what i learned today

Allen Iverson – great basketball player, right? I think most people would say he’s one of the best players in the NBA. According to an economic algorithm, that may not be so.

In the book “The Wages of Wins,” economists use what they call Win Score to weigh the relative value of fouls, rebounds, turnovers, shots taken, etc, to determine a basketball player’s relative performance.

Evaluating a basketball player’s performance is a difficult endeavor given the relativity of the team environment. As Malcom Gladwell (you know, Blink and The Tipping Point) points out in his 2005 New Yorker article, Iverson’s prolificacy could mean “that he is a brilliant player. It could mean that he’s selfish and takes shots rather than passing the ball… maybe his success reflects the fact that everyone else on his team excels at getting rebounds and forcing the other team to turn over the ball.”

Either way, according to Win Score: (Points + Rebounds + Steals + ½Assists + ½Blocked Shots – Field Goal Attempts – Turnovers - ½Free Throw Attempts - ½Personal Fouls) / Minutes = Win Score per Minute

• during Iverson’s best season (04-05, relative to the 2005 publication) he was ranked 36th in the league.
• In his worst season (03-04), he was the 207th best player in the league.
• On average for his career by 05, Allen Iverson was ranked 116th. See his current win score stats here.

Gladwell comments “It’s hard not to wonder, after reading ‘The Wages of Wins,’ about the other instances in which we defer to the evaluations of experts. Boards of directors vote to pay CEOs tens of millions of dollars, ostensibly because they believe—on the basis of what they have learned over the years by watching other CEOs—that they are worth it. But so what?” 

Here’s a great link to Gladwell’s articles from the New Yorker since 1996.

Apparently, this comment by Google’s Sergey Brin admitting weakness in the social networking sector prompted Microsoft to send in its unsolicited bid for Yahoo: “I don’t think we have the killer best way to advertise and monetize social networks yet. Some of the things we were working on in Q4 didn’t pan out, and there were some disappointments there.”

Now there’s a lot of hype going on about Microsoft’s $44.6B bid for Yahoo. Word today is Google is reaching out to Yahoo to offer “help” in an effort to thwart the deal - Google could itself bid for Yahoo (though unlikely due to antitrust scrutiny), or could offer Yahoo guaranteed revenue in some sort of a pact.

Yahoo has not yet responded to Microsoft’s offer, but speculations are abound. What is overlooked in the discussion is the market capitalization (the total dollar value of the company’s outstanding shares, or basically, the company’s total value).

• After the announcement of the potential merger, Yahoo’s market cap rose from $26B to $39B.
• Microsoft’s market cap fell from $313B to $293B.
• Thus, the net change is $-7B. This is a signal from the market that the combined Microhoo! is worth less than the two independents.
• Plus, their combined market share (the company’s sales as a % of the total internet search industry sales) would be 32.7%, which still lags Google’s 58.4%.

So, though Google’s growth has slackened (it only saw 52% last quarter compared to its 60, 70, 80% previous norm), and its stock fell 30% from its Nov 6th, 2007 record of $741.79, I don’t think Google has too much to worry about. Other than the fact it’s stock price is overvalued (which I’ll get to after a few more Corporate Finance lectures).

Also, here’s a good editorial about it. 

Is it right for a team to get possession by the random outcome of a coin flip, then score – and win – without its opponent getting a chance to counter? Some economists from Colombia and Berkeley wrote an Economic Discussion of it last year. “Economic theory suggests natural solutions to this problem” the authors say, providing two suggestions (and dissecting each with crazy economic formulas like this one ∫xεXd min{∫(a(x)+α(s1,s2))dL(s1|x), ∫s1(b(x)+β(s1,s2))dL(s1|x)} dK(x).(1)):

1. The coaches of each team bid on the yard line from its own end line, with the low bidder winning and starting its offense at that bid.
2. One team chooses the starting yard line and the other team chooses whether it will take possession or cede & let their opponents (who chose the starting yard line) have possession.

In late 2003 the WSJ had an article that compiled some other OT proposals. They are the following:

• Move the Kickoff: Move the kickoff from the 40 instead of the 30. The result will usually be a touchback, which cuts the receiving team’s advantage roughly in half.
• Dueling Kickoffs: To begin overtimes, each team will kick off to each other on consecutive plays. The team that advances the ball furthest will have possession at the point on the field where the ball was advanced. Sudden death is preserved.
• Give Both Teams the Ball: Each team gets one possession in even order after the coin flip. If the team that wins the coin flip scores on its first possession, then the opposing team is given one possession to try to score themselves, and so on.
• NCAA Rules: Each team is given one possession from its opponent’s 25 year line. The team leading after both possessions is the winner. If the teams remain tied, a coin flip determines the possession order.
• Pick a Number: between 1 and 10. Closest team wins the game

Okay, that last one isn’t real. But the others are and seem like pretty good ideas.