Managing the salary cap has become one of the most critical tasks for NFL front offices. If anyone needed a reminder, the days leading up to 2013 free agency served that purpose. NFL teams released players and renegotiated contracts so they could be in compliance with the cap and continue to do so even now in order to provide wiggle room for new acquisitions.
This left DRAFTMETRICS to wonder how much of a role economics plays in the NFL draft. Is there a strategy that reduces player acquisition costs without affecting the level of talent added to the roster through the draft? Such a strategy would free up more money for use on established veteran players and alleviate salary cap pressures. To explore this question, DRAFTMETRICS used (with permission) contract information from the very informative and highly recommended website www.overthecap.com as well as its own data on probabilities of player success.
It was necessary to create a vacuum of sorts in order to perform this analysis. Otherwise the number of variables would cloud the results. DRAFTMETRICS employed several simplifying conditions in order to create that vacuum. These included:
• Compensation picks were ignored, reducing the draft to seven rounds with 32 selections each
• Trades and penalties were ignored, resulting in the team with the first draft choice also having the 33rd, 65th, 97th, 129th, 161st and 193rd selections
• It was assumed that all players received the full value of the contracts they signed
– DRAFTMETRICS acknowledges that this is not realistic as many players are cut and do not receive the full value of the contract
– Most first round contracts, though, are now fully guaranteed
– This assumption simplifies the analysis with minimal impact on results
There is a considerable difference in the cost of the draft for a team at the top of the draft order as compared to a team at the bottom of the order, with the first round selection accounting for about 85% of the difference. The differences between the first and 32nd picks (with dollars in thousands) are shown in this table:
The question becomes whether the owner of the first pick is receiving good value for the extra $11.2 million in bonus money being spent in the first round. If not, it amounts to the equivalent of a regressive tax on the worst teams.The next table summarizes projected 2013 draft spending by draft position (using the simplifying
conditions presented above). Draft spending is split between the first round and the rest of the draft. All dollars shown are in thousands.
In the DRAFTMETRICS article titled “Digging Deeper into Draft Probabilities”, it was established that each of the first 13 picks of the draft have about the same rate of success. The same similarity of results was established for selections 14 through 40 (the next Value Group).
This makes the economic strategy in the first round rather simple. Picking 13th is better than picking in any of the first 12 slots because the same result(based on history) can be obtained at a cheaper cost. Comparing the cost of the first pick with the 13th, there are differences of $2.2 million in the 2013 salary cap hit, $8.8 million in bonus money and $12 million in total contract value. These differences shrink with each successive selection (e.g., second pick vs. 13th, etc.).
This same situation exists with the 14th and the 32nd pick, with the 2013 cap hit having a difference of over $500 thousand. Again, why pay more to get the same result? The best first round economic strategy, then, is to move from the top of a Value Group to the bottom of that same Value Group. There are always exceptions of course. DRAFTMETRICS is quite sure that the Colts and Redskins were happy to pay the price for Andrew Luck and Robert Griffin. If a player is truly an impact player, they are worth the extra dollars.
The question of moving from one Value Group to anotherin the first round ismore complex, and largely depends on the consideration received or surrendered to make the move. What is the impact of moving between the (1) first pick to the 32nd pick or (2) the 13th pick to the 32nd pick? This table summarizes the comparison:
The answer to the question depends on the value a team places on a successful player. It seems to DRAFTMETRICS, though, that it is awfully expensive to move up to the next Value Group. This seems certainly true when moving from 32 to one and probably true to move from 32 to 13. And this analysis
does not even consider the premium paid to move up. So part two of the strategy is that is better to move down, not up,when going from one Value Group to anotherin the first round.
The best economic strategy beyond the first round is not so obvious.One thing that immediately stands out is that, as the size of contracts shrink,there is not that wide of a range in cost between the first and 32nd draft positions. The cumulative difference in impact for all draft selections after the first round is $600 thousand as measured by the 2013 cap hit, chump change in the context of the total amount being spent on player contracts, and less than $3 million in contract value. Since the additional compensation cost to move up is not prohibitive, it makes sense to do so whenever a reasonably priced opportunity presents itself. The team improves its probability of success at a relatively low cost. The economic strategy here is, in direct contrast to the first round, to move up to a higher Value Group whenever you can.
The following table compares, in the aggregate, what was paid versus what was received for each drafting position after the first round. The data for “What They Got” came from the DRAFTMETRICS article “Digging Deeper into the Draft”. All dollars are in thousands.