Case Study #2: The Spurs winning games by exploiting market inefficiency

December 18, 2016 by J.H. Yeh

For the past two decades, the San Antonio Spurs have been the model NBA team that the rest of the league strive to emulate. Their unprecedented consistency and consecutive deep playoff runs have carved an identity in the basketball community. The Spurs, who are the true vanguard in contemporary NBA, always leading the league with new ideas and getting the job done year after year by exploiting market inefficiency–and the man behind this? Gregg Popovich. Their unconventional approach to winning will be the focus for today’s Case Study topic.

For now, it is the norm for an NBA roster to feature a few international players. 2014 marks the first time the NBA has more than 100 foreign born players–with a record 101 international players from 37 countries on the opening night rosters for the 2014-15 season. The NBA had 92 international players the year before that. Moreover, the number of international players in the league has more than doubled since 2000-01 (45 international players) and nearly quintupled since 1990-91 (21 international players).

It is common to fathom the notion that international players have added diversity and competition to the NBA. However, 30 years ago, people didn’t think that way. Or rather, our culture that time had taught us that international players could not keep up with the toughness in the NBA and teams back then were reluctant to invest on foreign products. As a result, teams focused on American players by signing freakish athletes who can jump high and run fast because these were the formula to win games–and no one was wrong because this was exactly how teams win games. You outplay and outlast the opponents.

Then there came Gregg Popovich, who exploited the market inefficiency by signing unknown foreign players to inexpensive deals by buying low and sell high through trades to keep him team consistently competitive for two decades. And till this day, he still conducts such practice to ensure the long term success of the San Antonio Spurs.

Attached below is a table that shows Popovich’s tenure with the Spurs. He started his career as an assistant coach (along with R.C. Buford) in 1988-89 season under Larry Brown and Brown, along with his entire coaching staff, including Popovich, was fired in mid-season in 1991-92, hence ending his first stint with the Spurs. In the summer of 1994, when Peter Holt purchased the Spurs, he hired back Popovich as the General Manager and Vice President of Basketball Operations, and in November 1996, Popovich fired then-coach Bob Hill and named himself as the head coach after a dismal start. And the rest is history as the Spurs went on to win five championships. The table is up to date as of December, 17 2016.

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The 1988-89 team featured two international players and the season before that (1987-88) the Spurs had zero international players. The two international players were big men Petur Gudmundsson (Iceland) and Mike Smrek (Canada). Both players had competed in U.S. colleges.

Popovich, who served five years of required duty in the United States Air Force, during which he had toured with the U.S. Armed Forces Basketball Team in Eastern Europe, made an unpopular move by signing the 23 year old Zarko Paspalj, an unknown player from Serbia. That time, many team front offices were unwilling to invest on foreign players because they didn’t come through collegiate systems and were perceived as inferior. Paspalj became the third foreign players to join the Spurs in 1989. The other two were German big men, Uwe Blab and Chris Welp, and both of them had played in U.S. colleges. Making the news by being one of the first Europeans to transition to the NBA, Paspalj was met with skepticism, and as expected, had an unsuccessful season with the Spurs as his game could not translate to the NBA. He was cut just before the playoffs in 1990, ending his 28-career games in the NBA.

For the next four years, the Spurs’ roster had zero international players. Despite winning records, the Spurs didn’t have deep playoffs run until Popovich took over as the General Manager in 1994 and signed Julius Nwosu of Nigeria. Though the Spurs made it to Western Conference Semi-Finals, Nwosu struggled with playing time and was not re-signed. The experiment with foreign players continued as the Spurs signed Venezuelan import Carl Herrera in 1995 and Australian star Andrew Gaze in 1999 (during this time the roster also featured Steve Kerr and Dominique Wilkins–who were born outside of the U.S. by American parents and thus are considered international players). Despite featuring one true international players in Gaze, who was inactive throughout the playoffs, the Spurs won their first championship in 1999 and quickly found themselves at a crossroad with an aging roster. With five key players over the age of 33, the Spurs were seriously looking to invest on young players.

In 1999 and 2001, the Spurs gambled again–big time–and drafted Manu Ginobili from Argentina and Tony Parker from France, and this time it paid off as the Spurs succeeded as the two international products, along with Tim Duncan, set the tone for many years of success, forming arguably one of the best and most underrated trio in NBA history while winning at least 60% of their games every season starting in 2001 and capturing four more NBA titles. And what’s more impressive (and somewhat perplexing), the Spurs managed to achieve these with only one true super star in Tim Duncan.

In a teaching session, hosted by FIBA in Berlin, Popovich explained to the audience that the reason he looked for international players is because of their character. Explaining that timeouts “reveal personality,” Popovich said he is looking for “players who respect their coaches and games” since every professional player out there is a good player and only character sets them apart. “[These qualities] tell you a whole lot more than ‘just a good player,'” Popovich continued, emphasizing his team first philosophy over individual accolades. “When you enmass enough character… people start to follow the example by fitting in.”

Another quality Popovich looks for is the fundamentals. Blaming the ESPN for “showing crazy shooting and flashy dunks,” Popovich elaborated that he prefers international players because they have better work ethics and fundamentals since American players, who know they are ahead in basketball while the rest of the world is still learning and catching up, often tend to get complacent and lost themselves.

To sum up, the Spurs successfully exploited the market inefficiency by adding players from different walks of background because of their value on the collective well-being that they’ve grown accustomed to since they’re young, whereas Americans are brought up in a society that emphasizes individualism, which often cause conflicts due to different interests such as players not being happy with their minutes, coaching decisions, or other in-game situations. As a result, believing coachable players can lead to winning, the Spurs actively look into foreigners (who are usually obscure) since they uphold different principles and are generally appreciative of opportunities given to them. This is why year after year, they are always able to assemble teams that can compete at high levels without any unwanted distraction.

Furthermore, from a cost perspective, the Spurs generally invest on older international players (usually around 22-25) by signing inexpensive one year deals, because by doing so the player won’t eat up too much salary and this can also give the coaches far less time to develop until the player is NBA-ready since these players are already mature and established in skills. Moreover, by signing free agents from abroad, this also saves the team the cost of over-committing and giving lengthy rookie scale contracts (usually 2-4 years), which could potentially contribute to more undesirable costs as unsuccessful players are usually hard to trade away and they also take up a roster spot. Investing on experienced, foreign players also minimizes opportunity costs because the team can easily trade or not re-signing the player due to their short term, cheap contracts, thus maximizing the team’s flexibility during trades and free agency.

The San Antonio Spurs lead the league by example by building a winning culture that is based on character and fundamental skills instead of spending bug and overly relying on athleticism and supremely talented players with off courts antics and behavioral problems. Or in Popovich’s words: “It’s just basketball”– and that should tell you all you need to know about Coach Pop and the Spurs. Greatness is built from the basic.

Next time when you watch an NBA game, or any sport games, observe how the players interact and reach during timeouts because this shows coachability, leadership, sportmanship, and ego. And interestingly, these qualities are usually good predictor on how far a team can go in a given season or how successful a player is in a sport league.

 

–J.H. Yeh

(all graphs are created by me, and all sources of information are courtesy of NBA.com and BasketballReference.com as of December 18, 2016)

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