As of the 2025/26 season, the National Basketball Association (NBA) has 30 teams. The teams each play 82 games in a league play format, with the top 16 teams qualifying for the NBA play-offs where they compete for the NBA championship. Under this system, there is no relegation, unlike, say, the Premier League where the bottom three teams fall to a lower division. This is also true of the other major American leagues such as their National (American) Football League, Major League Baseball and the National (Ice) Hockey League.
What is of particular interest is how these leagues handle the worst teams in their respective leagues. In the NBA, the worst teams in the league have the highest odds of high picks in the annual NBA Draft. The Draft is where the best new players every year get picked — whether from university, from a foreign country, or even from a developmental league — to play for NBA teams. The very best NBA players in history all came through the NBA Draft. And so, to get the highest chance to draft, say, a Lebron James, a team must have, to put it squarely, sucked in the previous season. Thus, this is the NBA’s way of ensuring that the worst teams get the talent boost they need to field a more competitive team.
For some of you, alarm bells must already be ringing. “What?! The worst teams get the best new players?! That just incentivises teams that have no chance of winning the championship to bottom out and just get the best player year after year.” Well, apart from the fact that a truly transformative player can reverse the fortunes of a given team and therefore make it exceedingly unlikely that that team will be among the worst year after year, the incentivisation concern is true. This is a phenomenon in the NBA called “tanking” where teams who have no chance of being a championship contender would much rather lose their games to end up close to the bottom where they get the better odds of winning the Draft lottery.
Tanking is not a new phenomenon. The NBA constantly adjusts rules to prevent teams from gaming redistribution. In fact, the NBA only introduced the lottery system in 1985. Prior to that, the first pick was determined by a coin flip between the worst teams in the Eastern and Western Conference. In 1979, the Los Angeles Lakers won the coin flip against the Chicago Bulls, drafting Magic Johnson. The Bulls drafted David Greenwood (Who? Precisely). Given that teams knew being the worst team in their conference would get them a 50/50 chance at the top pick, teams deliberately lost games to try and get the worst record. Imagine being a fan of those teams.
So, the NBA tried to fix this by introducing the lottery system where teams would have different odds of getting the top pick to remove the “guarantee” for the worst team. Nevertheless, tanking persists until today in large part because NBA teams believe that it is far better for their future to rebuild from scratch by being terrible for a year or two than it is to just be solid but mediocre year after year. The Philadelphia 76ers were the worst propagator of this mindset, tanking for multiple years in a row to build a team in a strategy called “The Process”.
Anyway, the Draft is not the only way that the NBA becomes egalitarian. Unlike (real) football, the NBA also has a salary cap which sets the maximum any team can spend on paying for players. The die-hard free market folks might rage, “What?! Not only does the NBA reward terrible teams, they also set a cap on how much talent a team can bring in?! Preposterous!” Well, one reality the NBA faces is that not all 30 teams have identical profiles. Some are in much larger commercial markets like New York City and Los Angeles while others are in cities like Oklahoma City, Indianapolis and Salt Lake City. Without a salary cap, the larger cities would be able to dominate financially, paying all the best players and still be sustainable financially.
Thus, when we take a step back, and I am perhaps stating the obvious a bit here, the key philosophy behind the salary cap and the positioning of teams in the NBA Draft is to maintain a competitive playing field. More than anything, what the NBA and its fans, in fairness, care about is the spirit of competition (at least within the cartel that is the NBA, ironically). In fact, NBA superstars Lebron James and Kevin Durant received tidal waves of criticism for joining already stacked NBA teams, thereby diluting the sacrosanct nature of competition. Thus, while the more free market proponents reading this may say this is somewhat “egalitarian” at best, “socialist” at worst, what the NBA is actively trying to do is redistribute opportunities, not outcomes.
Why does this matter? Well, one promise of “free markets” is that, in a really glass half full perspective, the very best firms win and the very worst firms lose and thus, consumer welfare is guaranteed and the economy prospers. In reality, “unfair” competition happens all the time and, unlike the Economics 101 textbook conception of perfect competition, firms would kill to be monopolists, or at least oligopolists, and so they engineer the rules and the powers that be to preserve their market power. Left unchecked, it becomes entirely possible that their market power grows and grows, to the exclusion of new challengers.
But the idea that the key principle of “free markets” is the word “free” drives a lot of rather sloppy thinking. For instance, this whole private sector versus state-owned enterprises thing. When it comes to having a thriving market economy, what we should worry about are things like anti-competitive behaviours (say cartels), rent-seeking, corruption and lobbying (which, if you really think about it, is a form of legalised corruption), all of which can happen in private-owned and state-owned companies. Just as much as the public firms may behave anti-competitively, so too may private firms.
To be clear, this is also not an apologist argument for state intervention in the economy. We need the “right” type of intervention, where “right” as I define it is competition promoting. For instance, where Malaysia’s historical industrial policy fell short was, in part, due to a lack of export discipline (which requires competing in regional and global markets) and also backing the fortunes of a single company as opposed to an industry, which countries like South Korea and Japan practised. Any industrial policy that does not set its beneficiaries up for competition, at some point, is doomed to fail.
When we try to be less ideological, we should be able to see that markets are simply a tool to organise an economy, and among the things we care about a given economy, besides the obvious things like consumer welfare, sustainability and so on, is healthy competition. Markets matter because they can perpetuate competition but if left unchecked, they can also do the opposite. The goal is not equality for all; I believe in having poor performers exit as much as anyone else. Rather, the goal is competitive intensity. As such, what we should focus on is not policy that is interventionist or otherwise, for the sake of it, but rather policy that engineers fair, competitive arenas for firms to succeed or fail.