i am famously a writer about finance, and also the nba
i should have written a better headline but i've gotta go walk the dogs now
In 1983, the bond-trading firm Pimco figured out a way to print money. The whole thing was extremely complicated in its details but dumb-stupid in principle, so I’m going to stick to the big picture.
Basically, Pimco discovered that if it spent a shitload of money, it could do a thing that allowed it to buy high-value bonds for the price of similar-looking but decidedly lower-value bonds. And these bonds were especially fantastic because they came with a built-in hedge against unfavorable market conditions. They were able to do it exactly once, and it involved armed guards and rival traders waving white handkerchiefs in defeat and also $70 million in profits.
The trade was ice-cold, absolutely did not improve society in any way, and more than probably ruined a bunch of people’s lives. But also, it was the equivalent of picking up $50,000 that happened to be on a table in an empty bar charging a $30,000 cover. So why not give it a shot, they figured.
This is the fourth time I’ve attempted to type this information. The first time was way too long and jargon-y, the second iteration spent way too much time explaining unnecessary details about mortgage-backed securities, and the third time was relatively short but too vague to be even remotely helpful.
Finance is confusing, and I’ve been making a concerted effort to learn more about it, is what I’m saying. I get the sense that I’m not the only person in this boat. The vast majority of last year’s biggest news stories were economics-related: The rolling collapse of the crypto industry’s biggest players, inflation and the recession, shortages in baby formula and microchips and cars, Europe’s energy crisis, rising gas prices, and that’s not to mention the war in Ukraine, whose onset triggered plenty of this stuff. Hell, we can even count “The British Royals being in the news” as a finance story because the UK has to print a bunch of new money with Charles’s face on it now. That story I told at the top is from Mary Childs’s excellent book The Bond King, a long-lens look at Pimco and its co-founder Bill Gross. (Now that I’ve read like three books on finance I’m officially a Brain Geneous about it.)
The mechanisms through which people cleverly maneuver within the financial system to make money can be genuinely novel and impressive in a “wow, what a neat trick!” way, yet it’s all kind of samey in the end. To quote The Bard, “You lose some and win some, as long as the outcome is income.” Bill Gross, who managed Pimco’s flagship Total Return Fund and spearheaded the fancy money-printer move, won over and over again, for decades, until he didn’t. Sam Bankman-Fried compressed this cycle into, like, five years.
Another book I recently read was Yaron Weitzman’s Tanking to the Top: The Philadelphia 76ers and the Most Audacious Process in the History of Professional Sports. As a relatively green Philly resident and newly minted Sixers fan (I just posted my first “fire Doc Rivers” Tweet! Also, I got my Twitter back!!), I devoured the thing in like two days.
About a year and a half ago, when we were visiting Philly to test the city out, I asked a friend who lives here to explain the whole “Trust The Process” thing, because it’s a phrase that’s so embedded in American culture (and by this, I mean that I’ve heard it in a bunch of rap songs). “Um, so a few years ago the Sixers had this GM who was convinced he could make the team so bad that they’d eventually be good, and then we got Joel Embiid,” she said. “But he did it in a kind of complicated way.”
Yaron’s book tells the story of the kind of complicated way that the GM, Sam Hinkie, broke new ground in the field of intentionally making an NBA team suck ass in order to eventually become really good. His central insight was head-smackingly obvious: that if you wanted to win a championship, you need superstars, and that since true superstars were so valuable to their teams that their teams would never let them go (this was pre-Lebron shuffling around the league), it was easier and cheaper to draft really good college and/or overseas players and build your team around one of them. But because some lottery picks don’t work out and some random low-first-round or even second-round draft picks end up being pretty fantastic, the more draft picks that a team had, the more likely it was that they’d end up with some really really great players. Again: Not exactly rocket science.
Yet most teams still tried to be good, but the best they could generally hope for was to make the first round of the playoffs only to get demolished by LeBron or Dirk Nowitski or whoever. Hinkie was basically like “fuck that lol let’s be like a pre-revenue startup for a few years and go from zero (championships since 1983) to one (championships since 1983).”
Hinkie had a dream, and that dream was to jam a decade’s worth of 76ers’ drafts into like four years. So he immediately traded away all the 76ers’ even remotely okay players for whatever draft picks he could net, stocked the team with rookies and randos, hired a neophyte coach with an Australian-Boston accent, and spent two seasons trading anyone who showed flashes of promise away for more picks. All of this had the pleasant (for him) effect of ensuring that the Sixers would lose enough games to earn them a really high chance at earning the number one pick through the draft lottery. His second season, he dumped his leading scorer and used his two lottery picks on, as Weitzman puts it, “an injured player at No. 3 and then turn[ed] the No. 10 selection into a player under contract in another country.” That the injured player turned out to be Joel Embiid, who after sitting out for two seasons immediately became the team’s best player and has been so ever since, has definitely bolstered the case for Hinkie’s strategy in retrospect (Joel’s self-appointed nickname is “The Process”), but it didn’t do much for his popularity at the time.
As you can imagine and/or remember, lots of people were really mad about this, including the NBA, which ended up changing its lottery odds to disincentivize what league commissioner Adam Silver referred to as the “race to the bottom” that Hinkie started. However, the irony inherent to rooting for a team whose GM’s entire strategy was just “eat a fucking shitload of shit” was in no way lost on the hipsters of Philly, however, and a substantial pro-Hinkie fandom generated on the internet. Their legacy lives on to this day: Say the name “Doc Rivers” in harsh tones at a party, and dudes in skinny jeans will start drifting away from their partners and form a prayer circle trying will a full-time three-guard lineup into existence.
There are a ton of amazing bits in Tanking to the Top, from the saga of Markelle Fultz mysteriously forgetting how to shoot a basketball (and also having a super-controlling mother) to an anecdote about Meek Mill being released from prison and immediately helicoptering to the Wells Fargo Center, where he showered in the Sixers’ locker room and then rang a big fake Liberty Bell before a playoff game. But the bit that says the quiet part loud, is a quote he gets from an unnamed owner of another team: “It was really the first ownership group to apply the private equity model to running an NBA team.”
The Process began in 2013, when the Sixers were purchased by Josh Harris and David Blitzer, Wharton graduates who’d made their fortunes at the private equity firms Apollo and Blackstone, respectively. Harris, in particular, was a whiz at leveraged buyouts — i.e., taking a loan against a company, buying it, and then stripping it for parts so it can become profitable even with all the debt you just saddled it with. They liked Hinkie in part because he had a background in private equity himself (he’d worked at Bain Capital straight out of college) and because, in his previous job at the Houston Rockets, he was the guy who helped Daryl Morey make so many spreadsheets that he famously became convinced that Shane Battier was the player the team needed to win an NBA championship. In other words, both the Sixers’ owners and Hinkie thought that if you did shit that other people didn’t do because it seemed like a bad idea, but did it strategically and with hilarious intensity, you would hit paydirt.
The fun thing about The Process, though, is that it mostly worked. Two of those bajillion draft picks ended up being Joel Embiid and Ben Simmons, who legitimately looked like the new Shaq and Kobe there for a second, and the pairing helped them land Jimmy Butler and J.J. Reddick and Tobias Harris, five players who on paper should have been enough to win them a championship.
The problem, ironically enough, was with the stuff that can’t be converted into a number on a spreadsheet. Embiid didn’t take his conditioning particularly seriously, especially when it came to recovering from injuries. Simmons, the number one overall pick in the 2016 draft, possessed the exact sort of wrong type of will to power for an NBA player to have. Unlike Allen Iverson, with his maniacal devotion to winning — the good type of will to power in this context, and the type that repudiates the statistical thinking underpinning Hinkie’s ideas — Simmons had a tendency to make weird and bad decisions at important moments, folded against better teams, and was convinced of his own greatness in a way that annoyed everybody else, especially Embiid.
If I wasn’t in “stuff people already knew about” territory before, I’m definitely in “stuff people already knew about” territory now, because fast-forward a couple years and we’re up to the part where Simmons refused to play because Embiid had said a snarky thing about him. But even Simmons’ one-man strike mostly worked out, because Daryl Morey (the former Rockets GM, now the Sixers’ GM) managed to convince the Brooklyn Nets that one Ben Simmons (plus some other guys) equaled one James Harden (plus some other guys) and now the Sixers look like they can maybe win it all this year, I guess?
The whole thing I’ve been building up to by juxtaposing these two books, though, is that while chasing profits in a way that is devoid of productive growth (i.e., creating more high-quality jobs with healthcare and unions and stuff, selling high-quality things that have actual use) has had an overall net negative effect on society — just look at the newspaper industry! — it also doesn’t really work in the field of finance. People like Bill Gross or even Josh Harris in his capacity as an Apollo guy really only make moves that generate elite capture of America’s GDP, along with human misery for others and personal satisfaction for themselves. When everyone relies on extractive business strategies, you sort of end up with an economy based on finding new resources (human, environmental, informational, financial, and more) and then sucking them dry. This is to say nothing of the fact that everyone looks like a genius in a bull market, and all it takes is a non-genius making one lucky bet in a bear market to suddenly become a genius again. And as Elon Twitter has shown, doing rapacious pirate shit to get a thing and then running it into the ground because you’re like “oh no we’re about to go bankrupt because of the thing I did!” is a really great way to piss people off.
To be sure, Sam Hinkie screwed a bunch of people over too. He underpaid players, uprooted them on a whim via trades, and was generally indifferent to anyone’s feelings other than his bosses. The process of The Process was also some rapacious pirate shit, though it was a much more controlled burn. All this stuff — over-reliance upon statistics, tanking, viewing draft picks as bets rather than good-faith commitments to invest in a person’s career — is all part of the game. And Hinkie’s methods, though mirroring those of private equity firms, came with the promise that he’d eventually stop once the team was finally good.
The results of The Process, meanwhile, have been real, and shared: People here really love this team, and they talk about The Process itself as if it were this crucible that ended with them unifying behind Joel Embiid. Jeez the end of this thing got kinda corny, so uhhhh when the revolution happens we should make all the finance people work at sports teams I guess BUT ALSO THEY HAVE TO BE NICER THAN HINKIE WAS, the end.