hinkie traded the point guard in 2013 searching for future value, sending him to New Orleans and ended up yielding the sixth pick one year and the 10th pick the next. In 2015, Hinkie traded Rookie of the Year Michael Carter-Williams for a pick that ended up as No. 10.
Hinkie constructed a classic shorting deal in 2015 when acquiring a first-round pick and the option to swap picks in consecutive years from the Sacramento Kings in exchange for absorbing salary. At the time, the Kings hadn't made the playoffs in 10 years (and still have yet to make it). The 76ers used the swap to move up to No. 3 one year and the first-rounder ended up being used in a trade to move up in the draft as well.
The pursuit of picks based on their projection was so fierce it led Hinkie, through a series of deals, to ultimately acquire all the New York Knicks' second-round picks in the maximum seven-year span. The Knicks haven't made the playoffs since 2013, ensuring all those picks would land early in the second round.
When Hinkie was an assistant GM in Houston, he helped shape a unique trade that shorted the Raptors' future. Kyle Lowry was sent for a first-round pick that was structured to be guaranteed to be in the lottery. As it turned out, the pick was conveyed the next year, when the Raptors missed the playoffs, and it was a prime asset in the deal the Rockets used to acquire Harden in 2012.
These are the non-star types of moves more teams are chasing.
"Take a look at the Utah Jazz. They are a well-run organization that happened to miss the playoffs four years in a row," one league executive executive. "And in that span, they really didn't hit big on any of their lottery picks. But they make a move to buy the 27th pick from Denver and end up with Rudy Gobert, and that changed everything and now they're in the playoffs every year."
That's what teams like Oklahoma City, New Orleans, Golden State and increasingly others are seeking: more ways to place bets that deliver a huge return.
"The Lakers aren't worried about trading first-round picks, they just traded a bunch and won a title. The Clippers and Bucks feel they have to do the same to compete," one general manager said.
"We're all just deciding where we are in that market and trying to best position our franchises."