Writers, statisticians, and coaches alike will dissect the X’s and O’s of the Miami Heat vs. San Antonio Spurs ad nauseam seeking to explain exactly what led to San Antonio annihilating Miami on the court during the NBA Finals. But bigger picture, macro level analysis reveals that the Spurs victory had more to do with off the court financial strategy than it did coaching and quality of play.
In the world of investing, there are two fundamental tactical approaches to money management: (1) specialization and (2) diversification.
Specialization takes place when the investor chooses proverbially to put all her eggs in one basket. A gambler betting all $20,000 of his bankroll on Germany to win the World Cup would be an example of specialization. Specialized investing can generally be thought of as high risk, high reward; in the aforementioned World Cup scenario, if Germany wins the World Cup, our gambler will reap quite a profit, but a likelier Germany loss will result in a zeroed out bankroll.
Diversification, meanwhile, occurs when an investor chooses to spread out her investments and as a result gains equity in more than one source. An example of diversification is our gambler this time betting $5,000 on Germany to win the World Cup, $5000 on an American League team to win the World Series, and $10,000 on the Spurs not to repeat as NBA champions in 2015. In this diversified scenario, our gambler can whiff on one of his investments and still profit or break even.
In recent years, specialization is in vogue amongst NBA front office circles. In 2007, the Boston Celtics amassed the “Big Three”—Paul Pierce, Ray Allen, and Kevin Garnett—by providing them with figurative boatloads of money and surrounding them with a cast of cheap role players. The Celtics won the NBA Finals that year, which prompted other franchises to follow suit in specialized investing.
The Los Angeles Lakers failed at this approach in 2012, attempting to surround an aging Kobe Bryant with Paul Gasol, a broken down Steve Nash, and a Dwight Howard not yet recovered from major back surgery.
The 2013 Brooklyn Nets too attempted this approach with lackluster results, teaming an ailing Deron Williams with an equally gimpy Brook Lopez, a past his prime Paul Pierce, and an all but washed up Kevin Garnett. And during the 2014 offseason, teams like the Houston Rockets, Los Angeles Clippers, and Chicago Bulls are all rumored to be seeking to amass so-called specialized investment “super teams,” featuring the likes of Kevin Love and Carmelo Anthony.
The Miami Heat from 2010 on have been one of these alleged super teams, formed by investing a vast majority of their allotted salary cap into just three players—LeBron James, Chris Bosh, and Dwyane Wade. Consider the Heat’s actual salary breakdown for the 2013-2014 season that resulted in a loss to the Spurs in the finals:
- Chris Bosh: $19,067,500
- LeBron James: $19,067,500
- Dwyane Wade: $18,536,000
- Mike Miller: $6,200,000 [no longer with team]
- Udonis Haslem: $4,340,000
- Mario Chalmers: $4,000,000
- Shane Battier: $3,270,000
- Ray Allen: $3,270,000
- Toney Douglas: $1,600,000
- James Jones: $1,500,000
- Chris Andersen: $1,399,507
- Rashard Lewis: $1,399,507
- Norris Cole: $1,191,240
- Michael Beasley: $1,027,424
- Greg Oden: $884,293
- Justin Hamilton: $98,036
- DeAndre Liggins: $88,429
The Miami Heat are an archetypal example of an NBA team built using specialized investments. $56,671,000 of the team’s $80,698,486 in annual player salary was invested in just three players: Bosh, James, and Wade. While The Heat’s version of The Big Three won two NBA finals and proved to be a successful venture, Miami is a classic case study in the nominal margin for error associated with specialization.
LeBron is the best player in the NBA. Dwyane Wade can get you anywhere between 14 and 24 points a night depending on his health. And Chris Bosh is an elite floor spacer and clutch shot maker who can be penciled in for 16 and 6 every night. The Heat’s $56 million core provided Erik Spoelstra with some semblance of consistency, but what about the remaining $24 million worth of NBA talent on the Miami Heat?
Mike Miller was no longer on the team. Udonis Haslem and Shane Battier were both old and unreliable. Ray Allen could make threes but played defense about as effectively as a slice of swiss cheese. Norris Cole and Chris Andersen were each hustle players with limited scoring potential. Toney Douglas was a nonfactor. Rashard Lewis and James Jones could make threes from time to time but literally nothing else. Michael Beasley couldn’t be relied upon to play. Greg Oden physically couldn’t play. And finally with regard to Justin Hamilton and DeAndre Liggins, I strongly question whether Dwyane Wade would be able to pick either of them out of a hypothetical police lineup scenario.
If LeBron, Bosh, and Wade played great, then the Heat could grind their way to a championship. But if that expensive core failed to produce at optimum levels, Miami simply had no realistic opportunity at contention. After all, The Birdman was not going to drop 40 on the Spurs playing hero ball.
As some teams continue to strive for this specialized player personnel model, perhaps the result of the 2014 NBA Finals will sway savvy franchises into desiring a salary model based on diversification, a la the champion San Antonio Spurs. Take a look at the Spurs salary breakdown for 2013-2014:
- Tony Parker: $12,500,000
- Tim Duncan: $10,361,446
- Tiago Splitter: $10,000,000
- Manu Ginobili: $7,000,000
- Boris Diaw: $4,702,500
- Matt Bonner: $3,945,000
- Danny Green: $3,762,500
- Marco Belinelli: $2,750,000
- Kawhi Leonard: $1,991,760
- Jeff Ayres: $1,750,000
- Cory Joseph: $1,182,600
- Patrick Mills: $1,133,950
- Austin Daye: $947,907
- Aron Baynes: $788,872
- Shannon Brown: $139,583
- Damion James: $107,776
- Othyus Jeffers: $52,017
Look at what salary diversification did for the San Antonio Spurs on paper! LeBron James was clearly the best player in the NBA finals, but when comparing the rest of the respective rosters of the Spurs and Heat, it appears as if San Antonio had the better players at depth chart positions 2-11. Even assuming rather ridiculously but for the sake of argument that Miami’s Big Three were the best 3 players in the entire series, the Spurs would still possess the next 8 best players on the hierarchy of quality.
The macro level lesson learned from the 2013-2014 NBA Finals is that diversification might be the better strategy as opposed to striving toward accumulating a “Big Three” or a hypothetical “Fantastic Four,” the rumored Melo to Miami scenario.
If you are an NBA GM, and you want to maximize your team’s potential for playoff success, perhaps it would be better to invest in 12 players ranging from average to excellent as opposed to 12 guys ranging from godlike to godawful.
Tags: San Antonio Spurs