10 Takeaways From the NBA’s Rejection of Lottery Reform

Just two days ago, higher-ups with both the Sixers and the league office expected lottery reform to pass by a vote of either 29-1 or 28-2. Over the weekend, Thunder GM Sam Presti initiated a stealth lobbying campaign against the league’s proposed changes, outlined here, which would have smoothed out the odds across the lottery. Presti raised concerns that such reform, piled atop other coming changes, would hurt small-market teams. A bunch of those non-glamour teams — including the Spurs and just about every branch of the Spurs management tree — eventually came around to the Sixers/Thunder “no” side. According to sources, the vote was 17-13 in favor of lottery reform, but 23 positive votes were needed for the proposal to pass. The result was unexpected, but what can we take away from the latest news?

1. Under the league’s proposal, teams at the top of the lottery, the very worst teams, would have had a reduced chance of snagging the no. 1 pick and staying within the top three and top six. Teams at the bottom, the best lottery teams, would have found themselves with better odds of leaping into one of those ranges. The league proposed drawing the first six picks; the current system draws only the first three, with the rest of the lottery falling from there in order of record — from worst to best.

This is a stunning defeat for the NBA. The league expected to ride the tide of anti-Sixers sentiment to an easy win and install the newfangled lottery weighting system immediately. The Sixers had accepted defeat, even though they would fight to the wire against reform; they were already talking themselves into how reform might help them in a couple of years, when the new odds might aid them into a lottery win as a run-of-the-mill bad team in something like the eighth or ninth slot.

2. The anti-Philly animus is real. Several of the 12 teams that voted with Philly against lottery reform1 are somewhere between uncomfortable and angry with Philly’s ultra-aggressive approach to tanking.

This is not to say Philly is doing anything wrong or unethical. It is, in fact, using the current system of rules to tank better than anyone else has had the balls or patience for in the past. Some executives feel envious that their owners never green-lit such a blatant multiyear tanking scheme — a long-term play that provides Sixers GM Sam Hinkie with unusual job security during a run of losing seasons. Job security is gold bullion in a league of such insane turnover.

Some executives say Philly has violated the sacred obligation for teams to compete as hard as they can every season. That is the more righteous version of the backlash, even if Philly is really trying to position itself to compete for championships in a half-decade or so. The league heard all of this grumbling. It saw all the press about tanking — all the hand-wringing and finger-wagging. It sought to squash the perception that something was fishy about team building in basketball, and it thought it would win. To be frank, I did, too. We were all wrong.

3. The league will probably try again. There is a sense among teams from all market sizes that too many things are changing too quickly. The new national TV deal, worth nearly triple the current version on a per-year basis, is going to change the NBA in ways we don’t yet understand.

The salary cap is going to soar, though we won’t know the exact mechanics of how and when until the league and players’ union agree on a method of “smoothing” in the money — if they agree on such a method at all. If left alone, the money flow could produce a mega-spike in the 2016-17 cap — an unprecedented one-year jump of $20 million or more.

That makes a lot of teams nervous, and it would benefit one class of players — free agents in the summer of 2016 — over others. But at least some high-powered agents like the idea of a one-year spike, and they have some influence at the players’ association. A one-year spike is chaos, and teams make regrettable decisions amid chaos. Agents flock to regrettable decisions more than drunk college kids.

Regardless: The cap might be $100 million in four or five years. It’s at $63 million now. Teams have to spend up to 90 percent of the cap, though the penalty for failing to reach that threshold — a penalty Philly might pay this season — is basically not a penalty at all.2

Small-market teams have rarely had payrolls approaching $90 million. They can’t fathom that kind of figure right now. It worries them. They know the new TV deal will flood their coffers with cash and that franchise valuations are rising by ridiculous amounts every day. But some of them are nervous about how they will survive when they suddenly have to spend $100 million on player salaries. They’re nervous that marketing and production costs will rise along with those salaries. They’re anxious because they don’t know how the league’s revenue-sharing system will change as the TV deal produces revenue amounts no one even dreamed about five years ago.

4. The union might end up in the same place. Michele Roberts, the union’s new executive director, has said only that the union needs time to study the implications of the TV deal and talk things over with the league. But the union knows that system shocks in the past have helped one lucky class of players over the membership body; they understand that is the nature of a league that changes in unpredictable ways once or twice a decade.

Under the current system, teams that reach certain profit levels forfeit some of their potential revenue-sharing proceeds. Revenue sharing saved teams last season; the Hornets, for instance, lost $33 million on basketball operations, but managed to tread water thanks to a massive $22 million revenue-sharing payout, per internal league documents obtained by Grantland.

The rule isn’t universal. The Jazz and Nuggets were estimated to have made small profits on basketball operations, and they also received revenue-sharing payouts just south of $20 million apiece.

Small-market teams fear a scenario in which the new TV deal allows them to crack a tiny profit, which in turn deprives them of some revenue sharing, according to several league sources. This is where you say: too freaking bad! Boohoo! You’d be making a profit, even a small one, and running a business that might sell for $1 billion anytime you decide to pull out.

And that’s fair. The flip side is that the mega-markets would absolutely clean up if their revenue-sharing obligations vanished. The Lakers committed nearly $50 million to revenue sharing last season, per league documents. The Knicks forked over about $27 million. The Bulls, always tax-conscious, kicked in $17 million.

Those teams would be swimming in cash if they were able to keep that money for themselves. That would be doubly so if and when the big-market teams can renegotiate their local television deals — money they don’t have to share with the other 29 teams. Perhaps their spending advantage over their non-glamour brethren could widen. Would the luxury tax even matter at that point?

Remember: Contracts are shorter and free agency is a more central part of team building now. There is already a sense among teams from all market types that the primacy of free agency on its own gives a small edge to the teams that draw the very best free agents. Big-city teams that planned for a normal amount of cap room — Brooklyn, the Lakers, the Knicks — might be able to chase two or even three max-level stars in one summer.3

An across-the-board jump in player salaries might also help the more desirable markets. The difference between a $4 million and $5 million salary is proportionally larger than the same $1 million gap between a $10 million and $11 million salary. As each dollar between an offer from Milwaukee and New York means a bit less, the thinking goes, the appeal of New York becomes more powerful.

5. No one knows if any of this is really true yet. That’s kind of the point. In the end, teams felt rushed trying to approve a major change at a time when so much other stuff is changing.

The lotto anxiety was especially acute among small-market teams. Their thinking is simple: Non-glamour teams are never going to draw superstar free agents, especially if the big boys have cap room every summer and no qualms about overspending. The only way the non-glams can get superstars is to draft them, and the only reliable way to do that is to finish at or near the top of the lottery.

The current system allows teams to (kind of) plan their way into a top-three pick. That is how Oklahoma City got Kevin Durant, after all. The league’s proposal would have injected more randomness into the process, undercutting the ability to plan and increasing the likelihood that a solid team near the bottom of the lottery lucks its way into a star.

That might deter tanking on some level, but it also raises the chances of a scenario in which a team wins multiple lotteries despite some on-court improvement. No one seemed to like it much when Cleveland won a third lottery in four years in May.

6. Whether this really hurts small markets is unclear. Many of them barely eke into the black, if they profit at all, and those thin margins drive many to win as many games as possible every season. They need bodies in the stands. A bad team that tries may well end up in the middle of the lottery, in the sweet spot where the league’s proposal might actually help them.

Again: This interacts with revenue sharing. If small-market teams get more shared cash, ensuring a profit every season, perhaps they’ll be willing to tank Philly-style and chase a high pick. Does the league want a system like that? Every branch of the system touches every other branch; there are always unintended consequences.

7. The Sixers, of course, are a large-market team using these alleged small-market tactics, and no one is sure if they’ll succeed. They do not receive any revenue sharing under current rules, so the league isn’t accidentally funding a tank job. But that raises another potential issue with the current system: Large-market teams with big local TV deals and a wider customer base might be able to out-tank small markets. They can survive longer at the bottom of the standings.

Few big-market teams have ever gone that route, because high ticket prices and the edge they have in free agency encourage them to remain competitive at all times.

8. The league will fight to the death any perception that small-market teams face a disadvantage. It will point to the recent success of Indiana and Memphis, two teams that didn’t need a massive lottery win, and to LeBron’s return to the non-glam Cleveland market. It will bring up San Antonio and Oklahoma City, two non-glamour teams that used the lottery to catapult themselves into the elite — and then stayed there, forever in the Spurs’ case, with smart management.

Small-market teams that draft superstars have a home-court advantage, via the higher salaries and longer contracts they can offer, in keeping those guys onboard.

The league is right in lots of cases. We’re talking about only 15 or 20 guys who really move the needle, and league rules and randomness will make it so a bunch of them stick around regardless of market size. It’s hard to leave a 60-win team, regardless of where it is. The LeBron situation is about the luck of his birthplace more than any market force.

Still: Every superstar free agent who hits the market, either via unrestricted free agency or pushing for a trade, takes meetings with the same half-dozen teams — the teams in New York, Los Angeles, Miami (that beach!), and the big Texas teams that can dangle the lack of a state income tax (something the Florida teams can also boast).

Perhaps that will change. One superstar can tilt the whole system; LeBron has already drawn another top-10 guy to chilly Cleveland.

Right or wrong, the small-market concern is out there, and it drove the vote.

9. Some teams appear to have voted out of straight self-interest linked to protected picks, another indication that the league might have rushed into this change. The Grizzlies are a small-market team, but they owe a top-five protected pick to the Cavaliers. If Memphis misses the playoffs, it will almost certainly be at no. 13 or no. 14 in the lottery, meaning the league’s proposal would have given them a better shot than the current system at leaping into the top five — and keeping their pick.

The Grizz voted for reform. That is probably not a coincidence.4

Phoenix also voted against reform, and it owns a top-five-protected pick from the Lakers. That’s a tricky one. If the Suns think the Lakers are going to be ordinary bad and finish in the eighth or ninth lottery spot, they might oppose reform, since the current system makes it more likely for the Lakers to stick where they finish — and hand over that tasty pick.

If the Suns think the Lakers are going to be awful and finish among the league’s five worst teams, they might support reform, since the proposed system would make it more likely for the Lakers to fall out of the protected range.

Short-term concerns like this absolutely drove some votes. The NBA might have done better proposing a system that would have kicked in after all of these picks traded hands. That seems fairer.

That’s a discussion they can still have. The anti-Philly sentiment isn’t going away. The league can push this fight again in the future, when teams feel like they understand the overall landscape better.

10. That raises the big question: If you’re going to change the lottery system, what is the best move? There are lots of ideas, sweeping and tiny, out there; I mentioned and analyzed many of them here. They’ll all get renewed play now.

That includes the wheel, by the way. It is the only proposal I’ve seen5 that would eradicate every form of tanking. Almost every other proposal, including the one that just bit the dust, would mostly move the tanking leverage point around.

The proposed weighting system would have reduced the incentive to tank into the top three, but created mini-tipping points at no. 6 and no. 10 — and perhaps at other places. An unweighted system, an intriguing idea6 in which all lottery teams have the same odds of getting any lottery pick, might encourage a team sitting in the no. 10 spot late in the season to subtly bow out of the playoff race. This is why some folks have proposed including, say, the bottom four playoff teams in each conference in the lottery, though that, too, would create another mini–inflection point.

Systems that base lottery odds around team records before or after some point in the season would create leverage points around those dates.

Some of these inflection points would be less powerful behavioral triggers than others, including the ones baked into the current system. Monkeying around with those triggers is a valuable exercise.

But remember: If you change one part of the NBA ecosystem, including lottery weights, you might have to change others in order to ward off unintended consequences. This is a complex problem with complex answers, and nearly half the league’s teams sent a loud message: Keep working, and at least give us time to digest everything.

This article has been updated to remove erroneous references to Cleveland voting against lottery reform and add Detroit among the teams opposing reform.

Filed Under: 2014-15 NBA Preview, NBA lottery, NBA Draft, Adam Silver, Sam Hinkie, Philadelphia 76ers

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Zach Lowe is a staff writer for Grantland.

Archive @ ZachLowe_NBA