An Economics Approach to New York, Chicago, and 2010 NBA Free Agency

Brian ChappattaCorrespondent IIJune 4, 2010

ARLINGTON, TX - FEBRUARY 14:  LeBron James #23 and Dwyane Wade #3 of the Eastern Conference celebrate their 141-139 victory over the Western Conference during the NBA All-Star Game, part of 2010 NBA All-Star Weekend at Cowboys Stadium on February 14, 2010 in Arlington, Texas. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement.  (Photo by Ronald Martinez/Getty Images)
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In business it's called collusion. And it's illegal.

For NBA free agents, however, it's doing what it takes to win a championship. And it's 100 percent legal.

Sure, the so-called "free agent summit" featuring LeBron James, Dwyane Wade, Chris Bosh and others is not likely to happen. But if it did, which teams would ultimately win and lose from such a meeting?

Winner: New York. Loser: Chicago.

Who would have ever thought economic game theory could be applied to sports? Well it can be in this case. The determining factor in game theory is cooperation; whether other players know the payoff influence the decisions they respectively make.

Stick with me, because this will help explain the consequences of the free agent class working together to maximize their overall benefit.

Suppose James and Wade have no idea where the other is going to sign. Then they are each going to go to the place they think they'll have the best chance at winning a championship.

No disrespect to other franchises, but the Bulls are the best equipped to win right now with the addition of a superstar.

So in that case, the Bulls can take their pick of James and Wade. The basketball gods will have shown favor to the Windy City that hasn't been seen since Michael Jordan fell to the No. 3 pick in 1984.

Now suppose James and Wade cooperate beforehand, and jointly decide where they should play. Armed with the knowledge that they will form a dynamic duo, the supporting cast suddenly means much less and the other factors are heightened in importance.

Like rejuvenating basketball in the Big Apple.

Even with a slight cut in pay, any two free agents would be crazy not to team up and try to turn around the Knicks. ESPN would cover the team like crazy. Endorsers would line up, willing to pay whatever it takes to be a sponsor of the team. It would be a media circus, with James, Wade, or whoever as the ringleader.

New York has to be thrilled that the players are talking. The Knicks have arguably the weakest supporting cast to offer any potential free agent. The only attractive aspect about the franchise is that it can sign two free agents to max contracts.

Thus the Knicks need two players to get on board at nearly the same time.

There are four possible scenarios in my hypothetical game, which I will list below. A "one" means it's a good move for the player, a "0" means it's not.

James to Bulls, Wade to Bulls: James 0, Wade 0

James to Knicks, Wade to Bulls: James 0, Wade 1

James to Bulls, Wade to Knicks: James 1, Wade 0

James to Knicks, Wade to Knicks: James 0.75. Wade 0.75

In this case, it's obvious that the best combined value is for both to go to the Knicks, since the sum of the two values is 1.5, which exceeds any other strategy.

But look closer and you'll see the incentives without cooperation are for each to choose the Bulls.

If James chooses the Knicks, Wade gets 0.25 more from going to the Bulls.

If Wade chooses the Knicks, James gets 0.25 more from going to the Bulls.

If either choose the Bulls, the other gets 0.

So without cooperation, each player would choose the Bulls, since they have a strong young nucleus of Derrick Rose, Joakim Noah, and Luol Deng. But if they reveal their preferences to each other beforehand, they might be willing to take a cut in pay or sacrifice being the face of a franchise to win in New York.

The numbers are all hypothetical, of course, but the logic is solid. New York is relying on its ability to sign two superstars this offseason since they can't compete with other teams' talent.

The question is whether collusion will end up benefiting New York once again.