Relative Value is an economics term that is used to define the worth of a particular asset in terms of its overall attractiveness relative to another asset. In NBA terms, a team can assess the relative value of a player (and his contract) by comparing him to a different player (and his respective contract).
Another concept to understand about "relative value" in an NBA context is that a particular player/asset does not have a universal value for any given team. This idea is extremely important to understand, as it is often used to explain the rationale behind many NBA teams' decisions.
For example, Luis Scola is worth more to an Indiana Pacers team hoping to be in contention than to a rebuilding Suns franchise. On the other side of the deal, a 1st round pick is more attractive to the Suns, who are amassing a collection of assets as they rebuild, than it is to the Pacers, who may not even be able to provide minutes on a deep team to a 2014 rookie. The same idea of relative value can be applied to the Eric Bledsoe-Jared Dudley trade between the Clippers and Suns to understand why both teams emerged successfully.
The concept of relative value will continue to be important to the Phoenix Suns as they hope to build a team that can enjoy sustainable future success. Marcin Gortat, one of the team's best players, is a good player on a very reasonable contract. Then why should the Suns look to trade him at some point this season? It's because Gortat is a 29-year old without a future on this team. The Suns don't have a use for him long-term, not only because their #5 pick from this year's draft, Alex Len, plays the same position but because Gortat will be an Unrestricted Free Agent at the end of the season. He would hold greater value on a playoff team that could use an upgrade at the center position.
Thus far into the offseason, new Suns GM Ryan McDonough has done a great job of making deals that increase the value of the Suns' collection of players and assets. With his two trades, he has successfully swapped two players (Jared Dudley and Luis Scola) that were wasting their value on this team for assets that have higher relative value (Eric Bledsoe and the Pacers' 1st round pick). Although the risk is higher when investing in young and unproven assets like Bledsoe or future draft picks, the return can also be unquestionably greater, and that is exactly what a team like this needs.
An important investment strategy that also applies to NBA management is "buy low, sell high." The basic principle behind this is to acquire an asset when you think it's currently cheaper than it will be in the future, and to sell an asset when you think it has reached its peak in terms of value, thereby optimizing the value that every asset provides.
In the NBA, "buying low" means acquiring a player that is currently undervalued. Ryan McDonough understand this principle, displaying it in nearly every roster move he has made this offseason. The Suns' draft selection of Archie Goodwin is a perfect example of the "buy low" strategy. Goodwin was an undervalued prospect coming into the draft, due to a tumultuous year at Kentucky. However, McDonough believed that he would have been a top-ten prospect in the 2014 draft had he stayed in college and used the opportunity to acquire him late in the first round this year, even trading up one spot to nab him with the 29th pick. One could even argue that McDonough considered Alex Len to be undervalued, making him another value pick at 5th overall.
The trade for Eric Bledsoe also exhibits this philosophy, as it saw the Suns buy a 23 year old prospect they believe will explode onto the scene this year while selling a player (Jared Dudley) that has value to the buyer (LA Clippers), but was wasting that value on the Suns. Even the Suns-Pacers deal saw the Suns acquire two undervalued players in Gerald Green and Miles Plumlee in addition to the 1st round pick they acquired.
They "buy low" strategy can also apply to the Suns' goal to land their next superstar player via trade. Last October, the Houston Rockets traded Kevin Martin, Jeremy Lamb (their lottery pick that year), two first round picks, and a second round pick to the OKC Thunder for James Harden (and Cole Aldrich, Daequan Cook, and Lazar Hayward). The Rockets immediately inked Harden to a 5-year maximum extension for $80 million. Many people thought they were investing a bit too much in a glorified sixth man who was coming off an abysmal NBA Finals performance.
However, that deal proved to be a shrewd, calculated move on Houston's part, which finally landed the star player they had been searching for. This was possible because the Rockets used their stockpile of assets to strike when Harden became available and was undervalued on a Thunder team that already had two other young stars in Durant and Westbrook. The Rockets waited until the perfect situation presented itself, then "bought low" (relatively) on a 22 year old emerging superstar.
In a recent interview, Ryan McDonough said, "I think we're well positioned to strike if and when the next disgruntled superstar becomes available." The Suns hope to make a play for a superstar-caliber player when he becomes available and all of a sudden holds less value for his team, which will be hoping to trade him and net assets in return. The Suns are well-equipped with the assets to do just that.
In finance, "growth investing" is a strategy that seeks out assets with great future growth potential. An asset with good growth potential is expected to grow at an above-average rate relative to the overall market. One can think of the NBA as such a market and its players as assets with varying growth potentials.
Armed with a Suns team devoid of quality young talent, new GM Ryan McDonough has indeed proven to be a growth investor. Although the Suns were the worst team in the Western Conference in 2012-13, they were just about in the middle of all 30 teams in terms of average age (read more about the Suns' youth movement in Dave's article about age and leadership). Realizing that the team desperately needed an influx of youth AND talent, McDonough got to work right away with the various pieces and assets that were handed to him courtesy of Lance Blanks. He used his two first round picks to take 20 year old Alex Len and 18 year old Archie Goodwin, the youngest American player in the draft. He then traded Dudley for a promising young player in Bledsoe and dealt the oldest player on the team, Luis Scola, for two younger pieces and a 2014 first round pick.
The Suns now have several young players that will receive a bulk of the playing time this season, as well as five first round draft picks over the next two years. The Eric Bledsoe deal is the epitome of growth investing, NBA style. The Suns dealt a good asset in Jared Dudley for a better and younger one in Bledsoe, a player that they hope will be a big part of the team's future.
McDonough and his team obviously believe in Bledsoe's potential for future growth and chose to acquire him before he hopefully begins his upswing. This is also the reason that I think the Suns will try to lock him up with an extension before the season begins, although Bledsoe might prefer to play out the season in hopes of earning a lucrative contract next summer.
For all this talk about "assets" and "value," there is an important aspect of building an NBA team that is sometimes forgotten: the sport of basketball itself. Although the success of a franchise largely relies on good management and business decisions, all of that means nothing if the assets and talent can't be harnessed and used on the court. Time and again, rebuilding teams get stuck in several years of mediocrity due to bad drafting, bad management, bad coaching, or all of the above. As important as it is to acquire talent and build an asset base, it is equally important to establish good habits among the team's players, especially in the young ones, and instill great coaching principles.
The Phoenix Suns are still transitioning from an era in which the franchise enjoyed about as much success as a team possibly can without ever earning a trip to the NBA Finals. From 2004-2010, the Suns were a wildly successful team that boasted many All-Stars and several deep playoff runs. For the last couple years, the franchise has experienced some trouble moving from that era to an entirely different one. With no cap-crippling contracts to go with several young pieces and a plethora of future draft picks, the Suns are finally rebuilding with direction and purpose. However, all this youth will go to waste without a coaching staff and environment that teaches and grooms talent.
The Sacramento Kings are perhaps the best example of this. From about 2000 to 2004, the Kings were one of the most exciting teams in the NBA, much like the Nash-era Suns. Led by the likes of Chris Webber, Peja Stojakovic, Mike Bibby, Vlade Divac, and Dough Christie, Sacramento was considered to be one of the best teams in the league during that time but similarly to Phoenix, bad luck, injuries, and the Lakers kept them from ever earning a seat in the NBA Finals. After that stretch, the Kings attempted to stay competitive for a year or two with Ron Artest as their best player but eventually committed to a full rebuild.
Since they last made the playoffs as an 8th seed in 2006, the Kings have not had a winning season. Although their draft record since 2006 hasn't been exemplary by any means, they have capitalized on a few good picks: Jason Thompson (#12 overall) in 2008, Tyreke Evans (#4) in 2009, Demarcus Cousins (#5) in 2010. So why exactly has Sacramento only been able to post a 0.335 winning percentage in that timeframe?
Much of this is due to poor management and team-building, but a significant part of it has to do with coaching and the troubling environment that the Kings had been known to foster over the last few years. The talents of players like Tyreke Evans (who had a fantastic rookie season but has seemingly regressed since) and Demarcus Cousins (an unquestionably skilled big man with temper problems) have arguably been squandered by poor coaching and a team culture that has been described in the past as "toxic."
These are the head coaches Sacramento has employed since Rick Adelman left town in 2006: Eric Musselman, Reggie Theus, Kenny Natt, Paul Westphal, and Keith Smart. Of that group, only Westphal has ever proven to be a successful NBA coach, and even that was in the 1990s. No one in that group is even currently employed by an NBA team.
The Sacramento Kings are a prime case study in how poor ownership, management, and coaching can absolutely derail a team. The franchise even came close to being forced to relocate but was saved at the last moment. Now, with a new, motivated ownership group at the helm, things seem to be looking up for the Kings.
This goes to show that a rebuilding team can acquire as many assets as it wants and can cash them in for as much youth and talent as possible, but it will only maximize its future chances of sustainable success if it promotes a healthy environment led by respectable management and coaching. At least thus far, I believe the Suns have excelled in this department as well by hiring an easy-to-respect leader in Jeff Hornacek to groom the team's young talent.
Both McDonough and Hornacek seem to realize the importance of establishing a system that fosters teamwork and effort. Hornacek recently said that as a young, rebuilding team, the Suns must first learn to compete: "The first step is to have the mentality that we're going to work hard and that we're going to play together as a team."
McDonough echoed that sentiment by stating, "I'm not going to measure our success this year in terms of wins and losses, just in terms of: Are we making progress? Are the guys buying in? Are they playing hard and playing the right way? That's what I'm looking for." As Dave discussed in yesterday's piece, successful rebuilding is a tricky process that involve growth and development despite losing. The Suns' front office realizes this and knows that it's up to them to lead this roster along that thin line. Obviously, only time will tell how much success the new front office will have with this team but it's easy to feel reassured by their recent words and actions.
After a couple years of delaying the inevitable, the Suns are finally rebuilding the right way - by acquiring young talent and stockpiling assets. To complement that, the team has also established a coaching staff that recognizes the importance of a healthy team culture, realizing that short-term success will not be measured by the team's record but by the progress that the players make.
With a GM that understand the importance of "value" and a coach that knows his role in instilling a good culture on the court and in the locker-room, the future of the Phoenix Suns franchise is finally in good hands.