The Economics of Basketball Development

USA Basketball and the NBA abdicate its leadership role, leaving savvy, profit-seeking businessmen and sneaker companies to fill the void and create a youth development system for profit, not development. While I typically champion entrepreneurship, the lack of involvement from the professional and national organizations creates a giant chasm and the present system of high school to college to the pros with different, unaffiliated organizations absolves these organizations of their grassroots duties because they have zero financial incentive.

In Europe, as best as I know, economics drive development because of the club system. The cheapest way to sign a player for a professional club is to develop that player through the club’s youth system. If a player plays with a club from a young age, through its youth system, and reaches the club’s first or second team between 16-18 years old, the club holds his rights.

The club signs the player to a contract and he plays for the professional team. Now, what if the player develops into an NBA prospect, enters the draft and signs with an NBA team? His club reaps the benefit from the buyout in his contract, often around $500,000. The $500,000 is re-invested into the youth club to develop more players or can be used to sign another player to take the young star’s place. For a smaller club, producing an NBA player, or even developing a player who is bought by a larger club in a better (Italian, Greek, Spanish) league can contribute as much to the operating budget as the rest of the club’s revenue combined. Plus, the added benefit of attracting young players to a club which has developed young NBA players, which is the appeal of a club like Bennetton Treviso, which had Andrea Bargnani drafted #1 this year.

In some ways, this is how the Oakland A’s operate in Major League Baseball and represents a very basic economic principle: buy low, sell high. The A’s rely almost exclusively on its farm system to develop players like Bobby Crosby, Eric Chavez, Barry Zito, Mark Ellis, etc. These players play out their rookie contracts and the A’s often deal them before their huge contract payday to replenish their farm system, much as they did with Mark Mulder (Danny Haren) and Tim Hudson. Or, they allow the player to leave via free agency and use the supplemental draft choices received in return for losing a free agent to draft a player (Houston Street). Then, around their core players developed within their system and re-signed (Chavez), they buy low, signing a player like Frank Thomas at a bargain price or trading for a player like Johnny Damon for the pennant chase and eventual supplemental draft picks. Through this approach, Oakland remains an elite team with a minuscule budget compared to the California Angels, New York Yankees and Boston Red Sox.

NBA teams have no such financial incentives. Since all players must attend college for at least a year, the NBDL consists mainly of players who tried and failed to make the NBA, not players developing toward a future NBA career, like with minor league baseball. Imagine the difference in the NBDL if it featured players like Greg Oden, Taylor Hansborough, OJ Mayo, Michael Beasley, Kevin Love, Joakim Noah and others combine with guys like Gerald Glass, Andrew Bynum and Monta Ellis. Imagine if NBA teams were responsible for the development of such players starting at 18, 16 or even 14 years old. And, imagine if an NBA team retained the rights to such a player if he developed through their youth system. The economics for change would definitely exist if teams had such an incentive to identify and develop young players rather than relying on a poor record and the luck of a ping pong ball to secure the rights to Greg Oden or OJ Mayo.

What if Oden had been playing with the Indiana Junior Pacers since he was 11 years old? The Pacers had invested in his development, trained him, used the Pacers’ staff and training facilities and now were set to reap the benefits by signing him to the senior club to play alongside Jermaine O’Neal.

And, the economics does not only benefit the bigger clubs in bigger cities. Imagine the financial windfall for a small CBA or NBDL franchise in North Dakota when they developed and ultimately sold the contract of Mike Miller to an NBA franchise? Or a Vermont ABA team which sold the contract of Matt Bonner and reaped the financial rewards? Think Seattle might be a more solid franchise right now if it had Nate Robinson, Jamal Crawford, Marvin Williams and Brandon Roy develop through its youth system and join the Sonics? Or, maybe the Sonics would be threatened by a competing Seattle minor league franchise who developed these local players, won the ABA or CBA championship and earned a promotion to the NBA, while an NBA franchise like the Atlanta Hawks was demoted to a minor league because of their persistent losing.

Some teams (the Knicks) would still open the checkbook and sign high-priced players; however, now if the Knicks wanted Eddy Curry, and Curry liked the Knicks contract offer, the Knicks would send the Bulls cash, not mediocre players with expiring contracts, which the Bulls could use to sign their own free agent prize (Ben Wallace) or invest in the development of local talent like Eric Gordon and Derrick Rose.

The economics of the European system favors development, as it is the cheapest way to stock the professional team; and selling a player’s contract to the NBA is the easiest way to turn an operating profit for a year, especially in leagues without television money or luxury boxes. The system in the USA creates no financial incentive for an NBA team to be involved in youth development as drafting a player from Serbia, South Africa or South Carolina costs the same in a guaranteed first-year contract as drafting a kid who grew up around the corner from the arena and played for the local high school and college.

If one wants to blame the NBA for the way players play or the loss in Japan, blame the NBA for creating a monopoly and exercising its wealth through plucking the best players from other sources rather than investing its resources in developing its own players. If one advocates change-real change-changing the overall economics of basketball in the United States is the only way.

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