Over the past few years, we have seen the Golden State Warriors play the Cleveland Cavaliers four times in a row in the National Basketball Association (NBA) championships. To many, this seems normal; however, the dominance of just a couple teams exposes real inequity in the NBA: there are only a few teams who can reasonably contest for the world championship title. Although there are many factors that affect each individual teams ability to win (coaching ability, player talent, chemistry), the most important determinant is a team’s market size.

 

Teams from small market teams generally have no obstacles in making the playoffs, but they are seldom, if ever, able to reach the finals (not even to mention winning a championship). Since the NBA merger with the ABA in 1976, not a single team with a metro under two million people has won the NBA championship. In fact, three cities have been represented in a third of all the finals games since 1976: New York, Los Angeles and Chicago.

 

Across all professional sports, market size uniquely affects the NBA the most because superstar players have a much bigger impact on the outcome of the game. Statistically, basketball has a lower win-loss variance for a given level of skill compared to other sports. This means that better teams, with more skilled players, are less likely to suffer “upsets” compared to sports like soccer, hockey and baseball. This isn’t to say that elite basketball players are inherently more skillful that top players in other sports, but it does imply that improved skill in basketball translates to game wins more consistently.

 

However, the question of why small market teams are not able to keep star athletes on their roster remains.  For small market teams, there are many different rules in place that make it difficult to acquire and keep big stars. Big market NBA teams have the money to convince better players to. The NBA is unique in that it features a soft cap combined with a tax.

 

Teams are supposed to spend under this soft cap amount, but if they do go over the NBA taxes them for a large percentage of each dollar over the cap. When looking at the market value of each team calculated by Forbes, it isn’t a coincidence that the bottom five teams have never won a championship.

 

Teams that are worth more can spend over the soft cap limit and will gladly pay the luxury tax to keep attracting talent to the roster: winning to NBA franchises translates into actual revenue, whether from Steph Curry jerseys sold to tickets in the actual stadium. In the long run, this revenue is much larger when compared to tax expenditures, making the investment worth it.

 

The cap arguably sacrifices the ability of small market teams to succeed by giving teams with money the potential to be practically unbeatable. According to 538.com, the Golden State Warriors (former 2-time title winners), who were already tens of millions over the salary cap, were able to sign Demarcus Cousins for $5.3 million (who was valued at $46 million). Cousins was injured last season but is still ubiquitously recognized as one of the best centers in basketball today. He is just one of the many examples where teams can underpay superstars to save money. One exception that helps small teams are bird rights, which allows teams to resign players above the salary cap at an amount equal to the maximum salary.

 

However, at some point, money just doesn’t matter as much to NBA players, which is problematic for small market teams since it is the only real asset, they have for attracting talent. For someone making tens of millions any given year, some players would opt to win championships over an additional few million. To some incredibly wealthy players, it may make more sense to focus on the legacy one would leave on the league. At that level of income, each individual dollar has diminishing utility, making winning that much sweeter.

 

That phenomena explains why the super max contract barely works either. According to Heavy, the contract is an incredible sum of money ($70 million more than any other team) offered to a player who qualifies themselves as a star. The player has to be on the team that drafted them or traded as part of the rookie deal and made an all-NBA team, among other requirements. The contract has already failed for top tier talent, and it isn’t expected to work in the future.

 

Part of the reason the super max always fails is due to tampering, a situation in which players, and coaches at times, influence a player’s decision to leave or stay with a franchise. According to ABC30, LeBron James recently stated it would be “amazing” or “incredible” if Anthony Davis, MVP contender and New Orleans Pelicans’ star player, were to join the Lakers, LeBron’s team. These comments, among others, have forced the Pelicans’ franchise to face pressure to trade Davis.  This is because if became a free agent, the Pelicans will not receive anything if he chose to not stay. The NBA has fined teams like the Lakers for organizational tampering (defined as influencing franchise players of other teams to take certain actions regarding their contract), but some small market GM’s are upset that the league commissioner, Adam Silver, has failed to really enforce the laws.

 

Besides money, small teams can always try their luck at the annual NBA draft, wherein teams select college players who have proved themselves at their respective teams to play for their NBA franchise. The draft is organized so that worse teams have better picks in the draft. Oftentimes this still fails because teams can trade their picks in future drafts for short term assets to their team. However, this can lead to teams intentionally performing poorly to get a higher draft pick in the future. This has resulted in even lower amounts of competition in the modern NBA. Big market dominance and the intrinsic requirement of many skilled players to win has led to teams paying vast sums of money without hope of a title. In this way, these market distortions are a major disservice for the millions of NBA fans and the sports entertainment industry overall.