Mark Cuban, the Pelicans, and Forging New Paths

Mark Cuban recently took to his blog to explain the series of moves that have seen his NBA franchise go from defending champs to the NBA middle class. Cuban is a polarizing figure for many, but I admire Cuban for his willingness to give us a look into his team’s thinking when he is under no obligation to do so. The entire post is fascinating and I encourage everyone to read all of it for a very rare peek into top level thinking of an NBA team.

I want to focus on one section of Cuban’s entry. I have quoted it below (highlighted for emphasis):

What I do know, at least what I think i have learned from my experiences in business is that when there is a rush for everyone to do the same thing, it becomes more difficult to do. Not easier. Harder. It also means that as other teams follow their lead, it creates opportunities for those who have followed a different path.

I see quite a few teams taking what appears to be the same approach to building a team. I can understand why they are taking this approach. In the current CBA the value of a player chosen in the draft can be considerable because of the defined contract terms. And if you put together some great young players, it is very enticing to want to keep those players together for a long period.

But I also know that even if you have the worst record in the NBA, you may not get the top pick and even if you do, there is a material chance you pick the wrong player , or it just happens to be a draft when there are not any IDENTIFIABLE superstar potential players at the top of the draft.

In other words, while it may be popular I think the quality of teams taking the same approach makes it more difficult to build a team in this manner.

This idea is simple enough. When everyone wants something, that thing becomes harder to obtain. A very rough example: think of the most recent iPhone iteration and the deman for one of the phones when they launch. With so many people looking to acquire the new phone, they are hard to find. Sellers on sites such as eBay have learned the can make hundreds, potentially thousands, of dollars due to the incredible desire to own one of these phones. They see opportunities in this market and exploit them for their own benefit.

Let's take this idea to the NBA. Teams need talent to win a title. Thanks to the new CBA and its harsher luxury tax rules, almost every team needs that talent to stay under a certain cost. The question becomes where can you find talent at a cheap price? The obvious answer is the NBA draft. Over the last few years, teams have realized that draft picks mean young, talented players on team friendly deals, as Mr. Cuban state. The draft success of teams like San Antonio, Portland, and especially Oklahoma City also helped the rest of the league see the potential of the draft before the 2011 NBA lockout and resulting CBA.

When I read Mr. Cuban's comments, I immediately thought of what the Pelicans have done this summer. If we look at the draft night trade for Jrue Holidau, the Pelicans did exactly what Cuban is describing when he says "it creates opportunities for those who have followed a different path." Just like the new iPhones, if nearly every team in the league today wants first round picks, then selling them should yield a high return. Even though this move defies conventional wisdom, understanding what is desired is key to exploiting these situations.

Taking advantage of the inflated value of first round picks, the team was able to add a proven, 23 year old player about to enter a new (and fair) 4 year deal for one injured 19 year old rookie center prospect and (most likely) a late lottery pick. That is a remarkable return for two volatile assets. The Pelicans followed a different path and created a wonderful opportunity for long term success on the court.

There are two main points I take away from what Mr. Cuban wrote:

1. The Pelicans are on the same wave length as Mark Cuban and that is a very good thing. Love him or hate him, Mr. Cuban has been a great success in his own business and in the NBA. He has built a front office that is one of the sharpest braintrusts in an increasingly sophisticated league.

2. The Pelicans front office is willing to make moves that may go against conventional wisdom. That signifies an ability to think creatively about problems and the convictions to follow through on new ideas.

As Mr. Cuban says later in his blog post, "you have to take chances in order to be rewarded. You have to be smart and you have to be more than a little lucky." This franchise is thinking big and working to win big. There is no guarantee that the team will be a winner over the next few years, but this type of leadership should have Pelicans fans everywhere very excited for what the future holds.

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