The Savior Fallacy: Over-Betting on Star Players in Sports and Business

Team managers and corporate boards tear their rosters apart to land a top pick, who they assume will lead them to salvation. The psychology of a strategy that seldom works.

By Derek Thompson

“Blessed are the meek: for they shall inherit the earth” is the third and most famous Beatitude in the Sermon on the Mount. Although the prophecy has a dubious track record throughout world history, its counsel has been inspirational lately in the arena of America’s secular religion: professional sports.

In the National Basketball Association, in particular, an astonishing number of teams this year—the Boston Celtics, the Philadelphia 76ers, the Utah Jazz, and more—stand accused of deliberately making their clubs as meek as possible. This strategy is called tanking, and its logic—to the extent that there is any—comes from the mysterious allure of the NBA draft.

In most professional sports leagues, including the NBA, the worst teams are first in line to snag the most-promising amateur players in the next draft. When the ripening crop of amateurs looks especially tantalizing (this year’s is projected to be historically good), multiple teams will suddenly compete to be so uncompetitive that, through sheer awfulness, they will be blessed to inherit the top pick. One anonymous general manager told ESPN the Magazine earlier this season, “Our team isn’t good enough to win,” so the best thing is “to lose a lot.”

In a way, there is a dark genius behind the tanking epidemic. In what other industry could you persuade your customers to root for the worst possible product? But tanking puzzles academics like David Berri, the author of the 2006 book The Wages of Wins and a widely read commentator on sports economics. “Tanking simply does not work,” he told me. Nearly 30 years of data tell a crystal-clear story: a truly awful team has never once metamorphosed into a championship squad through the draft. The last team to draft No. 1 and then win a championship (at any point thereafter) was the San Antonio Spurs, which lucked into the pick (Tim Duncan) back in 1997 when the team’s star center, David Robinson, missed all but six games the previous season because of injuries. The teams with the top three picks in any given draft are almost twice as likely to never make the playoffs within four years—the term of an NBA rookie contract, before the player reaches free agency—as they are to make it past the second round.

Why are teams and their fans drawn to a strategy that reliably leads to even deeper failure? The gospel of tanking is born from three big assumptions: that mediocrity is a trap; that scouting is a science; and that bad organizations are one savior away from being great. All three assumptions are common, not only to sports, but also to business and to life. And all three assumptions are typically wrong.

At the MIT Sloan Sports Analytics Conference in 2011, Kevin Pritchard, now the general manager of the Indiana Pacers, introduced the term treadmill of mediocrity. It captured the widespread feeling that average teams are doomed to walk in place for eternity with no hope of advancement: they lack the talent to contend, yet never get the acclaimed top-of-the-draft picks that could meaningfully improve their rosters. Fear of this purgatory has spooked teams so much that Mark Cuban, the owner of the Dallas Mavericks, has publicly said he would rather his team be a bottom-feeder—blowing up a merely average team to get there—than try to make do with a middling roster.

Fans, too, seem particularly contemptuous of teams that lose half their games. “From the fan’s perspective, nothing is more frustrating than being average,” Berri says, “because being mediocre gives fans the greatest sense of uncertainty: one day they’re great, and another day they stink.” Yet, as Berri’s analysis shows, the treadmill metaphor turns out to be wrong: Mediocre teams don’t necessarily stay mediocre. Within two years, they’re three times more likely to become elite (winning at least two-thirds of their games) than the lousy squads that locked up the top picks. Developing and effectively deploying current players, making smart trades and judiciously signing free agents, finding good players later in the draft—these patient, sometimes incremental moves appear to work better than tearing things down to try to land a hyped-up superhero in the draft.

Although the NBA has seen its share of can’t-miss stars who badly missed, the allure of the draft is that it offers a fresh start. It promises to deliver fans a savior—even when the odds of salvation are vanishingly small. Just the remote possibility of success after a string of losses “turns people into wild gamblers,” says Megan McArdle, the author of a new book about failure, The Up Side of Down (and my former editor). Mired in mediocrity, fans thirst for a story that promises a small chance of success (we’ll draft a superstar and win a championship!) while ignoring the overwhelmingly probable outcome (actually, no, we won’t).

Losing to win might make sense if scooping up superstar players while they’re young and cheap could be reduced to a science. But even in the age of moneyball analytics, forecasting which teenager will grow up to be the next LeBron James is guesswork. Research into the NFL by the business scholars Cade Massey and Richard Thaler suggests that professional teams routinely overvalue early draft picks, principally because of the most human bias of all: overconfidence. Like most people, general managers think they’re better at predicting the future than they are—if only they can get the college player they want, they know they’ll have a star. More information doesn’t make them better predictors; it can even make them worse. “The more information teams acquire about players, the more overconfident they will feel about their ability to make fine distinctions,” Massey and Thaler write. This suggests that the development of advanced analytics might be quietly driving the emergence of tanking.

The problem with more information is that it’s worthless if you don’t know how to use it—and many teams clearly don’t. For example, a player who appears in the Final Four of the men’s-college-basketball tournament in the same year he is to be drafted can expect to be picked 12 spots earlier, on average, than comparable players on less accomplished teams. This is strange, because Final Four appearances have no observable effect on a player’s career performance. And the Final Four bonus disappears if the athlete returns to school and doesn’t make the semifinals again. Scouts and general managers routinely give too much weight to an athlete’s last impression.

Drafting stars into struggling franchises isn’t just a game for professional sports clubs. It’s the job of beleaguered corporate boards as well. Many companies have developed an abiding faith in their ability to pluck superstar talent from a pool of outsiders. From the early ’80s to the late ’90s, among the largest 850 U.S. companies, the share of new CEOs coming from outside the company more than quadrupled, to 33 percent, according to Rakesh Khurana, a Harvard Business School professor and the author of a 2002 article in the Harvard Business Review titled “The Curse of the Superstar CEO.”

When a company flounders, Khurana writes, directors feel pressured to fire the incumbent CEO and hire a savior, rather than soberly examining the fundamentals depressing the company’s fortunes. Take Kodak, whose early-1990s slide led to the heralded appointment of George Fisher, then the CEO of Motorola. Fisher failed to turn around a company being subsumed by the digital-photography wave, and ultimately stepped down a year before his contract was up. Kodak’s precipitous slide toward irrelevance continued, and it filed for bankruptcy in 2012. Large companies’ fortunes are “varied, highly nuanced, almost frighteningly complex, and certainly beyond the power of even the most charismatic leader,” Khurana writes. It’s like Warren Buffett once observed: when you bring good executives into a bad company, it’s the reputation of the company that stays intact.

Turnarounds aren’t a one-man job in the NBA, either. Bad teams aren’t one great player away from greatness. They’re one great player away from mediocrity. Almost every championship team going back three decades had not one but three above-average starters. To amend Buffett’s construction: when you bring a successful college player onto a bad pro team, it’s the reputation of the team that stays intact.

In basketball and in business, big changes are sometimes warranted. But too often, splashy moves are made because they’re splashy—and because making one big bet is easier than making lots of small, hard decisions. The big lie about tanking is that it’s a prudent long-term strategy, when in fact it’s just another get-rich-quick scheme. It invites fans to see spectacular failure as a kind of trampoline that will catch teams at their nadir and launch them into the stratosphere. The truth is boring and simple. In the short term, average teams are more likely to become good, because they’re already closer to being good. The rampant fear in the NBA that mediocrity is a perpetual purgatory elides that crucial detail about purgatory: it’s closer to heaven than the alternative.

This article available online at:

http://www.theatlantic.com/magazine/archive/2014/04/hoop-dreams/358627/