Resource deprivation, decision stakes, and the selection of foreign players in the NBA draft

ABSTRACT

This study examines the way resource endowments and decision stakes influence the managerial decision to select a foreign player during the NBA’s amateur draft. Building on evidence that general managers perceive foreign players to be riskier draft choices and on risk sensitivity theory, this study tests hypotheses that NBA teams accept greater uncertainty and risk associated with selecting foreign players in response to indicators of resource deprivation – payroll disadvantage and poor team performance. A regression analysis of 900 NBA draft selections, 2006–2020, provides mixed support for these hypotheses. Teams tend to select more foreign players later in the draft when the stakes of the decision are lower, and payroll disadvantage increases teams’ propensity to select foreign players. Evidence that poor team performance increases teams’ propensity to select foreign players is marginal. Further, the effect of payroll disadvantage tends to decrease across the draft’s first round in conjunction with the decrease in the stakes of each pick. However, the influence of payroll disadvantage appears to remain constant across the second round where NBA rules do not provide contract guarantees to players. In sum, this study adds to the growing bodies of sport management research on risk behavior, foreign players, and the amateur draft.

KEYWORDS:

• uncertainty
• risk
• amateur draft
• foreign players
• draft
• resources

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ An empirical validity check described at the beginning of the results section supports the assertion that selecting foreign players is riskier.

² Early draft pick, high stakes decisions likely have a higher expected value, but omitting this complexity from the figure does not alter the qualitative implications.

³ A third, steeper, narrower curve to represent the selection of a domestic player with a late draft pick could be added, but this feature is omitted to focus on the moderating effect of decision stakes. Adding this third curve could demonstrate that the low-payroll team would have almost no chance of reaching its aspirational goal by picking a domestic player.

⁴ All unreported robustness test results are available from the authors upon request.

⁵ Using decayed and undecayed measures of team performance over the prior four years in the first stage of the analysis do not substantially alter the results.

⁶ VORP is a box score estimate of the points per 100 team possessions that a player contributed above a replacement-level player, translated to an average team, and prorated to an 82-game season. VORP is like the Boxscore Plus-Minus (BPM) metric but adjusted for playing time. Basketball-reference.com, the source of the VORP data, has detailed explanations of these two advanced performance metrics, which have become widely respected by basketball analysts. The VORP performance deviation variable is skewed so we took the log of one plus the deviation to normalize it for the OLS regression.