Economics of Pistons trading Ben Gordon and getting their hearts broken in lottery

By now, as we are all aware, the Pistons ended up with the ninth draft slot in the 2014 NBA draft. And, given that the trade to the Bobcats had only top-eight protection this year, the pick will be forfeited. So now is a good time to review what led to Charlotte owning Detroit’s lottery selection.

The trade was simple: Ben Gordon and the Detroit pick for Corey Maggette. But Gordon and Maggette were irrelevant to the decision. It was really Ben Gordon’s contract and the pick for Corey Maggette’s contract. Ben Gordon’s contract was for $12.4M that year (2012-13) and $13.2M the following (2013-14). Maggette’s contract was for $10,924,138 and was in its final season. In other words, Dumars traded a draft pick which became 9th overall for $14,675,862 in cash. Normally, there would be a bit more to it as it would also have created cap space. However, given the decision not to use the one-time amnesty clause on anyone else, we know that it could have been used on Gordon to create all the same cap space, just not the cash.

The pure, simple Benjamins

How exactly cap space vs. cash should be valued is up for debate. My personal take is that cash is of purely financial value and is only that to the owner. Cap space is all that matters from a basketball perspective (i.e., what the fans and team care about). So I don’t know how I expect the owner to balance those values, but to everyone else, it is 1:0 in favor of cap space–assuming, of course, that the owner doesn’t promise to set aside those saving to use at some point when the team may have to dip into the luxury tax to field a winner. And I’ve never heard of any owner doing that.

Nate Silver at FiveThirtyEight Sports has done some excellent analysis on the value of draft picks. According to his analysis, in an average draft, the ninth overall pick is worth about $15.5M. In other words, over his first five seasons, a ninth pick will typically be underpaid by about that much money. That, in effect, saves the owner $15.5M in cash and opens up the same amount of cap room relative to a free agent signing who could be expected to produce at a comparable level.

So, from a purely money-in-the-owner’s-pocket perspective, the trade was basically a wash. OK, Dumars lost by about $825K. But that means he brought back 94.7% of the value he sent out. That’s as close to even as trades get. Especially given that the ninth pick was likely to be the best possible pick the Pistons would give up. But that’s only money in the owner’s pocket, so let’s look at all the other aspects of the trade.

Trade results assessed thus far: -$0.8M in owner cash

Cap space, or financial flexibility if you prefer

In cap space, or basketball money, the Pistons gained $0 and gave up $15.5M. Now, we could attribute that not to the trade itself but to the fact that the amnesty provision wasn’t used after the fact. That would probably be a fairer way to look at it, so I’ll do so. I’ll separate the mistake of this trade from the mistake of not amnestying Villanueva. Still, by making the trade, the Pistons reduced the value of the amnesty provision (which they would then proceed to completely squander). Since Gordon and Villanueva were contributing no basketball value, they were complete dead weight on the books. Before trading away Gordon, the Pistons could have removed $25.6M of dead weight. After the trade, they were limited to $16.64M. So the Gordon trade removed $14.68M in salary and reduced the amnesty upside by $8.96M. So we’ll revise our previous numbers and say Detroit gained $5.7M of cap space and lost $15.5M in the pick.

Trade results assessed thus far: -$0.8M in owner cash, -$9.8M in available basketball money

When the financial flexibility comes into play

But there is another factor that must be considered, timing. By using a draft pick instead of a free agent to add to the roster, those $15.5M extra available basketball money would not be available all at once. It would be spread out over 5 seasons (~$3.1M/yr), starting in 2014-15. Because of the trade, the extra $5.7M was actually distributed as a loss of $2.8M of flexibility in 2012-13 and a gain of $8.6M in 2013-14. Consolidating several years of cap space into one big chunk can be very valuable when in win-now mode. You take your lumps in other seasons and maximize your odds all at once. So that’s what Dumars did. He hurt the Pistons slightly in 2012-13 and 2014-19, in order to consolidate all that cap space (while sacrificing 63% of it to do so) into one win-now splurge–last season. I don’t think I need to tell you that last season was not the year to sacrifice others for.

This was essentially the opposite of what the Thunder (an organization with some brains) did with Nick Collison. They negotiated with him that he was worth approximately $17.6M/4 yrs ($4.4M/yr). You could quibble about whether that’s too high or too low, but it’s what they settled on. Given that, they decided to instantly blow their $6.5M of cap space s they would have it available, incrementally, over the next four seasons. That fact is currently saving them a little over $1.6M/yr. That’s not a ton, but for a team that is carefully managing its balance sheet to try to avoid the tax, that is very valuable flexibility. And they did it because they recognized that they weren’t yet a contender, but were likely to be one at some point during the contract. I don’t know what was going on in Dumars’ head, but his move was consistent with that of someone who believed the Pistons were more likely to contend in 2013-14 than between 2014-19. Alternatively, Dumars could have believed that a significantly more worthwhile free agent would be attainable in 2013 than in 2014. But when he made the trade in 2012, I don’t believe there was any general consensus to that effect. Nor do I believe that possible assumption will be borne out.

Of course, part of why the Thunder have benefited so much from the Collison extension is that they are constantly pushing the tax threshhold. Taking $3.1M/yr off the balance sheet is very valuable if a team has open cap space that it can add onto or if it is trying to skirt under the tax line. But there is a fairly extensive intermediate gulf between those levels of spending. The difference between being $2M over the cap and $5M over is not very significant. It makes trades with large salary variance less appealing because shedding salary won’t open up so much room and taking it on will make the tax approach. But, assuming the team isn’t making trades with large salary discrepancies, sometimes that salary differential is relatively unimportant. That will almost definitely happen at some point during the next five years, reducing the sting of that $15.5M extra on the balance sheet. But, given normal fluctuations, including the fact that capped out teams should be spending the MLE to try to get better, it probably won’t happen every year.

Trade results assessed thus far: -$0.8M in owner cash, -$2.8M in available basketball money for throw-away season 2012-13, +$8.6M in available basketball money for all-in season 2013-14, -$15.5M in available basketball money (some of which won’t matter) spread out over 2014-19

Specific details taking the trade a little further out of a vacuum

That leaves a couple noteworthy, but less easy to quantify, factors. Dumars had to spend big in last year’s free agency to keep the trade from being a total loss on every level imaginable. Granted, he also had to amnesty Villanueva to do so, but that’s another matter. I’m assuming the Jennings trade would have happened either way; but the urgency to redeem the Gordon trade led to the Smith signing, which most would consider a flop. Furthermore, most would not consider this year’s draft to be average. There are no guarantees on the value of whoever the Pistons would have taken ninth, but most experts agree that the probable value of that pick would be higher than most years.

Also bearing merit is the consideration that if the goal were to put some money back in the owner’s pockets, the Pistons definitely should have amnestied Gordon as soon as possible. While doing so would open up the opportunity to spend even more, it would not necessitate doing so.  And if anyone claimed the amnestied player, the Pistons would be getting back whatever the other team would be paying.

Trade results assessed thus far: -$0.8M+ in owner cash, -$2.8M in available basketball money for throw-away season 2012-13, +$8.6M in available basketball money for all-in season 2013-14, perceived need to sign Josh Smith, an extra $3.1M+ price tag for an equivalent roster from 2014-19

Yeesh!