This is an op-ed guest post written by Mike Kwatinetz, Founding General Partner at Azure Capital Partners, a leading venture capital firm, where he makes a statistical case for the Golden State Warriors’ Steph Curry to win the NBA MVP Award as well as the possibility that an athlete can reach a $1 billion in valuation. (Please note that all performance-based numbers should be dated as of April 9, 2015.)
Why Curry Should Be The Clear NBA MVP
Much has been written about the importance of discovering and investing early in “Unicorns”, companies that eventually cross the $1 billion valuation threshold. In basketball, teams make tough decisions as to whether to sign individual players to contracts that can be worth as much as $120 million or more over six years. The top few players can earn a billion dollars over their career when endorsements are added to the equation, assuming they can last as long as a Kobe Bryant or Tim Duncan. Clearly, part of the road to riches is getting the recognition as one of the elite.
This year, several players previously thought of as “quite good” are emerging in the quest to be thought of as “great”. Nothing can help a player put his stamp on such a claim as much as winning the MVP. In the spirit of trying to identify a future “Unicorn” in professional basketball, I thought it would be fun to analyze the current crop of contenders.
Given an unusual emergence of multiple stars, this year’s NBA MVP race is one of the most hotly contested in years. There are five legitimate candidates: Stephen Curry, Russell Westbrook, James Harden, Anthony Davis and LeBron James. All of them are having spectacular seasons and in most years that would be good enough for them to win. But only one can take the MVP crown.
LeBron is the reigning king of the league and has long ago hoisted his flag atop the mountain. But, he has won the MVP title a number of times and while he remains a solid choice, he is not a clear choice. Therefore, it appears almost certain that most voters will favor a candidate who has yet to win. In the last few weeks, Davis seems to have faded from consideration so, in this post, I will provide the analysis that has led me to determine that Curry is a more worthy recipient than Westbrook and Harden.
Scoring
Basketball columnists and analysts often focus too much of their evaluation of success on a player’s scoring average. In an attempt to help understand a player’s full value, John Hollinger created a Player Efficiency Rating (PER) that incorporates several statistics in the hope it provides a single rating that determines the best player. While it is a truly worthy effort, we feel there is quite a bit of judgement incorporated in what value to place on different statistics. For example, it rewards players who take more shots even when the extra shots are 2-pointers at a low field goal percentage (taking extra 2-point shots at over a 31 percent increases the rating even though that is well below what the rest of his team would likely shoot). We would place more value on giving the ball up (and having a lower scoring average) than taking a low percentage shot.
I am surprised that the simplest calculation of scoring efficiency does not surface as a regularly reported statistic. Some sources occasionally report an “Adjusted Field Goal Percentage” (AFG%) that counts a 3-point field goal as worth 1.5 times a 2-point field goal. We believe this is the correct way of viewing a shooter’s effectiveness and called it field goal efficiency (FGE%). It calculates the percentage as the equivalent of 2-point field goals made per field goal attempt (FGA):
FGE% = (2-point shots made + 1.5 x 3-point shots made)/FGA
There is one statistic that analysts call True Shooting Percentage (TS%) that goes one step further. It also takes foul shots into account. It assumes that 1 of every 9 foul shots is part of a 3-point (or 4-point) play and therefore considers 2.25 foul shots as the same as one field goal attempt (since most pairs of foul shots replace a field goal attempt). TS% is calculated by adding the field goal attempt equivalent of foul shots to normal field goal attempts to determine the equivalent number of attempts used by a player. By dividing points scored by 2 we know how points scored equates to 2-point field goals made (FGME). This translated to the following formula for TS%:
Equivalent field goal attempts (EFGA) = FGA + FTA/2.25
FGME = points scored/2
TS% =FGME/EFGA
Now let’s compare Curry, Harden, and Westbrook based on these statistics all on a per game basis:
Harden and Westbrook are neck-and-neck in scoring average, each about four points per game higher than Curry. But Curry plays fewer minutes per game and takes fewer shots. His shooting efficiency at 58.6 percent is by far the highest of the three by a significant amount (a full 14 percent higher than Westbrook and 7 percent higher than Harden). It is also the highest in the league for players that have taken at least 8 shots per game (which includes all of the top 100 players by scoring average). At over 90 percent, Curry is the number one foul shooter in the league. But Harden and Westbrook are also hitting roughly 85 percent of their foul shots. Therefore, the fact that they get fouled much more than Curry brings each of their TS%s closer to Curry’s. Still, Curry is a whopping 10 percent higher than Westbrook and 2.5% higher than Harden. It is apparent that the scoring average advantage is more a function of Curry playing fewer minutes and being more selective in his shots.
To see the impact of this we calculated their scoring average per 36 minutes played (which we consider about average for a team’s star) and points scored per 25 equivalent field goals attempts:
So, even if he played the same amount of time as Harden and Westbrook, Curry would trail in average points per game, primarily because he still would take fewer shots. But if he took the same number of equivalent shots he’d have a higher scoring average than both.
A Few Other Statistical Comparisons
While scoring efficiency is an important measure of a players value to his team, several other statistics like assists, rebounds, and steals are also considered quite relevant. To make comparisons fair, we adjusted to the average per 36 minutes for each:
For steals, Westbrook and Curry are close to dead even with Harden about 11% behind. However, Westbrook is the clear leader in rebounds and has 7 percent more assists than Curry with both well ahead of Harden.
Each of these three players leads their team’s offense. They all control the ball attempting to score themselves or assist others in scoring without turning the ball over, as every turnover is a lost scoring opportunity. The ratio of assists to turnovers helps capture effectiveness as a guard. On the defensive end they each can compensate for a portion of their turnovers by stealing the ball. The ratio of steals to turnovers captures how well they are able defensively to partly compensate for depriving their team of a scoring opportunity. But attempts to steal the ball can lead to more personal fouls. The ratio of steals to personal fouls helps understand defensive effectiveness. Here are the comparisons:
Harden and Westbrook are 25 percent-40 percent behind Curry in all of these categories. What the first ratio tells us is that Curry passes the ball more accurately and/or takes less risk so that he gets his assists without turning the ball over as frequently as the others. Another way of looking at it is that the extra 0.6 assists that Westbrook averages per 36 minutes comes at the expense of one extra turnover vs Curry. The steal/turnover ratio tells us that for every 3 turnovers Curry has, he is able to get the ball back twice through steals. The others recover less than half of their turnovers through steals. Finally the steals/personal foul ratio shows that Curry is quite effective defensively with a ratio that is over 30 percent better than either of the others.
Curry Creates The Most Team Success
So, what is the bottom line that helps capture the impact of the various statistics we have shown?
Of course, one measure is the fact that Curry has helped his team achieve a much better record. What other measure should be considered in evaluating a potential MVP’s impact on a team? Given Curry’s extremely high Field Goal Effectiveness, does his taking fewer shots help the team more than Harden and Westbrook taking more shots and scoring more? The league average for scoring per game is roughly 99.9 points (through about 76 games of the season). Each of the three help their team score at a higher rate than that, but Curry has led the Warriors to the highest scoring per game in the league.
The comparison:
A natural question is whether this superior offensive performance comes at the expense of inferior defense. So we should include the average points given up per game by each team to round out the picture. Notice the Warriors allow fewer points per game than the league average while both the Thunder and the Rockets allow more than the league average. The combination for the Warriors means that they have the highest plus/minus in the league by quite a bit (the Warrior’s 10.4 is 60 percent higher than the Clippers who are second at 6.5), and it is nearly double the sum of the plus/minus for the Rockets and Thunder combined.
The league also maintains plus/minus differential by player. That is how many more points a team scores than opponents when that player is on the floor. In all three cases, it seems clear the players are driving the team’s effectiveness as their differential exceeds that of the teams (meaning that without them on the floor, the other team, on average, outscores their team). This statistic takes offense and defense into account and helps measure the influence a player has on his team’s effectiveness.
This means that Curry is responsible for a 12.0-point improvement in plus/minus when on the floor versus how the team does when he isn’t, while both Westbrook and Harden improve their team’s plus/minus by 5.0 points. Given his top score in plus/minus, much higher Field Goal Effectiveness and TS%, combined with driving the Warriors to the top record in the league, it seems that Curry should be the league MVP and is on his way to becoming a Unicorn. As a VC, I would love to invest in him!
SoundBytes:
- The recent ESPN selection of the top 20 players of the past 20 years is quite enlightening in how well the NBA markets their elite players compared to other sports. Despite the fact that football and baseball have a multiple of the number of players and are more popular sports, five of the 20 were from the NBA:
- Number 1: Michael Jordan
- Number 2: LeBron James
- Number 8: Kobe Bryant
- Number 11: Shaquille O’Neal
- Number 14: Tim Duncan
- There were three from football (all quarterbacks) and two each from baseball, tennis and soccer. And one each from six other sports (hockey, boxing, golf, swimming, track and cycling).
- The four emerging stars (this includes Anthony Davis) we have discussed all have the potential to be on a future such list but their status among the greatest will also be dependent on their ability to win multiple championships. Winning MVPs makes a player great, winning multiple championships makes them one of the greatest.
- Last week’s game against the Blazers was further validation’s of Curry’s MVP bid. Curry delivered eight 3-pointers, hit 17 of 23 shots and went seven-of-seven in his 19-point fourth quarter. His last two threes were a combined distance of 55 feet, setting a new record for threes in season and breaking his own record!
The Precedent for Creating A Corporation Owning An Athlete’s Earnings Exists
In April 2014, Vernon Davis offered stock in his future earnings via a venture with Fantex, Inc. as part of a new financial instrument being sold by Fantex. Davis offered a 10 percent share of all future earnings from his brand marketing company to Fantex, which would then turn around and divide it into shares of a tracking stock that can be traded within their own exchange. The offering was 421,100 shares, valued at $10 each, for a total of $4.2 million. This implied a total value of the “Vernon Davis Corporation” of $42 million.
Davis’ current salary is $4.7 million and endorsement income about $1.75 million for a total income of $6.5 million. Given that the longevity of football players is rarely into their mid-thirties coupled with Davis being over 30 at the time, it seems likely that he had no more than three-four years left in his playing career. Putting those facts together makes it appear that Davis was unlikely to earn much more than $42 million going forward and might earn less as we would expect his income to drop precipitously once he retired. So, buying the stock was probably viewed as more of a symbol of support for Davis and its “market cap” appears about equal to his expected future earnings.
NBA Stars Are Among The Highest Earning Athletes
The current highest earner of endorsements in the NBA is LeBron James at about $44 million per year (Kevin Durant is second at $35 million). The highest contract in the league is Kobe Bryant at about $23 million per year (and had been $30 million previously) with the 10 highest players in the league making an average of over $21 million. Given the new TV contract scheduled to go into effect in the 2016-2017 season, it’s been projected that the cap will increase from about $63 million today to $90 million in 2017 and be nearly $140 million by 2025 (10 years from now, at age 37, Curry should still be playing).
Let’s make the following assumptions:
- Curry’s salary will go from a current level of $11 million in 2015 and 12 million in 2016 (4 other Warriors will be paid more that year) to about $30 million in 2017 assuming the top salaries tend to be about 1/3 of their team’s cap as they are today.
- It will be up to $40 million in 2025, or less than 1/3 the projected $140 million cap.
- His endorsements will reach midway between the current levels experienced by LeBron and Durant, to about $40 million by 2017 (they are currently at about $5.5 million from Under Armour)
- His endorsement income will rise by about 10%/year subsequently, through 2025 to reach $92 million in 2025
- He will continue to earn endorsement income (but will retire from playing) subsequent to the 2025 season.
- The level post 2025 will average $60 million per year for 10 years and then go to zero.
The last assumption is based on observing the income of retired stars like Michael Jordan (earning $100 million/year 12 years after retirement), David Beckham (earned about $75 million the first year after retiring), Arnold Palmer (earned $42 million/year 40 years after winning his last tournament), Shaq ($21 million), Magic Johnson is now worth over $500 million. Each are making more now than the total they made while playing and, in several cases, more per year than in their entire playing careers. So assuming Curry’s income will drop by 1/3 after retirement is consistent with these top earners.
This puts his total income from 2016 through the end of 2035 at over $1.5 billion. All of the above assumptions can prove true if Curry continues to ascend to super-star status, which would be helped if the Warriors win the championship this year. They could even prove low if Curry played longer and/or remained an icon for longer than 10 years after retiring. Thankfully, Curry has remained relatively injury free and our analysis assumes that he remains healthy. Curry is not only one of the most exciting players to watch, but is also becoming the most popular player with fans around the league. Curry now ranks second overall in total uniform sales, behind James.
So, while the concept of Stephen Curry as a Unicorn (reaching $1 billion in value) started as a fun one to contemplate, further analysis reveals that it is actually possible that Fantex or some other entity could create a tracking stock that might reach that type of valuation.
As a VC, I would love to invest in him!