Why Bayless dropped

Bayless was always #4 on the only board that counted – KP and Paul’s. I tend to agree with your thoughts. After all, Bayless didn’t have poor work-outs, isn’t a head case, and had no last second “medical issues” (Batum/Arthur). There was no reason for him to drop except for the reasons you pointed out. Not picking BPA, talking themselves into favorites, or picking for positions. KP never lost the handle though. I think he’s got a real gem here – and knows it. Bayless is a good young man. He’s not some street kid. Parents are PHD/MBA forensic pschologist/Counselor types, his brother works on Wall Street, and his family is solid as a rock. He had, in sum, intelligence. And KP likes those kinds of players.

I accept sole responsibility, and fault, for the awkward term expressed in my headline.

SpyderRyder (see above) posits an interesting explanation for Bayless falling – that he is a combo guard. The implication is that combo players fall through the cracks of the “draft market” because they are valued less, on the average, than players with a definite pegged specialty. In the current basketball era, specialty refers to positions 1,2,3,4, and 5, as well as, to some extent, on-court specialties such as three-point shooting, etc. This is a hypothesis in need of facts for proof or rejection. I don’t have those facts at hand for such a test, but I would like to offer an analogous arena, the stock market, where such an explanation of value is clearly valid.

It is a fact that the valuations of common stocks, on the average, are inversely correlated with the degree of diversification of their underlying companies. This is to say that the stocks of companies that are highly specialized generally trade at higher valuations (relative to their earnings, cash flows, net worths, etc.) than the equities of firms that are less specialized in their businesses and instead more diversified.

I could review various evidences of this; I’ll cite just two. (1) “Conglomerates”, which are firms that own several unrelated businesses, typically trade at the lowest valuations in the market. (2) Specialized ubsidiaries of larger corporate entities that are “spun off” to shareholders [by issuing to the parent companies’ shareholders stock in the smaller enterprise, eventually go on to trade at higher price/earnings ratios than their parents. This is one reason spin-offs are made—in order to increase the total market value of the enterprise for current shareholders.

Why does this happen? Because Wall Street firms, the root source of demand for stocks, are structured in such a way as to assign analysts to cover specific industries. Nearly all of the large investment houses, for example, have one or more auto analysts, drug company analysts, etc. Thus, stocks that fall neatly into an industry category get analyst coverage, while stocks that don’t (diversified firms) do not. It is axiomatic that the more analysts following a stock, the more analysts are likely to recommend it to their portfolio managers and clients and thereby, in the aggregate of their actions, produce a higher price valuation. “Combo companies” do not receive this benefit and are therefore reduced in value.

Is it possible that a similar phenomenon is at work in the, shall we say, somewhat “amorphous” world of valuing college freshmen entering the NBA draft? Note: Don’t attempt to prove or disprove this solely by examining the top dozen selections in the current draft; a validation (or rejection) of the hypothesis requires a larger sampling of players, and would be further enhanced by interviews of current or past general managers to ascertain their motivations. A worthwhile research project, I believe. Does anyone out there care to do the work, or at least start the investigation by calling up Kevin Pritchard to ask what he thinks of it?

I do not have a preconceived notion of the answer, but the implications for understanding player drafts and salaries may be quite significant—for fans, for general managers, and, especially, for players.