Wall Street, The Blazers, and You

Last summer, the Blazers opted to keep Nate through 2011, but his contract is up after that. Realistically, given the turnaround over the last several years, they probably wanted to lock him up for longer. However, for those very same reasons, Nate was (reasonably) looking to use the team’s anticipated 2009-2010 success to create leverage with the Blazers and the open market.

Some things have changed a lot in the past six months. The Blazers are not on track for a 60 win season. Whatever fringe title contention chances they had are dead and buried. Nate is not in the early running for coach of the year. He doesn’t have 2 functioning ACLs. One thing has remained the same, though: he will likely still want to negotiate a new contract.

That leaves us with one problem: incentive. We are all too familiar with how this becomes a factor with players. A player will enter into his contract year and do what he can to “get paid”. The player’s incentive is to work particularly hard for one year, get as good of stats and personal accolades as he can, and parlay that into a big contract. Often times fans (and ownership) loath the aftermath of a player getting a big contract only to find he puts a stamp on the following season.

There is a similar, but much more subtle risk of mismatched priorities between a coach and the team. A team like the Blazers wants to maximize their chance of winning championships (and the corresponding revenue associated with that) in the next 5 years. This includes hiring whichever coach they feel is best suited to accomplishing that task.

On the other hand, a coach in Nate’s shoes is incentivized to WIN NOW. The benefits of successful seasons down the road are of secondary concern, since by that time he will have either already secured a lucrative extension or will have been replaced. And this is for good reason, the most likely path he has for gaining the faith of the team for the future (and thereby getting a nice extension) is by winning now.

There are costs to this, of course. To again contrast, in trying to earn a big contract a player could hurt his team by trying to increase his stats at the cost of team success. For a coach, a coach’s success = team’s success, right? Not necessarily…. the matter is that of short term, vs long-term success.

The analogy I would like to introduce is that of incentive compensation packages for business executives we read about in the news. Currently, the most notorious of these are for bankers. In this analogy, we can substitute stockholders for the team, and the banking executives as the coach. The stockholders want long-term success, and the most dominant metric for evaluating success is that of current earnings. Executive compensation is also commonly linked to current earnings. The problem that has been much discussed is that executives have been found to pursue short term gains to the benefit of their bonuses, even if it comes with grave long-term consequences. This could include, oh… I don’t know ….. let me see….  idiotic mortgage lending practices? *

How might a coach pursue short term success at the expense of the future? One obvious route is by benching promising young players in need of development in favor of aging veterans. I don’t want to name names, so let’s say we have decent point guard “X” on a short term contract. After his contract is up he will probably be on another team and certainly on the downside of his career. Let’s say we also have promising young point guard “Y” who might not be the better player right now, but could become so in a couple years if he gets the necessary playing time.

A coach could also play his best players an inordinate number of minutes. Let’s say we have star shooting guard “Z” who has a playing style that often finds him penetrating and taking hard fouls. If he were to play 42 minutes a game, the team would have a better shot at winning games in the near term, but in the course would endure extensive wear and tear on his body.

Perhaps you can think of other ways a coach’s incentives can be mismatched with a team’s interests? Feel free to comment. I don’t want to suggest that Nate’ coaching decisions are specifically or consciously influenced by his contract status. However, the incentive is there.

With this in mind, how might coaching contracts be modified to better align interests? Going back to Wall Street, Goldman Sachs recently announced that 2009 bonuses for some of its executives would come in the form of a special form of stock, rather than cash. This type of stock can’t be sold for five years, so if 2009 executive decisions cause the company’s value to tank in the next five years, their compensation will be impacted accordingly.** I’m not suggesting this exact arrangement is the best solution, but there is flexibility to get a bit creative with coaching contracts. ***

As it stands right now, from what I know most every coaching contract is in a one-size-fits all type mold. Correct me if I’m wrong, but aren’t the coaching contracts of title contenders, playoff contenders, and rebuilding projects all pretty much constructed the same way, in the X years for X $$$ mold, with performance incentives as an afterthought? For 2009-2010, Lakers ownership interest is almost exclusively in wining the title. Developing talent is not a priority. The Kings, on the other hand, are interested almost exclusively in developing talent and getting better for the future. The Cavs are interested almost exclusively in ensuring Lebron comes back. Why pay the coaches in the same manner? Right now, the Blazers are in a different spot… they aren’t solely developing talent this year, but they aren’t contending either. The coach should be given incentive to have this in mind to maximize our success in the future.

PS – If you feel inclined to vent some “Fire Nate” steam, fine, but why don’t you at least suggest somebody else while you’re at it? Personally, I can’t think of anybody else I’m all that excited about…. Byron Scott? No thanks. Rudy Tomjanovich? Yeah right….  I’m a bit skeptical of the coaching talent pool out there, but if there's somebody  you would enthusiastically hand the reins to for our championship window, I’m listening.

* (What’s worse is that not only has the government demonstrated that it will come to the bank’s rescue at great cost to taxpayers, so will a team buy out the burdensome contract of an underachieving coach, freeing him to earn another contract someplace else. This is, however, aside the point.)

** (Since the expense is also recognized over the course of the five years, instead of all in 2009, this type of arrangement is particularly of interest to a company needing to improve its current year bottom line…. Even if an NBA coach’s income was largely based on a “bonus”, from what I understand about the Blazers financial improvement this year, this would be of much greater interest to other teams.)

*** Creativity is not as much of an option for player contracts. For one, they are governed by a union agreement (collective bargaining agreement). Two, even without consideration of the CBA, players do (and should) consider long-term contracts as an insurance policy for injuries (among other factors outside of their control) and will specifically seek to keep their compensation largely independent of performance.