Virtual Versus Immediate Value Translates Into Tanking by Philly Critics

In Judging the Effectiveness of Sam Hinkie, Critics Fail to Distinguish between Virtual Value and Immediate Value

In any business, the key to true success is to buy when all others are selling, and to sell when all others are buying. That strategy has a myriad of examples in real business, has it’s own title “contrarian”, and can lead to a fortune with less risk than many other strategies. The key is to identify what to sell when others buy, and what to buy when others sell. Do that, and you master the equation.

As we had discussed, the NBA is driven in a “win now” mode. How that translates into assessing NBA talent is to discount any delayed prospect. When Nerlens Noel had knee surgery, the Philadelphia 76ers were elated to trade for him from the New Orleans Pelicans and their 2014 first round draft pick for Jrue Holiday and a second round draft pick.

"“The draft is an important pipeline of talent for our team and our intention was to add players who could position us well for the future, while also allowing us to capitalize on attractive opportunities to acquire top-flight talent or additional future draft choices Nerlens Noel and an additional 2014 first round draft choice give us two new opportunities to add talent to our team.” – President and General Manager summarizes the trade."

That was just the tip of the iceberg. The following season, the Sixers used their third pick to draft what was likely the top prospect on the board, Joel Embiid. Once more, the team selected a player whose stock had dropped due to the uncertainty of a foot injury. Later, the Sixers traded their second first round prospect, to the Orlando Magic for Dario Saric – a third move which would delay the team’s debut of a top draft prospect. In fact, both Joel Embiid and Dario Saric, for different reasons, will not join the team for two seasons.

No immediate value.

Far too often, critics cite that the Philadelphia 76ers are “tanking”. In short, the disgust from NBA puritans, and from Jerry Colangelo himself, focuses on the strategy of the Sixers was to purposefully lose in order to improve the odds of a high draft pick. But therein lies the rub. The position of the NBA draft, even in the worst case scenario of last place, is only a 25% shot. That is not where the strategy of improving the team lies.

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Where it hinges is the distinction between virtual value and immediate value. What does that mean? Take the 2014 NBA draft. In that draft, a healthy Joel Embiid likely is drafted first. Dario Saric was projected to be a lottery pick, some slotted him as high as the top five in the draft. That is their virtual value… if healthy and ready to join an NBA team, where would they be selected. Imagine dining out, and nobody has enough time to sit down to a fine restaurant, except you. Do you do it? The food is better, the service is far better, and you can take your time and enjoy the experience because you have the place all to yourself. Meanwhile,the remaining 29 general managers run their selections based upon immediate value. They are all stuck at the drive up windows trying to get their fast meals.

Immediate value is “what can you do for us today”. It’s the value which lies in that moment, not the future. For players such as Nerlens Noel, Joel Embiid, and even Dario Saric, those players add very little to a team’s current situation. And so, they become less desirable, despite having a much higher upside. So when the team and former GM have been accused of tanking, that’s inaccurate. What caused the Philadelphia 76ers to struggle over these past three season was not a pursuit of failure, but rather the attempt to maximize virtual value.

A real world application of this is the tax refund. How many of us have set our withholding in such a way that we get a larger tax refund? In the NBA, that’s verboten. By delaying the money from your paycheck, you have delayed the value. Your election to contribute a little more each week to ensure you get that large IRS tax refund places you in line with Sam Hinkie.

“But if I set aside a little more each week, I get a huge lump amount which I can use for a major purchase?” is the typical response. And so it goes. The current NBA system is flawed, but not from the draft set up. You see, with all of the talk about salary caps, the NBA has exemptions, soft ceilings, and other tricks that allow the NBA haves to keep star talent, while the NBA have-nots are shut out. When critics bash the Sixers for losing, they remain mysteriously quiet in the face of teams which continue to spend, and retain, the NBA top talent. When the Philadelphia 76ers saw that they would have little chance of attaining top NBA talent in a conventional way of trades or free agency, the team elected to put aside a little talent each season in hopes of getting all back in one season. In short, the team set out to grow their own superstars.

Next: Plenty of Reasons for Philadlelphia 76ers Optimism

Now, when the return is about to be realized, the team, perhaps at NBA insistence, has brought in a new general manager to set about spending the draft picks, the salary cap, and exchanging years of investing into basketball youth for younger veterans. The dilemma for many, however, is that the period of austerity is over. What remains in the immediate future is acquiring talent. The fact that the change was done here and now suggests that the team is planning to exhaust cap space, conduct multiple trades and free agent signings, and go about finding prospects in this NBA draft who will immediately contribute.

Tanking is a deliberate attempt to throw games. That’s never been the Sixers’ problem. Instead, the team committed a roster spot to Joel Embiid for two seasons. The team committed a first round draft selection to an international player who would not return for two years. The team has committed roster slots to inexpensive 2nd round and undrafted players who are young and inexperienced, but who will grow and mature with each NBA game. These are tactics used by every NBA team. The Philadelphia 76ers simply used those tactics en masse.

In short, the Sixers see the big refund on its way, and have brought in someone the NBA trusts to spend it all. The 2016-2017 season will determine if it was all worth it. Perhaps the timing of the changing of the guards was not because the NBA did not believe in Hinkie’s approach to rebuild a winner. Perhaps the league feared his chances of success, and wanted to pull him away from the team to prevent imitation? Its tough to deny the feel of the future of the Philadelphia 76ers. It’s brighter than it has been in many years.