by Buddy Scott, Charles Hua, and Danny Blumenthal
With NBA free agency underway, it’s time for front offices to get the spotlight as they build their teams for 2021 and beyond. Some executives, such as Oklahoma City’s Sam Presti and San Antonio’s R.C Buford, seem to consistently unearth underrated players for just the right price. Since the salary cap will fall short of initial expectations (due to the COVID-19 pandemic), front offices will face more pressure to match Presti and Buford’s wise spending if they want to avoid going over the luxury tax.
Because efficient spending will be paramount this year, we at HSAC chose to explore which teams have historically played “Moneyball”, and which teams have been free spenders. As with our MLB payroll efficiency rankings, we examined NBA teams’ performance on two metrics: wins above average and payroll above average. The following graph displays each team’s position on these two metrics since 1990 (the farthest back the USA Today’s data goes):
Teams in the top right and bottom left quadrants fit expectations. Big spenders like the Los Angeles Lakers win a lot, while small-market teams rarely succeed on the floor. However, teams in the top left and bottom right quadrants do not match up with their potentials. Teams in the top left, like the Utah Jazz, are able to succeed despite spending less than the league average. On the other hand, the bottom-right quadrant is reserved for teams like the New York Knicks – big-market behemoths which struggle to win even with large payrolls.
Within a quadrant, teams can be more or less efficient than one another. For example, both the Atlanta Hawks and Washington Wizards inhabit the “low wins, low payroll” section of the graph, but the Hawks barely miss the efficient top left. Meanwhile, the Wizards, who rank 16th in payroll but 29th in wins since 1990, are dangerously close to falling into inefficient bottom right.
To get a clearer picture of each team’s “efficiency score”, a technique called Z-Scores can be beneficial. Z-Scores are a method for standardizing scores with different units (wins and payroll dollars) by seeing how far from the average they both are. These standardized scores were computed for both measures across all seasons. The formula for this “efficiency score” is:
Efficiency Score = Wins Z-Score – Payroll Z-Score
This measure is centered at zero, so teams with positive scores spend more efficiently than those with negative scores. Using Z-Scores, instead of ordinal rankings, paints a better picture of how much above average each team is, rather than just that it is above or below average. The following graph displays each team’s Z-Score for payroll (in red) and wins (in blue) since 1990, and the gap (shaded in gray) reflects each team’s efficiency score:
If a team’s blue dot is farther to the right than its red dot (like the Utah Jazz), then the team is efficient with its payroll, winning more than they spend. Conversely, teams with dots far to the right of their blue dot, like the Knicks, are quite inefficient – even with bloated payrolls, they still struggle on the floor. To visualize the gaps between each team’s payroll Z-Score and wins Z-Score, the following bar graph displays only the differences between the two metrics.
The New York Knicks are far and away the least efficient team in the NBA, with their score being more than twice as low as all other teams’. With only one playoff series win since 2000, the Knicks illustrate the notable correlation between payroll efficiency and playoff success. In contrast, Utah and San Antonio emerge as small-market success stories, performing well on the court despite investing comparatively little into the team. One reason San Antonio and Utah have excelled is their skill in the draft. Both the Spurs (Tim Duncan, Tony Parker) and the Jazz (John Stockton, Rudy Gobert, Donovan Mitchell) have invested in home-grown talent and locked them in for the long term. As a result, they haven’t needed to chase pricey free agents, and can work to supplement their stars instead.
Nevertheless, there is still one more dimension to explore in payroll efficiency: efficiency over time. Every team has ebbs and flows over time, both in terms of their performance on the court, but also in terms of their leadership’s expectations of success. To address this, we’ve conducted a longitudinal analysis of teams’ payroll efficiency and will take a deep dive into a few teams which stand out.
Brooklyn Nets: 2010-2018
The Brooklyn Nets, led by superstars Kevin Durant and Kyrie Irving, project to be an Eastern Conference contender in the upcoming season. But just over a decade ago, the franchise’s outlook looked quite bleak. Russian billionaire Mikhail Prokhorov bought the team in May 2010, fresh off of a 12-70 season. Instead of building around Derrick Favors, their third overall pick in the 2010 draft, the franchise completed three monumental trades over three years in an attempt to gain relevance in a conference dominated by LeBron James. The team traded Favors, starting point guard Devin Harris, and two first-round picks (including the #3 selection in the 2011 draft) for All-Star point guard Deron Williams, who later signed a 5 year / $98M contract in the 2012 offseason. Also during the 2012 offseason, they traded for overpaid All-Star Joe Johnson, who had 4 years / $86M remaining on his contract in his ages 31-34 seasons. And during the 2013 Draft, the team famously traded the picks which became Jayson Tatum, Jaylen Brown, and Collin Sexton to the Boston Celtics for 36-year-old Paul Pierce and 37-year-old Kevin Garnett. During the 2013-2014 season the Brooklyn Nets’ payroll was $103M, more than $30M over the luxury tax threshold. In fact, their starting five alone – Williams, Johnson, Pierce, Garnett, and Brook Lopez – amassed salaries nearly $11M over the tax line. The Nets’ tax bill in that season was greater than any of the other 29 teams’ total salaries. Despite this astronomical payroll, the team won only 44 of its 82 games and got thoroughly beaten in the second round of the playoffs. The advanced metrics actually suggest the Nets overperformed in the 2013-2014 season; they had a negative net rating and an expected record of 38-44.
The graph below shows the Nets’ Z-score for wins minus the team’s Z-score for payroll from the 2010-2011 season to the 2018-2019 season. There is a clear trend of the Nets’ efficiency score, decreasing during the years in which they acquired overpaid talent and increasing in the following years as they underwent a period of internal development. This process has transformed players like Caris LeVert, Spencer Dinwiddie, and Joe Harris into starter-level players, setting a strong foundation for Durant and Irving to join in free agency.
To his credit, Prokhorov attempted to build a winning team the best way he knew how: pay a lot of money for it. In this way, he was a general manager’s dream owner, willing to spend whatever it took to bring a championship to the city. However, going all-in with washed-up stars did not result in playoff success like Prokhorov had hoped. The Nets are a fascinating case study for team-building in the NBA as it relates to salary, and they demonstrate why payroll alone doesn’t translate to on-the-court success.
Philadelphia 76ers: 2013-2018
After Allen Iverson’s departure in 2006, Philadelphia was a middling team. They hovered around .500 and maintained a mid-sized payroll, giving them a mediocre efficiency score. However, the team wanted to aim higher than the first round of the playoffs and dreamed of championships. To get there, Philadelphia bottomed out from 2013 to 2016 as part of “The Process”– consistently maintaining below-average payrolls and terrible teams in order to gather high draft picks and plan for the future. As the graph shows, “The Process”-era 76ers were able to maintain similar levels of payroll efficiency as they had in previous years. Now though, they had a clear plan, rather than just being stuck in the middle. While this took time, it seemed like “The Process” was a success, as Philadelphia improved from only 10 wins in 2015 to over 50 wins in both 2017 and 2018. This was buoyed by young players, such as Joel Embiid (#3 pick, 2014) and Ben Simmons (#1 pick, 2016) blossoming into stars. Combining their low payroll with their success on the floor, Philadelphia’s payroll efficiency shot up to one of the best scores in the league. The 76ers were able to collect cheap, young talent through high draft selections and achieved relative success in the win column.
However, as the talent has become increasingly expensive, the team still has not achieved its potential in terms of postseason success. This past year, the team regressed, finishing sixth in the East and losing in the first round. Embiid and Simmons are now locked into high-priced deals, but questions still remain about their long-term fit together. While new team leaders Doc Rivers and Daryl Morey have retooled the roster this offseason, they still have major decisions to make about the next steps for the organization.
Boston Celtics: 2009-2018
The 2010s served as a tale of two halves for the Boston Celtics, as they compiled some of the NBA’s worst efficiency scores over the first five years, and some of the best efficiency scores over the past five years. After winning a title with the pricey “Big Three” of Paul Pierce, Kevin Garnett, and Ray Allen, Boston was straddled with an expensive roster that failed to live up to its talent in the following seasons. As they began their rebuilding efforts, they focused on cheaper talent and younger stars, improving their win totals at a vastly more efficient rate in terms of payroll. In particular, they stocked up on draft picks and assets, swindling the Nets in the Paul Pierce/Kevin Garnett deal mentioned earlier.
By patiently building through the draft, the Celtics have assembled a talented young core centered around Jayson Tatum and Jaylen Brown, and have several new draft picks who could contribute as well. They’ve also complemented that core with inexpensive role players, such as defender Daniel Theis, who mesh well with the team’s main scorers. The Celtics’ strong track record of success over the past couple of years suggests that building a roster stocked with young, cheap talent can often prove a more effective route than relying on expensive veterans. However, they will have to maintain this focus on finding complementary parts, or they may end up in the same boat as Philadelphia — never quite reaching the top.
New York Knicks: 2001-2008
The Knicks faced tough choices in the early 2000s – after making the playoffs 14 years in a row (but never winning the Finals), the team was declining from its peak. With its aging, expensive roster, they likely couldn’t compete with the top teams in the East any longer. When head coach Jeff Van Gundy abruptly resigned at the start of 2001, the franchise was thrown into a greater sense of turmoil. How could they return to contention?
Some teams may have set a course to rebuild through the draft. However, the turmoil and the bright lights may have steered the Knicks to try to win right away. They made several big trades to try to bring talent to New York, but these deals overwhelmingly failed. And each time the Knicks whiffed, they tried to double down and bring in other talent, dragging them further away from actually being able to compete for a title. Some of the major misses include:
- Re-signing Allan Houston to a 6-year, $100 million contract – Houston was good for much of his time in New York, but many analysts were surprised when the Knicks made him the highest-paid player in franchise history. While Houston scored a lot when healthy, his knees gave out in 2004 and the team was saddled with his massive contract. Circumstances were so bad that the NBA designed the “Allan Houston Rule” to let teams remove a player’s contract from luxury tax considerations.
- Trading for Stephon Marbury and Penny Hardaway – After trading away a top-10 pick for Antonio McDyess (another expensive, oft-injured player) and failing, the Knicks wanted to transition again. They shipped McDyess, four teammates, and 2 first-round picks to Phoenix in exchange for Stephon Marbury and Penny Hardaway. By this point, Hardaway was past his prime and was only a $14.6 million bench player. However, Marbury was coming off an All-Star season, and was seen as a superstar scorer. While he kept up his scoring in New York, he frequently feuded with coaches and teammates over playing time and his perceived lack of effort. Marbury brought more headaches than the Knicks could handle, and by 2009, the team was so sick of him that they bought out his contract.
- Signing Jerome James – Desperate for size after inexplicably trading away all of their big men, the Knicks were looking for anyone to play center for them in 2005. This was perfect timing for journeyman center Jerome James, who had just excelled the previous postseason with Seattle. While James had averaged only 5 points per game for his career, this was no problem for the Knicks, who promptly handed him a 5-year, $30 million deal. Once in New York though, James returned to form and averaged only 2.5 points per game in four seasons. During the final two years of his deal, James earned over $1 million per point scored!
While payroll efficiency is not a perfect metric (because some teams may take on more salary to get draft picks in trades), consistently placing above or below average indicates a team’s long-term focus. Overall, the Knicks’ lack of a sense of direction sets them apart from many of the most efficient teams. Unlike those with committed leadership, such as the Spurs and Jazz, the Knicks seem to constantly shift their organizational focus and never stick with a coach for long. This offseason, it seems like the team finally has set a clear goal of resetting. They have created over $40 million in salary cap space by getting rid of six veteran players. Still, until the organization can maintain a sense of stability, they are unlikely to return to contention.
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