More on Why the Nuggets Failed Basketball Economics During the 2008 Off Season

As a summa cum laude economics graduate from a school viewed as being in a group of schools that are cousins to the Ivy League Schools, I am qualified to grade the Nuggets in Economics. As of now, unless they improve what they are doing, I give them an F. This article is more or less a part 2 to the foundational article on this subject: A Basketball Economics Lesson. Incidentally, the originally intended snappy title for that article was "Nuggets Fail Economics, Which will Cost Them Dearly." Laugh out loud.

If economics bores you to death, so you are not interested in details, I can sum it up by using an analogy.

I decide I want to make money from a hot restaurant franchise, a restaurant that is so popular that almost all franchise owners make a nice profit even in a down economy, so I decide to buy a franchise license and build a new restaurant, but then 18-24 months later in a down economy I decide I went hog wild with my money and I decide to sell. If this is what I do, I am going to take an unnecessary, big, big loss. Because I will have paid big acquisition bucks for the franchise and to get the building built, but I will not have waited long enough for my particular restaurant to become popular.

That's roughly what the Nuggets did during off-season 2008. Outside of a depression, its spelled d-u-m-b, and it rhymes with rum.

Had the Nuggets not done this, there would have been by summer of 2009 if not sooner some more Artests interested in playing in Denver at a bargain.

Even more so than the most popular, successful restaurants, pro sports teams are well equipped to survive and prosper to some extent even in bad economies. For this reason, you don't see other owners destructing their teams at this time due to poor economic conditions. The better sports franchises are generally still profitable in poor economies. So the Nuggets can not be entirely excused for what they did during 2008 by referencing the bad economy.

Especially since Denver for the last 50 years has been one of the most successful local economies in North America, and is right now one of a relatively small number of areas that are still gaining some jobs from month to month! So there was little excuse for when Nuggets owner Stanley Kroenke panicked during 2009. Indeed, Mr. Kroenke should have sold the team outright rather than panic the way he did.

Anything more than a 5% cut but less than an 7.5% cut in payroll is a D or D- grade. Anything more than an 8% cut in payroll is an F. And the Nuggets are cutting payroll by more than 8% in one year.

THE TOTAL REBUILDING FROM SCRATCH EXCEPTION TO THE USUAL 8% RULE
Now some might get confused and think that what the Nuggets have been doing during 2008 is alright because they are rebuilding the team. Well, aside from the fact that they have publicly insisted that they are not at all rebuilding the team, the Nuggets do not come close to meeting all of the requirements that are needed to justify a massive and quick offloading of salary.

In order to justify a total rebuilding from scratch and thus to justify getting rid of players quickly even if little is received in return for them, most and preferably all of the following requirements need to be met:

1. You have truly reached a dead end; you can not make the playoffs despite the fact you have a capped out payroll.
2. In the previous season, you did not make the playoffs.
3. In the most recent complete season, your team was worse than the year before in at least one and preferably both among offensive and defensive efficiency (points scored or allowed per 100 possessions.)
4. Your drafting and/or your coaching is subpar, so there is no hope for improving things from those important factors.
5. You are freely electing to start completely from scratch. Even if you qualify under almost all or all of the other qualifications, starting from scratch and going for huge, big name players is not the only strategy available, and is still not the best strategy to follow even in that situation, though it may not be a bad strategy for franchises who know they can not excel with quality drafting and coaching. For one thing, it is a gambling type strategy, because you don't know for sure if you are going to get in competition with the other 29 teams at least one and preferably two superstars who will not be injured and who will not go into an early career decline. Strategies involving an element of gambling are never as good as the best strategies that involve no gambling at all, though if you are truly down and out, and you don't know how to do any optimal non-gambling strategies, a gambling strategy may be just as good as the best non-gambling strategies.
6. You are willing to accept a few certain 20-win type seasons and the possibility, if your big money buys nothing but injury and other troubles, that you will be a losing team for many, many years.
7. You are not a franchise that all the superstars are trying to avoid, and you have at least some inside information that at least one and preferably two superstar (top 30) NBA players will come on to your team when you are able to offer them a mega salary from all your salary cap room.
8. There is a large field of superstars and stars who will be available when you are ready to spend your big salary cap room.

The Nuggets failed to qualify under (1), (2), (3), and most likely (7).

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