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Beyond the Court: The Trade Market in the NBA

I love to watch sports; it is one of my activities to do when I am not worrying about final projects, prelims, and extracurriculars at Cornell. Sports are generally seen as a form of escapism from our current realities, but what many don’t see on the football fields and the basketball courts is the very intrinsic but complex trading market that manages the quality of play of many of our favorite sports teams. In professional basketball, specifically in the National Basketball Association (NBA), trading is a big part in determining how good your team will be in the short term, and/or in the long term.

A market like this works like a basic exchange market, in which assets are exchanged between agents based on multiple factors such as weak preferences and initial endowments. The agents are in this case are the teams, specifically the General Managers (GMs), but the ‘assets’ being traded are what make the NBA market (and other sports market) so unique. There are multiple kinds of assets that can be exchanged between teams with each type having unique to each team. In the NBA, assets can be players, draft picks (to draft other players), incentives, coaches (in rare cases*), and, of course, money.

Hw the market works is like: say there is a team with a player (or players) that is not a good fit for the team and needs to be traded before the deadline. What happens next is that the team starts to contact possible trade partners who are willing to take part in an exchange (there can be multiple partners so this market is not always binary). When they find a team that is willing to trade with them (or has assets that they want), negotiations take place and the teams discuss what is being exchanged. If they come to an agreement about the terms of the deal, then the deal is finalized and is sent for approval to the league office (NBA). The deal is finalized and the assets are traded (examples **).

In a team, the value of each player can really dependent on a number of things: fit with the team, star value (popularity), relationship with managing, and skill. These factors also determine what players teams go after in a market, and as such preferences for each team tends to be weak; multiple players can have similar values and thus teams are willing to be accepting if they don’t get their top choice. What is mind-boggling, however, is that there are assets that are restricted, or forbidden, from being trade due to their high value on the team. So for instance, star players that bring in a lot of wins and money to a team (Lebron James, Stephen Curry, etc.) will never have their teams even entertain the possibility of a trade, because there is no value in the market that can equate to them (unless it’s another star player, which seems pointless to exchange for unless it’s a matter of fit).

In general, the NBA trade market is a complex system of exchanging players, money, and draft picks in order to help your team ‘succeed’. Whatever success means for each team is up to them, and so you have a market that doesn’t always have fair or equal exchanges. Some trades work out, many don’t. You’ll never know how much value you get from a trade until after you make it, whether that’s a couple of weeks or a couple of years.



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