Analytics for the Front Office: Valuing Protections on NBA Draft Picks

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Abstract: Most rules governing trades in the NBA effectively reduce the likelihood of transactions by limiting the assets that qualify for exchange.  Pick protections, which allow a single asset to take on thousands of values, theoretically do the opposite by enabling teams to change the value of a pick to match specific trade conditions.  Evidence suggests, though, that pick protections are not yet being used to their full potential. Despite the freedom to place protections at any position, they are historically concentrated on numbers that are strong psychological anchors like 5, 10, and 14. This clustering suggests that improved valuation of pick protections would be useful information in the NBA trade market. This paper develops a system for valuing protected NBA draft picks.  We adapt a financial asset pricing method to generate a risk-adjusted “basketball price,” in term of on-court player contributions, for any draft pick with any protection scheme. The model is used to evaluate two recently-traded picks: the Lakers’ protected 2015 first-round pick that was traded from the Sun to the 76ers in February 2015, and the Bucks’ 2018 first-round pick that was traded to the Suns in November 2017. This system could be valuable to teams seeking to more precisely value protected picks in prospective trades or by observers seeking to understand how well teams have used protections in the past.  It could also be used to provide a league-wide valuation of picks, potentially reducing the transactions costs of trading protected picks.

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