Dollars Per Win ratio for the NBA 2017-2018 season

In the investment world, financial ratios are used to determine if you’re paying to much for business or stock. To name a few there’s the quick ratio, debt to equity ratio and price to earning ratio. When calculated, these ratios show a number that may fall within a set range depending on the industry and the company’s peers. Investors and owners then use these numbers as metrics to gauge the business’s worth and health. Lets use the same framework and apply it the NBA, we call this Dollars Per Win.

. Rosters are already set now that the free agency period is all but over. Some sports outlets are releasing their predicted wins for each team for the 2017-2018 season. Lets take a look at how many games each team is projected to win and the relationship to their salary. For this exercise, I will use the forward price-earnings ratio (P/E).

So what is the P/E ratio? The P/E ratio conveys how much an investor will pay for one dollar of earnings or profit. The forward P/E ratio is the same thing, but its looking at projected earnings instead of the current earnings. The lower the P/E ratio is, the more bang you’re getting for your buck. Now, you shouldn’t base major purchases solely on the P/E ratio. Reason why is that investors are willing to pay more for a stock or company that they believe is worth a premium. The phrase, you get what you pay for, comes to mind. This is the case due to the companies’ future profit potential. For example, the stock of a hyper growth technology company like Amazon will carry a higher forward P/E ratio. Compare this to the stock of a slower, mature, personal staples company like Clorox or Unilever, investors are less likely to entertain a premium.

The forward price-earnings ratio is calculated by dividing the price (P) of a stock/company by their projected (future) earnings (E). Since we’re talking about sports and not stocks or companies, we will use the below instead of P/E:

Price (P) = Dollars (D)
Future Earnings (E) = [Projected] Wins (W)

So our formula will look like D/W which will get give us our Dollars Per Win.

So now that I have explained the value of the dollar, lets put this into work in the sports arena.

2017-2018 Dollars Per Win Statistics

The Westgate Las Vegas Superbook has released their over-under win totals for each NBA team for the 2017-2018 NBA season. I went ahead and rounded up the wins and placed them in an easy reading chart for your convenience.  Remember, this is after the free agent signings and Kyrie Irving trade:

TeamWin Total
Bulls22
Hawks26
Kings 29
Suns29
Nets29
Knicks31
Pacers32
Magic34
Lakers34
Mavericks36
Grizzlies38
Pistons39
Pelicans40
Jazz 41
76ers43
Hornets43
Trail Blazers43
Clippers44
Heat44
Nuggets46
Bucks48
Wizards48
Timberwolves49
Raptors49
Thunder52
Cavaliers54
Spurs55
Rockets56
Celtics57
Warriors68

Next, we look at the current NBA salaries provided by HoopsHype. Note, salaries payable to players do not include the new 2 way contracts:

Teams2017-2018 starting salary
Bulls$65,091,728
Hawks$93,104,836
Kings$67,625,956
Suns$80,688,822
Nets$94,786,023
Knicks$106,654,573
Pacers$90,432,274
Magic$91,530,965
Lakers$100,899,665
Mavericks$69,770,677
Grizzlies$101,138,656
Pistons$107,962,683
Pelicans$116,358,991
Jazz$109,776,646
76ers$82,000,744
Hornets$110,752,494
Trail Blazers$122,998,425
Clippers$85,338,713
Heat$126,218,431
Nuggets$89,943,903
Bucks$122,994,581
Wizards$122,999,790
Timberwolves$87,169,302
Raptors$111,392,870
Thunder$122,581,260
Cavaliers$129,082,705
Spurs$110,455,039
Rockets$119,048,086
Celtics$107,791,325
Warriors$125,379,811

Going back to the beginning of this post, lets use what we know about the P/E or D/W ratio and calculate how much money team’s are spending for their projected win totals.  Below are dollar amounts from least to greatest:

TeamsDollars Per Win Ratio (D/W)
Timberwolves$1,778,965.35
Warriors$1,843,820.75
Celtics$1,891,075.88
76ers$1,906,994.05
Mavericks$1,938,074.36
Clippers
$1,939,516.20
Nuggets
$1,955,302.24
Spurs
$2,008,273.44
Rockets
$2,125,858.68
Raptors
$2,273,323.88
Kings
$2,331,929.52
Thunder
$2,357,331.92
Cavaliers
$2,390,420.46
Bucks
$2,562,387.10
Wizards
$2,562,495.63
Hornets
$2,575,639.40
Grizzlies
$2,661,543.58
Jazz
$2,677,479.17
Magic
$2,692,087.21
Pistons
$2,768,273.92
Suns
$2,782,373.17
Pacers
$2,826,008.56
Trail Blazers
$2,860,428.49
Heat
$2,868,600.70
Pelicans
$2,908,974.78
Bulls
$2,958,714.91
Lakers
$2,967,637.21
Nets
$3,268,483.55
Knicks
$3,440,470.10
Hawks
$3,580,955.23

Several ways to interpret this data

 

First thing that sticks out are the teams that arent’ managing their player’s salary in relation to their projected wins.  We see the worst three teams in this category to be the Hawks, Knicks, and Nets that will be paying $3,580,955.23, $3,440,470.10 and $3,268,483.55 respectively for each win they are predicted to have this season.  With each of these three games predicted to win less than 31 games each, the teams are overpaying for wins compared to the league average of $2,523,447.98.

Next, lets look at the top teams with that are paying the least for wins.  We have the Timberwolves, Warriors and Celtics coming in at $1,778,965.35, $1,843,820.75 and $1,891,075.88 respectively.  The Timberwolves are very interested case to look at because none of their players are making more than $20 million this year.  Which means the front office is going to be receiving tons of value from their players in terms of wins if the projections are true Additionally, the Warriors ranks second best which is also great, as they are just coming off a championship, yet are still not overpaying their players. The Celtics are a team thats on the rise also the last few years and comes in third behind the Warriors.  Additionally these three teams will all be paying less than the average of $2,523,447.98.

Conclusion – What the Dollars Per Win tell us

If you were an investor looking to add a team to your portfolio or just want to figure out your favorite team’s history on player contracts, the above data would give you an insight on the finances in relationship with the team’s performance. Different financial ratios can be used to measure the efficiencies  and health of a company. By using these ratios, we can gauge a front office’s decisions. A common theme between the top three teams with the lowest D/W emerges. Their players are young and their contracts are inexpensive.  As a result, the teams all have great value which is key to running a successful business.

 

Spread the love

2 thoughts on “Dollars Per Win ratio for the NBA 2017-2018 season”

Leave a Reply

Your email address will not be published. Required fields are marked *