Is league expansion good for the Wizards?
Possibly no, but it might be good for fans
“Some guys like small markets, some guys like big markets,” is how Adam Silver described team parity in the NBA to the Monumental Sports Entertainment broadcast team back in November. This ‘men are from Mars’-esque non-explanation set up the next line of questioning, oddly edited out of the linked YouTube clip, that the NBA is planning to expand in the coming years, including to Mexico City. This wasn’t exactly news. I like an early November Knicks-Wizards game as much as the next degenerate, but it’s not the place to make a big statement. With the finalization of the collective bargaining agreement in April, the NBA has been teasing expansion to new cities at a slow but steady clip. But what would expansion mean for DC?1
The Athletic’s Mike Vorkunov wrote a good piece this week about all of the money waiting to pounce once the NBA officially makes its push to expand. It is easy to forget, and generally not worth remembering, that the NBA is basically that scene in every mafia movie where all of the families gather around a big table to discuss how to avoid another mob war, only instead of “families” the league has “governors,” i.e., majority owners for each team. As Vorkunov notes,
“While expansion might be seen as a league issue, it is more acutely a personal issue for each owner. They would have to weigh several variables, not least of all their own financial interests. Wherever the next national media-rights deal lands, it, along with other league revenue streams, will be split in 30 directions. Would each owner be willing to see that annual cut diluted by two extra teams each year for the foreseeable future, while taking in their share of expansion fees? That choice might land in different places for different owners.”
We could wildly speculate about what expansion means for the Wizards, and I will do some of that because why not, but this is also not the first time a league has expanded. While the NBA hasn’t seen expansion since the 2002/2004 New Orleans Hornets/Charlotte Bobcats, other professional leagues have seen expansion and other nerds have asked, “what does this mean for MY favorite team?” I took advantage of the fact that I can still log-in to my old university’s library and checked out the academic literature on league expansion.
To understand what league expansion might mean for Wizards fans, it’s worth considering why the NBA wants to expand in the first place. While I can’t know what is in Adam Silver’s heart, I can read. And luckily, there has been a good amount of reporting and academic work on why leagues expand generally. In a paper analyzing the effects of Major League Soccer’s expansion, University of Delaware professor Tim DeSchriver and co-authors note that, “leagues generally expand to enter a new market, prevent competition from other potential professional leagues in the same sport, and increase overall media rights value.” Other papers generally agree with this summary as does reporting around the last NBA expansion. A 1988 Advertising Age article about the NBA’s expansion to Charlotte, Miami, and Orlando quotes a few late-80s NBA executives saying things about how the Southeast, aside from the Hawks, was largely untapped for the NBA. One NBA VP of marketing notes that the move into Florida and North Carolina, “will create different kinds of associations for us," she says. "We can go after an official sunglasses of the NBA, for example.”
With new markets comes a stronger bargaining stance when the league wants to negotiate broadcast rights. So, while Vorkunov is absolutely right that revenue sharing will require owners to split more of their pie under league expansion, what a lot of the economic literature on the topic notes is that if expansion allows them to negotiate even more money from TNT or ESPN or some streaming service, the pie might actually get bigger and so their cut could end up being larger under expansion.
Ok, so that’s context. I honestly don’t care that much about how NBA owners feel about this whole thing except to the extent it affects the on-court product and the general experience of being a fan. Much of the economic and legal literature focuses on the obvious antitrust angle since the league is monopolistic in a way that is somewhat unique.2 Owners clearly have an incentive to maintain as much of their monopoly on top-tier basketball as possible. Yet, a mix of evidence and theory suggests that fans also have something to gain both from expansion and from the existing monopoly status of the NBA being the center of the basketball multiverse.
There are two main, interrelated issues that come through in how academics have tackled the effects of expansion: attendance and competition. For cities that get a new team, the attendance effects are obvious. There was no NBA team to watch live, now there is an NBA team to watch live. The question is whether those fans would have gone to other cities or watched other sports pre-expansion. Both Major League Soccer and Major League Baseball offer some evidence around this, as does the NBA.
Looking at data from 1950 through 2004, economists Kevin Quin and Paul Bursik treat the arrival of a new team as a “shock” on par with an unexpected labor strike to estimate the effects of expansion. The authors report that, “League expansion was found to have no net effect on trends in average MLB home date attendance.” While I reviewed a lot of papers over the past few days, I liked this one because they did a ton of work putting together their data and the analysis is pretty robust, but they also find that results are lumpy. So, while there was no average effect on attendance, they also note that, “expansion was found to depress growth in home date attendance for incumbent (i.e., non- expansion) teams” at least in the initial season of expansion. A similar finding comes from an analysis of MLS team expansion. Penn State economist Jadrian Wooten found that introducing a new stadium had a statistically significant effect on attendance BUT this finding doesn’t hold for East Coast teams, which tend to be physically closer together and have “traditionally strong regional ties.” Other work on MLS expansion finds that the average increase in attendance tends to level off by year three.
For the Wizards, and NBA generally, expansion might more or less have a similarly negligible effect, at least relative to other drivers of attendance. As work from Jerry Hausman and Greg Leonard shows, as well as from your very own Wizards Points, star power largely drives NBA attendance. Hausman and Leonard note that in 1992 alone, Michael Jordan generated 53 million dollars for opposing teams.3 Expansion would reduce the number of high profile star visits to any given city as teams would likely have fewer match-ups. Even in research on MLS expansion that finds expansion improved average attendance, the star effect (in this case from David Beckham) is larger in magnitude than the effect of a new stadium (roughly 7 to 8k fans from expansion compared to 11k from Beckham alone).
Overall, expansion creates new fans, but reduces the opportunities to see your favorite player on another team. Generational stars will always be a draw. The question then is whether expansion affects the quality of the games. For the Wizards, where quality (or at least winning) is less of an issue at the moment, this is still an important question to address.
Lawrence Kahn says it pretty bluntly in my favorite theory-based paper on this subject: “As a sports league expands, the average quality of playing talent on the court or in the field falls.” This is because, assuming a limited basketball talent pool, there is essentially less concentration of skill. In addition, evidence both from my own eyes and academic research shows that new teams, which often lack the institutional support, culture, and cash of incumbents, are not good. As Kahn notes in his paper, bad on-court product is not fun (or in econ-speak, “not welfare enhancing”), especially when the monopolistic status quo means more opportunities to see a star. The Quinn and Bursik paper I mentioned earlier finds that for the MLB, “a 10% league expansion would be associated with an initial decrease of about 18% in competitive balance.”4
There is one caveat to all of this—the theoretical work and the analysis—and that’s immigration. All of these papers assume a fixed pool of talent or a similar trend, generally based on pre-2010 data. As Kahn notes in his paper, talent levels can become “more elastic” (i.e., less fixed or limited) if the NBA recruits more international players. In his model, this moves the optimal league size closer to what you might see if the NBA were less of a cartel and more of an open market. I would expand this to growth from G-League players, too. Although there are few players who can come into the league at 19 years old from the G-League Ignite or abroad (Bilal Coulibaly’s precocious first-quarter of a season notwithstanding) and take over a game, there are definitely guys like Eugene Omoruyi who have been relegated to the GoGo, but could have more consistent NBA-level opportunities and truly grow into their skills on the Burlington Coat Factories or whatever expansion team comes along.
Wait. So is expansion good?
Just to recap:
Expansion probably means slightly more money for Ted Leonsis and Monumental Sports Entertainment if it can be used as a way to negotiate a bigger and better television/media deal even if revenue has to be shared with more owners.
Expansion is probably negligible or slightly positive overall for attendance (largely driven by more people going to games in new cities), but still not as strong as having a star from the opposing team visit. Sorry, Wizards fans, we’ll have to listen to all of those jerks from Montana cheer in Capital One Arena for their beloved Helena Natural Gasers or whatever expansion team happens to land a star.
Expansion will, all else equal, dilute the level of talent…except all else is not equal! We don’t need to hold players constant in our model because we don’t live in a model, we live in the real world, where we can go to France and Turkey and Nigeria and all of the G-League cities to find promising talent. While the league’s approach in recent years has been to find rookies from abroad, under expansion, it could make sense to look deeper into FIBA and elsewhere for the best and brightest not just the youngest international players.
For the Wizards, I see all of these points as potential positives. Maybe not right now when the team is not trying to win, but in the near future. A future that I hope will bring a need to get reps in winning games with a young core. In theory, this will be easier if there is a tier of expansion teams below the lower tier of San Antonio, DC, and Detroit. But less theoretically, a larger set of teams means a larger pool of professional talent both on and off the court.
Working in a large organization, whether it is an NBA team, a school, or a corporation, requires a level of savvy, patience, and tolerance for a certain kind of bullshit. I think there is more than enough talent to go around and create expansion teams in Brockway, Ogdenville, and North Haverbrook, not to mention Las Vegas and Mexico City, too. For the Wizards, this means more potential trade partners, more places to find experienced executive team and coaching staff, and more places for guys who might otherwise get lost in the G-League shuffle5 to develop their game and eventually come to DC to flourish.
Ted Leonsis and Adam Silver aren’t worried about competition within the NBA. They are worried about competition from other sports leagues and also every other form of entertainment that might take peoples’ dollars and eyeballs away en masse. League expansion is a hedge against distraction from the basketball court. Despite this fact, there is the possibility, however remote, that this new NBA competition will help light a fire under Wizards President Michale Winger, General Manager Will Dawkins, and, of course, owner Ted Leonsis. If the Bangor Lumberjacks, or whomever, end up with a better record than the Wizards, it will hopefully force some tough questions. For Wizards fans, this is not so much a “some guys like small markets, some guys like big markets” situation, as another opportunity to for the team to improve through trades, recruitment, and stealing some wins against new, inexperienced teams. At a minimum, it means more people get a chance to play NBA basketball and fans get a wider array of talent in DC. That is something worth expanding.
I had a joke here about how DC also hopes to get an NBA team soon, but it felt too easy. Still, the expansion timeline and DC’s rebuilding timeline do coincide.
As Thomas A. Piraino Jr., puts it in “The Antitrust Rationale for the Expansion of Professional Sports Leagues,” “Professional sports leagues are one of the last refuges of unchallenged monopoly power in America.” This is a good read for anyone who wants a nice overview of the anti-trust angle.
That’s about $117 million in today’s dollars.
They calculate competitive balance as ratio where, “The top of the ratio is the standard deviation of actual winning percentages across the league in that year. The bottom of the ratio is the ‘ideal’ standard deviation for the league, wherein each team has a 50-50 chance to win each game.” This decline in competitive balance held in their analysis for all teams as well as in a model just for incumbent, non-expansion teams.
The grind of the G-League is generally unappreciated, but should probably be mentioned every time a two-way contract player is called up. Guys are flying commercial, getting calls at 3AM and being told to report in some random city at 10AM, and generally hustling for the promise of a few minutes at the end of a game. Under those conditions, it’s amazing anyone can hit a shot, let alone blossom into a real NBA player.