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Misaligned Incentives Plague Professional Drafts
Whether you call it rebuilding or tanking, there's an incentive for poor teams in professional sports to lose a lot of games
Professional sports leagues use amateur drafts to promote competitive balance within the league, with the worst-performing teams at the end of the season getting the top picks in the next season. However, this well-intentioned system has been plagued with misaligned incentives that have led to an unsportsmanlike behavior known as tanking. Recent events in the National Basketball Association (NBA) and the National Football League (NFL) highlight these problems and their economic implications.
The NBA draft process is set up as a lottery system in which the team with the worst record will receive no worse than the fifth pick in the subsequent player draft. The Dallas Mavericks recently made headlines for allegedly tanking in their last game. Tanking refers to the practice of intentionally losing games to secure a higher draft pick. Since the worst-performing teams in the NBA have the highest odds of getting the top pick in the subsequent draft, this incentivizes some teams to lose games, especially toward the end of the season.
Here’s the relevant section from the official NBA press release about the Dallas Mavs behavior:
The Mavericks violated the league’s player resting policy and demonstrated through actions and public statements the organization’s desire to lose the game in order to improve the chances of keeping its first-round pick in the 2023 NBA Draft. The league did not find that the players who participated in the game were not playing to win.
The incentive to tank at the end of the year is likely one led by coaches and general managers. Even during a bad season, players may still be incentivized to win games. This is especially true for players who may become free agents after the season ends and would like to be on a different team. Some players have performance-related bonuses in their contracts that they could earn in the last game of the season and backup players may exert extra effort to increase their chances of earning more playing time in the upcoming season.
Meanwhile, coaches and general managers, who are already looking ahead to next season, face the challenge of misaligned incentives. It doesn’t help when their fan base is actively rooting for them to lose so that they could get a top pick the next year. Check out this headline from a Houston Texans sports blog after the Texans won their final game of the year:
That headline is a great example of how even the fans of losing teams recognize the benefits of tanking. The NFL’s Houston Texans won their last game of the season despite fans hoping they would lose. Like the NBA draft, the NFL draft rewards losing teams with better draft picks. As a result, this encourages some fans to actively root for their own team to lose at the end of the season. The Texans head into the 2023 NFL Draft with the second overall pick, but a loss at the end of last season would have moved them up to the first overall pick.
Every accusation of tanking in sports is a little different because a lot of individuals with diverse objectives are involved in the game. The players on each team don’t often seem incentivized to play poorly in the last game since the competition for a roster spot is so intense. In the case of the Texans, their coach at the time, Lovie Smith, was probably going to be fired at the end of his first season anyway. Winning the last game of the year was unlikely to alter the team's decision to fire him just hours after the game.
While it is theoretically possible for a team to perform poorly throughout the year, fans and the media become more suspicious as the season approaches its end and the benefits of losing become more evident. We start noticing this behavior more often at the end of the year because talk of the impending player draft often begins.
Professional sports leagues are supposed to be about competition, not losing on purpose to improve draft position. Tanking undermines the integrity of the sport and makes fans question the legitimacy of the teams and the league. It also creates an unfair advantage for teams with the resources to tank effectively. It’s not an uncommon discussion among sports analysts:
Economists would describe tanking as a case of moral hazard. Moral hazard refers to the idea that people insured against risk will result in risky behavior becoming more likely. In the case of professional sports with amateur player drafts, team owners and coaches (at least those with job security) are willing to risk losing games because the cost of losing is not borne by the team itself but by the fans and the league.
Everyone else has to see poor performance, but teams that tank are rewarded with talented players in the next season. In the NBA press release, the league noted that the Dallas Mavericks were fined because of “conduct detrimental to the league.” When teams are losing on purpose, it lowers the likelihood that fans will attend the final few games and decreases television ratings. It’s a bad look for leagues that claim to be the most competitive sports environments in the world.
If professional sports leagues are really concerned about misaligned incentives, they should consider revising their draft systems. Major League Baseball is switching from its typical reverse-order-of-finish draft to a lottery-style draft in order to address concerns that teams were tanking. A lottery system should reduce the incentive for teams to lose since they aren’t guaranteed to draft earlier. Unfortunately, the NBA already uses this system and is perhaps the most notorious league for tanking. Another common solution is to increase monitoring and penalize those engaging in the behavior. Leagues already have monetary fines in place for teams they suspect to be tanking, but perhaps a future collective bargaining agreement would include the loss of draft picks.
Perhaps there’s nothing we can do about tanking. The NBA’s draft lottery has been tinkered with other years, but recent events highlight the pervasive problem of misaligned incentives. Rewarding the worst-performing teams with better picks may result in teams purposely becoming the worst performers. If that strategy is repeated for a few seasons, perhaps The Process would result in a championship-caliber team after a few years.
The Houston Texans finished the 2022 season as the second-worst team in the league with a 3-13-1 record, but the Chicago Bears were slightly worse at 3-14 for the year [NFL]
The first draft pick of the 2023 NFL Draft is projected to earn $40,969,500 [Spotract]
The last pick of the NFL draft has been nicknamed Mr. Irrelevant since 1976 [NBC Sports]
The first-ever NFL draft pick in 1936, Jay Berwanger, never played in the NFL because his contract demands were too high [History Channel]
Today’s post was inspired by a discussion with Matt Rousu on the Economics Happy Hour Podcast. While I focused on misaligned incentives in today’s post, Matt and I chatted about a lot of other economics concepts around new player drafts. You can listen for free on Spotify, Google Podcasts, TuneIn Radio, and Apple Podcasts.