As the NBA trade deadline is heating up, I’ve been looking into how different teams, especially our own 76ers, make those big trade decisions. I just finished a piece where I zoom into Daryl Morey’s brain a bit, particularly his use of the Sharpe Ratio in trades.
I talk about why GMs like Morey are leaning into tools like the Sharpe Ratio to cut through the trade chaos. It’s like using investment strategies for basketball trades – balancing risks and rewards to hopefully come out on top.
**Zooming in on a Trade:** Essentially, Sharpe Ratios help teams weigh up the risks, like how variable a player’s performance might be, against the potential rewards, such as the boost the trade could give to the team’s chances of winning a championship. In my specific example, I looked at how the De’Anthony Melton trade stacked up against the other major trades from the 2022 off-season:
https://preview.redd.it/7kn7q0n8cx7c1.png?width=1624&format=png&auto=webp&s=9ee0373c3a0d9988f65247e3442f008dd4c70c9c
**Your Thoughts?** I’m really curious about what you guys think. Is this financial approach the future for NBA trades? How do you feel about our team using these kinds of strategies?
Check out all my thoughts in the [full article here](https://medium.com/@JourneytoaGM/evaluating-nba-trades-an-objective-approach-e6c6ce3c9773)
by Designer_Ad4086
3 Comments
I think it’s certainly a way you can quantify risk vs reward. Teams have pretty large analytics departments these days, so it’s likely they have their own systems for crunching numbers like these.
I loved hearing Daryl on the Ricky talking about how he comes across lots of people who think trades happen like Brad Pitt just rolling into an office in Moneyball and throwing names out there, but in reality it’s months of talking and cross-referencing numbers with eachother til each team finds the balance they’re after. Whoever (and if) we are trading for, he is probably already deep into those negotiations already.
It’s a good framework but in order to evaluate trades you would need to know the axes here, how much an asset increases your title odds and how much variation that asset has. That’s the trickier part.
I see that your championship odds is actually tied back to Vegas odds, which I think is a solid method, it’ll only be really problematic if many moves happen in a short period of time. For example, this summer the Celtics traded for Jrue Holiday in a move that most likely increased their title odds. It was directly after the Bucks traded for Dame though, which hurt the Celtics title odds. So if you just looked at the week before and after you might think that the Holiday trade was a negative one when it’s really not.
All that said, I can’t really think of a better method without dedicating a lot of time to it, so I think it works, kudos
I had no idea sharpe ratios had made their way into sports. Wonder what the risk free rate is.