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A Risk Portfolio Approach to Draft Strategy
Like with personal investments, general managers make decisions for which players to draft based on their propensity to take a risk at the time of the draft
Drafting a prospect, in the first or the second round, is an investment on the part of an NBA franchise in a young player. As we continue to try to think about the how of drafting better, we sought to explore this avenue further and start to think about the entire process more like an investment.
Last week, we had a conversation with a personal finance professor about any broad tips they give their students on learning what to invest in and improving their own evaluation ability. The answer was wise and is one that will stick with us for a while.
“A key tenet of personal investment is in understanding your own risk profile. When you’re young, healthy and don’t have many expenses, you can be more aggressive in your approach and take big swings in the market. When you’re older, have a ton of expenses and won’t be around to reap the benefits of a long-term payoff, you need to be risk-averse and go for more certainty.”
That’s a really interesting way to think about the NBA Draft. Too often, we see people on the online community advocate for taking a really high-upside prospect top-five or reaching for Player X in the latter part of the lottery. It’s understandably easy for someone sitting at home to make such a claim; there’s no downside to being wrong! But when a general manager’s job is on the line, and they are accountable to a boss, that same risk may seem unfathomable.
We’re going to embrace that risk assessment theory. Some teams, that have several future draft picks, no current star players or an agenda of winning a championship, are akin to a 25-year-old just starting their retirement portfolio. Now is the perfect time to swing for the fences because, based on where the franchise is, one failed investment doesn’t cost you much of what you’ve already built.
Conversely, teams that are competing for a championship, have a ton of expensive stars in their prime and need a complementary piece to log some minutes right away are going to look for a completely different player: one who can come in right away and contribute, even if it means sacrificing star upside. That’s like investing in your early sixties, trying to get just a little more before you retire without risking a downgrade in your wealth.
There are, as always, exceptions to the rule. A winning team with a loaded roster and no need for role player on the margins would do fine in taking the high-risk approach: their portfolio is diverse and complete enough that a strikeout there won’t sink the ship. Then there are teams at the bottom of the barrel whose general managers are on the hot seat and may not be around to see a long-term investment bear any fruit. They may opt for an immediate impact as a means for saving their job and elongating their tenure.
Risk assessment among the drafting team is further impacted by position. The Atlanta Hawks, for example, don’t need to take a high-upside swing in the lottery on a pure point guard. They already have a superstar there in Trae Young, and even if they add a second, the play style required to utilize both makes it difficult to win games. The Nuggets are in the same boat with a big man; they can make risks and swing for the fences around Nikola Jokic, but there’s no reason to do it for his backup.
Risk volatility isn’t about reaching for players, either. This theory isn’t a replacement for the central tenet of draft philosophy: take the player you believe is the best guy available. Where understanding your own situation comes into play most is in tiebreakers amongst players in the same tier, or where there’s negligible difference between a few guys still available. When those moments happen, positional fit, desired style of play and risk-reward analysis should all go into figuring out who to take.
Where does this all leave us?
Let’s try a new approach to thinking about our tiered prospect system. We’ve utilized tiers in the past and differentiated some of the latter tiers based on “high risk, high reward” and “safe bets with lower ceilings.” Perhaps that’s the wrong way to go about this process. Maybe we’d be better off placing those players in the same tier talent-wise and separating the tier in a continuum of “high risk” to “low risk” investments.
We’ll make that attempt here with our recently-released top-50 Big Board:
As a disclaimer, doing this exercise revealed some reinforcement of our old process as being a solid one, but also was a unique way to think about how and when we’d reach for someone perhaps a tier below in the right situation.
Tier 1: Franchise-Changing Alphas
There are four guys currently in the mainstream discussion for the top overall pick. To us, it’s a two-man race: Paolo Banchero and Chet Holmgren. Chet held the top spot for us for most of the year, but was recently passed by Paolo as we did a deeper dive into the film for each. With Paolo, we were pleasantly surprised with his defense.
Why does that matter? Feeling more confident in his lateral quickness and processing IQ on that end, the potential downside for Banchero went down. He became a lower-risk prospect in many regards, a safe self-creator and isolation scorer who has size and solid value on that end.
Holmgren still has the higher ceiling to us. But with concerns about self-creation in the half-court, the reliance on spin moves to get to the rim and small worries about his frame and how to best use it, he is in a slightly higher risk category.
Tier 2: Just Outside the Elite Prospects
Currently a tier of its own from players 3-6 in this draft class, we kind of think of this as two separate two-person tiers. For reference, last year this tier featured Scottie Barnes, Evan Mobley and Jonathan Kuminga, and two years ago had Anthony Edwards and James Wiseman.
For now, it’s a four-person tier. Ivey and Smith are firmly entrenched, and that’s why they sit 3 and 4 on our overall board. Both have a little bit of risk: Smith with his self-creation and Ivey with his mid-range impact. Yet both have legitimate superstar upside, where the idealized versions of each (and they aren’t difficult to envision happening) are clearly Tier 1 types of players.
Shaedon Sharpe and Jaden Hardy are both really high-swing prospects. We may move them down to the next tier at some point while likely keeping them at 5 and 6 on our boards. Both possess 20+ PPG upside and the ability to be a top-two cog in an offense. We still believe, philosophically, that is what you aim for in the top-half of the lottery. Concerns about Hardy’s athleticism, consistency and shot selection put him in a high-risk category, while the uncertainty of Sharpe’s overall portfolio going from high school to college clearly make him difficult to project. We think Sharpe has so much more upside due to his athleticism, thus giving him the slight tiebreaker overall.
Tier 3: Borderline All-Star/ Third Option Upside
Tier 3 is filled with guys who are going to be, in our predictions, average or above-average starters. Not necessarily franchise tentpoles or guys to run an offense through, but what they do carries a lot of value and their talent wins out. Last year, James Bouknight and Alperen Sengun found themselves in this tier.
It’s a fairly robust group here, and to us the reason this draft class is an undervalued one: there are a lot of safe bets in the back-half of the lottery that we think provide a great deal of impact.
The lowest-risk guy on here is Keegan Murray, and is likely why he stands out as a top-five guy on more boards than any other guy here. He and Bennedict Mathurin, two dependable 3-point shooters, have high role player floors due to size, shooting and solid athleticism. Those factors drastically lower their risk. Where Mathurin’s risk comes in slightly higher: his on-ball defense can be suspect if his effort isn’t great.
Duren is a unique piece to this puzzle. He’s super young and is brimming with upside, but his overall low-level risk isn’t that high. What he does at a high level is already translatable to the NBA as a rim protecting, athletic big. However, the risk comes in from positionality. One thing we haven’t discussed is opportunity cost: the risk in missing out on someone else by taking a player here. While positional scarcity is not in favor of drafting non-elite bigs in the lottery, at some point it becomes worthwhile to try on a big who has close-to-elite upside. Duren fits in that category, which is why he’s in this tier to begin with.
Finally, we’re big fans of TyTy Washington. The risk comes in his athletic and physical profile not allowing him to be a high-caliber NBA starter. His skill level is certainly there for us, but can envision a world where the 6’3” combo guard doesn’t find a natural home. Because of that, he’s actually last on our board of these guys.
The order inside these tiers certainly isn’t in perfect order from least-risky to most risky, but there is an element of risk avoidance that goes into what we prefer. Maybe that reveals a lot about me as an evaluator: when in doubt, I tend to go with the safer bet.
Tier 4: Franchise-Changing Alphas
High-Value, Low-End Starters are guys who we believe in, based on their entire body of work as a prospect, to be a dependable starter someday. There are only 150 of them across the league, so the target number to reach for in most drafts is the 12-15 point in the overall order of the draft. Some years, like last year, we had two guys in Tier 4, Moses Moody and Jared Butler, and made it to the 12th pick with the top-four tiers. In retrospect, a few guys from lower tiers (Josh Giddey, Franz Wagner) should have been in that tier, but a few minor flaws kept them out.
This year’s class actually gets us down through the lottery, a nice place to be. It’s a four-person group, but really can be broken down as a 3+1 tier. Jeremy Sochan, currently sitting 14th on our board, can easily be bumped down to Tier 5, and it’s somewhat likely we make that move before our final board comes out. Sochan’s path to being a starter is pretty clearly built on his positional versatility, but there are so many things that can go wrong (lack of shooting, offensive ambiguity, not being an absolute top-tier athlete) that the risk may move him out of this tier entirely.
The other three guys are some of the safer bets in the draft. In general, Tier 4 guys tend to be pretty safe, high-floor and marginally low-ceiling prospects. Dyson Daniels, for example, is not someone we can ever imagine scoring 15 points per game in the NBA. But he does so many things well, and the combination of size, feel and on-ball defense will give him value to most teams. He’s, at worst, a high-end role player, and plenty of guys carve out careers for themselves as a fifth starter in that mold. The same can be said for Mark Williams as a big: what he does well is clearly translatable, and we feel like he can do it at a starter level.
Johnny Davis is the top-rated player for us in this tier. He combines the low-risk profile due to his defensive impact with more self-creation upside (and the safest 3-point shooting mark) of these four.
Tier 5: First-Round Grades
In 2021, we gave out a whopping 35 first-round grades. This year, that number is only at 25, and the talent drop-off from 14 to 15 on our board is pretty stark.
Looking back at last year, this group was split into three tiers, accounting for variance within the pick. This exercise is meant to eradicate that pre-separation and make it more about finding the right fit based on risk profile of the drafting team.
We’re at the point where these tiers are starting to get larger. In 2021, that would mean Tier 5 had 23 players in it. This year, that number is 11. A major difference in the depth of this class, sure. But it’s still a large number of players we’d put on a similar plane.
There are the high-risk, high-reward guys like AJ Griffin or Nikola Jovic, both of whom have been trendy top-five picks in the eyes of many. Both have severe flaws in our eyes, mainly stemming around the defensive end. At some point, the gamble will be worthwhile for a franchise: Griffin’s solid shooting touch and offensive upside become more valuable to some than a low-risk swing. It would all depend on the situation of the team we’re drafting for that we’d make that determination.
What this exercise, and what tiering, really provides is a ceiling of “we wouldn’t take this player any higher than 15” in the context of the 2022 draft class. That rings true for Griffin, for Blake Wesley, for Tari Eason and other high-risk prospects.
We actually start to see a flip-flopping of a trend we noticed in earlier tiers. In the lottery and in Tiers 1 thru 4, the lower-risk players usually got a tiebreaker over the higher-risk ones. The opposite takes place here. Most of the lowest-ranked guys who did receive first-round grades are ones without a ton of upside.
Our best hypothesis for why that is: every player has risk. Once we get outside the top-18 guys in a class (or into Tier 5), it’s likely that only a half-dozen or so will stick around in the league for a long period of time. Look back at the 2018 draft class: from picks 15-30, only four guys (Kevin Huerter, Grayson Allen, Anfernee Simons and Robert Williams) are consistent starters for their team. None have averaged 12 PPG for their NBA career.
If we’re going to make a draft pick outside of that top-four tier, we tend to value the higher-upside guys and view this as the point where we invest in the future. It’s really hard to get an immediate-impact role player in the late-teens; guys who we thought would fill that role the last two years in Tier 5 (Corey Kispert, Sharife Cooper, Obi Toppin) didn’t necessarily get there right away.
It’s also worth noting that high risk doesn’t always equate to high upside. For example, we believe Bryce McGowens has a higher upside in the NBA than Nikola Jovic. McGowens can be a primary creator and scorer, has the rare trait of size for his position at 6’7” and plays a role that clearly fits with the skills he brings. Jovic’s upside is more in the mold of a connector piece, but the risk for him is much greater. Jovic’s defensive shortcomings are so troublesome that, in the worst-case scenarios we can reasonably see, he is unplayable in this league.
A Few Other Names
We understand our board is different than most, and there are some mainstream guys getting first-round attention that didn’t get a first-round grade from us. We figured it would be worth showing where we’d place them on a risk continuum, and perhaps that helps reveal why they don’t have a first-round grade.