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David Berri

David Berri

Posted: December 21, 2010 08:19 PM

Who are the least efficiently run teams in basketball (i.e. the teams who spend the most wastefully above the luxury tax threshold)?

This is the question Michele Steele -- the Sports Business reporter at Bloomberg Television -- asked me on Monday.

The answer to this question was reported by Michele on Bloomberg TV on Tuesday morning.

As one can see, Michele's report ended up focusing on the "most efficient" team as opposed to the "least efficient team facing the luxury tax". Before I get to the answer to the original question, let me briefly discuss the analysis.

This quick study began with 2010-11 payroll data from HoopsHype.com (this data -- I believe -- reflects the trades from this past weekend). This data was adjusted for the luxury tax (which was set at $70.307 million for this season). I then took each team's efficiency differential (offensive efficiency minus defensive efficiency) to project each team's final won-loss record for the 2010-11 season (numbers were as of games completed on Sunday). With data on payroll and final projected records in hand, I then determined how much money each team is projected to spend on each regular season win in 2010-11. The analysis is reported in the table below:

2010-12-21-costeffective12192010.png

Here are some observations on this data:

  • Let's start with the answer to the original question. There are only seven teams that are supposed to be paying the tax according to HoopsHype. These include the LA Lakers, Orlando Magic, Dallas Mavericks, Boston Celtics, Denver Nuggets, Utah Jazz, and Houston Rockets. When we consider how much money teams spend per win in the NBA this season (about $1.71 million when we consider the luxury tax) and how many wins these teams are projected to get (again, given the team's current efficiency numbers), the Orlando Magic are currently the least efficient luxury tax team. Right now the Magic are projected to spend about $2.1 million per win (this number takes into consideration the recent trades). And the recent trades will probably not change the Magic's level of efficiency. This is because -- as noted this past weekend -- these two trades will probably leave the Magic worse off.
  • Following the Magic on the list of inefficient luxury tax teams are the Nuggets, Mavericks, Rockets, and Lakers. The Jazz and Celtics -- despite paying the luxury tax -- are actually projected to get more wins per dollar spent than the league average. And one should note that if we consider all teams, the least efficient (in terms of wins per payroll) are the Washington Wizards, Cleveland Cavaliers, Detroit Pistons, Golden State Warriors, and Charlotte Bobcats.
  • The team that Michele focused upon was the Miami Heat. This past summer the Heat committed millions to acquire LeBron James and Chris Bosh. Yet, despite this expenditure, the Miami Heat is currently the most efficient team. This is a combination of a surprisingly low payroll and nearly 68 projected wins. This also reflects the fact that very productive stars -- like LeBron James and Dwyane Wade -- are really bargains. The NBA limits how much money a team can pay a player. For example, LeBron will be paid $14.5 million this year and is on pace to produce 18.3 wins (this calculation is explained here). So LeBron's cost per win is less than $1 million. A similar story can be told about Dwyane Wade. He will be paid $14 million and is projected to produce 18.7 wins. So again, Wade's cost per win is less than $1 million.
  • One should note that LeBron -- as noted by Thomas Van Riper at Forbes.com -- was the most underpaid player in the game last season. LeBron's production has dipped somewhat this year so he may not be the most underpaid in 2010-11. He is still, though, a bargain for the Heat.
  • The analysis relied on efficiency differential, since this projects future success (or failure) better than current won-loss records. Still one might be interested to know... if we project wins from current won-loss records, then the San Antonio Spurs -- with a cost per win of $0.931 million -- lead the NBA. Using current won-loss records also raises the cost of Miami's wins to $1.139 million, a mark that would rank the Heat 4th in the league (behind Oklahoma City and Chicago).
  • The Knicks -- who have been wasting money for years -- are not over the luxury tax threshold this year. And currently the Knicks are ranked fifth in cost per win (using efficiency differential to project wins). Part of this is due to the amazing Landry Fields (a very productive and cheap second-round draft pick).

For more on this analysis, one is referred to The Wages of Wins Journal; where one can see similar analysis for the 2009-10 and more discussion of numbers like "efficiency differential" and "Wins Produced."