On the Incentive Structure of Tournaments: Evidence from the National Basketball Association’s Draft Lottery

Tournament theory analyzes labor market outcomes where rewards are distributed on the basis of relative rank. An important factor in these outcomes is the likely return to additional effort. Using National Basketball Association game event data across two seasons, we estimate each team’s game player portfolio and find that teams who were in contention to win the draft lottery reduce their portfolio’s return differential during the 2017–2018 season but not for the 2018–2019 season. We attribute the change to the reduction in the probability of obtaining a higher pick for the 2019 draft.