By Robbie Butler

As a teenager of the 1990s one of my favourite programmes on television was British comedy Men Behaving Badly. The sitcom followed the lives of two main charters (Gary and Tony) and their attempts to prolong their youth whilst sharing a flat together in London. The show was often highlighted for its political incorrectness and one has to wonder what reaction it might receive if it were aired today for the first time.

As a consequence, I was immediately drawn to a recent paper in the Journal of Sports Economics entitled "Universities Behaving Badly: The Impact of Athletic Malfeasance on Student Quality and Enrollment". The paper explore the relationship between the behaviour of university teams during competitions run by the National Collegiate Athletic Association in men’s basketball and subsequent student enrolment.

For example, it has long been viewed the superior performance in football or basketball at national level could attract more students to one of the 1,268 North American institutions and conferences under NCAA regulation. This paper finds that negative media attention also has an impact - such behaviour "could serve as a signal to prospective students regarding the quality of the institution". In other words, if the behaviour of sports teams does not meet the standards of the institution which they represent, how can we know the quality of teaching doesn't suffer from the same problem?

The paper goes onto say that following the introduction of a ban, as a result of impropriety, student enrolment suffers. However, this is likely short-lived and "rebounds" (no pun intended) once the ban is lifted. There may be a long term reduction in student quality. 

Those representing university teams therefore need to remember exact what they are playing for. ​The privilege to play is more than the opportunity to win. But also to promote one's university to prospective students and past alumni. 

By Stephen Brosnan

Last week, I discussed the principal-agent problem in college basketball between Duke University’s star forward Zion Williamson and their three-time Olympic gold medal winning Coach Mike Krzyzewski. The principal agent problem arises when two parties have different incentives and the principal cannot ensure the agent acts in their best interest. This led to me thinking about the incentives facing NBA teams vying for Zion’s signature.

The best chance an NBA team has of drafting Zion Williamson is by winning the NBA draft lottery and receiving the number one overall pick. However, in order to do so teams are faced with a perverse incentive. A perverse incentive is an incentive that has an unintended and undesirable result which is contrary to the interests of the incentive makers.

The NBA draft is an imperfect system, which rewards the teams with the worst win percentages with a greater opportunity of obtaining a high draft picks. As such, NBA teams are incentivised to ‘tank’ i.e. intentionally lose games in order to increase their chances of receiving the number one pick in the NBA draft. Tanking is associated with multiple problems in relation to the treatment of season ticket holders that have paid to watch the team for the season without full knowledge of the team’s ‘strategy’, distortion to betting markets which can have significant financial implications, detrimental effects on team moral and the creation of a losing culture within the organisation. 

However, the power of perverse incentives in the NBA is even greater than other sports leagues given that the NBA is considered a star dominated league where an exceptional player has the ability to transform a franchise from no-hopers to championship contenders. Of course, the opposite is also true – when a star player leaves the fortunes of the team often leave with them. Case in point: Lebron James.

• Lebron James was drafted as the number one overall pick in the 2003 NBA draft by his hometown team, the Cleveland Cavaliers. He led Cleveland to their first playoffs in eight years and their first ever NBA finals in 2007.
• In 2010, Lebron left the Cavs and ‘took his talents to South Beach’ by joining the Miami Heat. Following James’ departure, the Cavs had the worst record in the entire NBA over the next four seasons (97–215).
• In 2014, Lebron returned to Cleveland and transformed the team from the worst to one of the best teams in the NBA, leading the team to three straight NBA championship finals and winning the city's first professional sports title in 52 years.
• In 2018, ‘King’ James left once again but this time to Los Angeles Lakers and the Cavs winning record left with him. This season, the Cavs have the third worst record in the entire league (11-41).

As such, given a team’s success can often be determined by one player there will always be perverse incentives at play in the NBA, particularly in the case of tanking for the number one pick. However, winning the number one pick in the draft should not be considered a strategic panacea for NBA teams as traditionally selectors have found it very difficult to identify individual talent that will develop in star NBA players.
 

By Stephen Brosnan

In economics, the principal-agent problem occurs when one person (the “agent”) is able to make decisions and/or take actions on behalf of another person (the “principal”). The problem arises where the two parties have different interests and asymmetric information, such that the principal cannot directly ensure that the agent is always acting in their (the principal's) best interest.

Previous work by Purcell (2009) examined the presence of the principal-agent problem in professional basketball. The findings of the study suggest that imperfect competition between managers and players, coupled with long-term highly lucrative contracts, altered player’s effort over the course of their contract. Specifically, player effort is reduced the year after signing a long-term contract. This post examines whether similar effects may be evident in college basketball.

In recent years, few college basketball players have generated as much interest and excitement as Duke University’s Zion Williamson. The 6’7, 285 pound forward is widely considered a lock for the number one overall pick in the 2019 NBA Draft with comparisons being drawn to NBA greats Lebron James, Shawn Kemp and ‘Sir’ Charles Barkley.

Before the beginning of the 2019 college season, Williamson was projected to be a top 5 NBA Draft pick. However, there were worries over his weight and how this would impact his ability to get up and down the court and avoid injuries. Furthermore, many commentators suggested that he wasn’t even the best player on his team, with that honour going to RJ Barrett. This provided an incentive for Williamson to maximise his effort, learn from legendary Duke coach Mike Krzyzewski (‘Coach K’) and improve his performance in order to climb up the rankings, thus maximising the interest of both Coach K (principle) and Williamson (agent).

However, now that he is the consensus number one overall pick, which is rewarded with lucrative long-term contracts and sponsorship deals, there may be an incentive for Williamson to rest up in order to avoid injury and protect his future earnings. Six-time NBA champion Scotty Pippen said recently on ESPN “I think he’s locked up the biggest shoe deal, I think he’s definitely going to be the No. 1 pick, I think he’s done enough for college basketball, that it’s more about him personally” Pippen went on “I would shut it down. I would stop playing because I feel he could risk a major injury that could really hurt his career”.

These interests will obviously not be shared by his coach who needs Williamson to play in order maximise his chances of winning his sixth NCAA Championship. Thus, according to the principal-agent problem, Coach K needs to incentivise Williamson in order to align the interest of the agent with those of the principle. However, judging by recent comments this may have already happened with Williamson stating “I can't just stop playing. I'd be letting my teammates down, I'd be letting Coach K down, I'd be letting a lot of people down. If I wanted to sit out, I wouldn't have went to college. I came to Duke to play."

By Gary Burns

The big sports story currently in the NBA is that LeBron James has decided to ‘opt-out’of his contract with the Miami Heat and become an un-restricted free agent. LeBron has been with the Miami Heat over the past four years, winning two championships with them. 

Having an‘opt-out’ feature in a sports contract would be unfamiliar to those more familiar with soccer, so what does this actually mean? As with other American sports, in the NBA there are no transfer fees for players. Once contracts are signed players generally remain with the franchise unless traded for college draft picks, other players or to free up salary cap room (teams have a limit on what they can spend on contracts to promote competitive balance). However a player may decide to include a ‘player option’ for a particular year in their contract which allows them to become a free agent and sign for another franchise or indeed re-sign for their current team. This is exactly what James has decided to do by ‘opting-out’ of his contract with the Heat and is a free-agent on the 1st July. 
 
Although somewhat expected, the news has still sent ripples through NBA hierarchies as James is regarded as the one of the best currently in the NBA. Arguably, one of the best of all-time. Other franchises will have to ‘make-room’ for James if they want his signature. In real terms this means that franchises will have to clear-out expensive contracts to accommodate the approximately $22 million James was due if he remained with the Heat. Some of the early contenders include the LA Lakers, LA Clippers, Houston Rockets and perhaps a return to his hometown and former team Cleveland Cavaliers. He could also, and very likely, return to the Miami Heat.  It appears that the Dallas Mavericks, Phoenix Suns and LA Lakers all have sufficient salary cap room to sign James.

There is shrewd economic thinking behind LeBrons decision to opt-out.  His decision could be a signal to Miami Heat to off-load some ageing talent that takes up large salary space and replace them with talent to help LeBron win a third championship. Also money may be a factor. Players in the free market can acquire greater salaries than those in contracts. Due to the collective bargaining agreement the NBA has with franchises, the upper end players tend to lose out. James is expected to seek the maximum contract on offer as he took a lower contract to allow the “Big 3” to happen in Miami four years ago. Or perhaps he may be opting out of his contract to allow Miami more salary-cap space to sign top talent, and then he can re-sign at a lower rate than his current contract states.

There is also other very notable free agents already announced and expected to become free agents. Carmelo Anthony, Nick Young, Dirk Nowitzki , Kyle Lowry and both  of the other “Big 3” teammates of James in Miami, Chris Bosh and Dwayne Wade who have early termination options in their contracts and have opted out. 

This should make for an interesting summer as the equivalent of the football transfer window opens as the most talented players are up for grabs. Unlike Association Football, the real difference here is that technically all teams can compete for the talent. Strategic positioning of a team is important in the NBA as they must ensure that the contracts they offer do not prohibit them from competing for free agency talent when available. Whatever happens, fans of every franchise will argue their case for Lebron to choose their city as his impact in Miami has proven that he has the talent to change the landscape in the NBA.  

By David Butler

Previously I considered findings relating to simulation in association football after a weekend of contentious calls in the Premier League. The evidence suggested that referees are well qualified to judge whether a footballer attempts at simulate a foul. But what about deception in other sports?  A recent paper published in the Journal of Economic Behavior & Organization available here considers the topic of simulation in basketball using data from the Israeli Basketball Super League.

The researchers look at over 500 incidents and follow the classic approach of behavioural economists; they tested to see whether decision making by players and referees relating to simulation was optimal and, if not, they ask why this was not the case and how systematic was this deviation from optimality.

The data collected suggests that deception in professional basketball is quite common and players often fall in an attempt to receive an offensive foul. It is argued however that what is believed to be a common strategy of deceiving to achieve obvious gains can actually have a negative outcome for the team. They researchers suggest that falling players do not realise the cost they are imposing on their team if a foul is not awarded. The idea is also floated that players and team’s incentives structure could be potentially misaligned (i.e. the player having specific bonuses). The authors go on to cite some of the most recent research in the area of honesty and cheating which suggests that individuals have a tendency to cheat for small personal gains but do not engage in large-scale dishonest behaviours.

The research asks an interesting question, which is especially pertinent in light of the findings; why doesn't the team or the coach instruct his players to stop simulating fouls if there are high costs imposed on the team?  Perhaps the 32 managers on their way to Brazil should turn to the Journal of Economic Behavior & Organization to get the edge! 

By David Butler

The hot-hand 'fallacy' is a mistaken belief that if an individual successfully achieves an objective randomly, this causes a greater chance of additional success in the given activity for the short term future. The phenomenon has been studied in greatest detail through the lens of sport, in particular basketball, and is often cited by behavioural economists as an example of how individuals make cognitive ‘errors’, making up stories to explain apparent patterns or rationalising what has gone before them in a narrative.

Originally applied to a sporting context by Thomas Gilovich and Amos Tversky in the mid 1980's, the majority of the literature on the issue suggests that sports stars going through ‘hot’ or ‘cold’ streaks, in terms of performance, is an illusion (contrary to what fans and coaches so often think!). Simply put, basketball players are not more likely to make their next shot given that they have made their previous two or three shots in a row.

However a recent study that accesses panel data from Major League Baseball finds evidence to support the existence of the 'hot-hand'. The author’s claim to overcome several problems not given due attention by previous studies such as controlling for strategic interactions within a tie and conclude that the (10!) statistical tests conducted by them actually all show evidence in favour of the hot-hand.

The authors attribute the presence of this to differences between baseball and basketball suggesting that basketball presents “sufficient opportunity for defensive responses to equate shooting probabilities across players whereas baseball does not. As such, much prior evidence on the absence of a hot hand despite widespread belief in its
presence should not be interpreted as a cognitive mistake as it typically is in the literature, but rather, as an efficient equilibrium adjustment.”

From my reading of things, the authors are simply pointing out that in basketball 'hot' players can be targeted more intensively by defensives but such luxuries don't exist in baseball.

By John Considine

Two weeks from now the Sochi Winter Olympics will begin.  The event has received added attention because of non-sporting events.  Security fears have increased since the December deaths of over 30 people in two suicide bombings in Volgograd.  The games have also provided gay rights activists with the opportunity to highlight Russia's stance on gay rights.  These protests has spilled over into the economic sphere.

Towards the end of last year a variety of media outlets explained how the protesters proposed to use economic forces to highlight the issue.  In October Forbes magazine reported how Coca-Cola, McDonald’s and Samsung were enduring protests over their sponsorship of the games (here).  In December Bloomberg News again highlighted the targeting of Coca-Cola (here). This week the actor Hugh Laurie, the star of the TV series House, added his voice to a call for a boycott of Russian vodka (here). In these examples, the approach is to damage the profitability of the products.  The message is to purchase less of the targeted product(s).
 
An alternative way of using economic forces to support gay rights is to purchase more merchandise from a company that supports gay athletes. The potential for this approach is explored during a number of interviews between Rick Horrow (host of Bloomberg’s Sportsfolio) and Cyd Zeigler (Outsports.com).

Horrow discussed the possibilities for the first openly gay athlete in the major US sports with Zeigler in an interview (here) from April 2013.  Soon afterward basketball player Jason Collins stated he was gay in a Sports Illustrated article.  There followed another Sportfolio interview (here). In this interview Zeigler said he had a phone call from some friends who wanted to rush out and buy a Collins shirts.  Zeigler suggested the callers should wait until Collins signed a new contract as that would reward the team that signed him.  If the callers followed Zeigler’s advice then they would have to wait a while to get a Collins shirt.  This was something Horrow and Zeigler returned to in a later interview (here).  This November interview between Horrow and Zeigler is recommended viewing.

In the November interview Horrow uses the Collins case to wonder if gay athletes might find it difficult to get teams.  At the time of the interview, the NBA season was underway.  Collins had not been invited to any training camp and was not on any roster. Zeigler’s analysis cut straight to the tension between the sport and the economics.  He explained the difference in priorities between the front office executives and the coach.  He pointed out that the priority of the coach is winning.

As Zeigler talked captions on Collins’s stats were presented on the screen. Collins played for 12 years and with six teams.  During these 12 years his teams qualified for the playoffs on 9 occasions and made the finals on 2 occasions.  In his last season he played for the Washington Wizards. His salary was $1.35m but his stats dropped.  His 2012-13 points average was only 1.1 for 38 games whereas his career average was 3.6. He was also going to be 35 on December 2nd, 2013.
 
Zeigler could understand how Collins might not make too many appearances for a new team. However, he pointed out that there could be some financial logic to signing him as a 12th man.  There are economics forces that might support Collins’s case for a contract.
 
The November interview between Horrow and Zeigler also discusses the situation in other sports.  In addition, Zeigler discusses the potential for the protests surrounding gay rights in Russia having an impact.  It will make for an interesting few weeks if we are to judge by the rainbow clothing worn by the German team in the above photo.