Read This, Be Smarter: Winner's Curse

[pbmax]

A brief explanation as to how winning an auction in Free Agency might mean you have successfully overestimated the value of the player.

http://www.advancednflstats.com/2010/04/why-free-agent-signings-turn-out-so.html

Dungy covered the other side of this after the game with Costas while talking about the Eagles struggles on defense. And this is the same topic Thompson covers when asked. That the free agent (Asomugha was the topic), despite a veteran's grasp of the nuances of the League, will still struggle to fit into your schemes and personnel compared to a lesser regarded, but homegrown player.

This article also covers why a specific player (say a pass rushing, fast OLB) that seems to be a perfect match for a team (3-4 D) still gets overrated by the winning bidder, unless the synergy (the article's word for the match) is tremendously high. But those kinds of matches are limited by the nature of an auction and the limited supply of prospects.

And in an almost word for word explanation of what many suspect about Thompson's bids, the author covers why a successful bidder will actually shave their bid and the worst performers will plow on with their original value.

[sharpe1027]

I think that the premise is generally sound, but there are too many factors to make it as clear cut as the article suggest. One main assumption is that one team paying $X has the same detrimental affect as another team paying $X. It would seem to assume that the dominating factor is profit a team makes. The analysis does not compare the alternative to not spending the money on the player for each team. Put another way, their respective opportunity costs might not be the same.

For example, depending on how the contracts are structured, teams spending the same amount of money might have very different cause-and-effects. A first team might lose several veterans to free agency because of the salary cap, while a second team might not lose anyone. Unless there was some other player that they lose out on because they ran out of money/cap space, then the risk is not necessarily that great. If the player brought in is still better than what they would have had without him (even if he is not necessarily "worth" the salary being paid), the team can still be better off even if they "overpaid."

[Guiness]

Interesting, if a little shallow.

It implies that all FA signing are inherently bad. The second comment to the story, about it being in the best interest of both teams and players to renegotiate contracts of good players is pertinent.

I'd like to know how a guy like CWood applies to all of this, but Al Davis was involved, so who the hell knows, right?

[pbmax]

I don't think its saying they are all bad, but that they are expensive to begin with. And I think that agrees with the Woodson experience, no matter how well he has played, he was not cheap at the time. Though I think all would agree he has been worth the overpayment.

As for opportunity costs, I don't think you need to know this to know that the costs are higher to operate in FA. You might need to know that to evaluate how your own personnel team fared, but the question is more about the market than the team.

It simply gives a structure to understand why free agency seems like an expensive option. Dungy's (or Thompson's) analysis is better at telling you why it might fail.

[sharpe1027]

As for opportunity costs, I don't think you need to know this to know that the costs are higher to operate in FA. You might need to know that to evaluate how your own personnel team fared, but the question is more about the market than the team.


I'm not sure I explained myself very well. I wasn't commenting on whether or not it was a "higher" cost than something else. If team A would obtain an overall benefit from a player as long as they paid no more than $10 million and they pay $7 million, does it really matter that it would have been cheaper not to sign the player?

Also, "higher" is a relative term that doesn't necessarily tell the whole story. Even if you assume that a player resigned while under contract cost less salary, there are other factors involved. One of the ones mentioned in the article is the risk a team takes by lengthening the contract early. If the player gets hurt before the original contract would have expired, that is a net loss for the team and gain for the player when compared to not extending early. Thus, a player will take less to protect themselves from injury because in a contract year an injury is a huge risk to the player.

I agree that the analysis of the article is partly correct, I just think it leaves out important variables that can tip the scales toward free agency in some instances.

[sharpe1027]

Also, the discussion of bid shaving leaves a little to be desired. This is not a one-bid auction, where each team generally puts their highest price right away. IMO, nearly every single team bid shaves on nearly every single free agent. I mean, I seriously doubt that players routinely get the absolute highest price that a team will pay in every instance. If they do, then there are some really crappy negotiators for teams.

[Upnorth]

game theory in auction settings might help to explain this. There are two large distortion factors in play.
The first is supply and demand, here 32 teams are demanding the talent of a small pool of 'talented' players.
The second is perceived value. In auction settings perceived value has large distortion effects. This is how some players are 'overdrafted', say Jamarcus Russel, and others under drafted, say Tom Brady. There true value does not change, but their perceived value does. The same is true of free agency. The perceived value of free agents can be overstated, say Haynesworth, or understated, say Woodson.
AS an aside, many good free agents can be had on the cheap for the same reason, we just don't hear about them as much due to media supply distortions based of the free agents prices. Big tickets get bigger headlines!

Wow, I finally used economics for good!

[pbmax]

I'm not sure I explained myself very well. I wasn't commenting on whether or not it was a "higher" cost than something else. If team A would obtain an overall benefit from a player as long as they paid no more than $10 million and they pay $7 million, does it really matter that it would have been cheaper not to sign the player?

I don't think they are considering the alternative (not signing the player) in these scenarios. While valuing a Free Agent at $10 million and signing them for $7 million seems like real savings, that is only if you consider bidding against yourself. The value in question should be what others would have paid, or do pay for similar talent.

If you think you saved $3 million, but other teams would have paid only $6.3 for similar players, then that $700,000 is real value lost that could be used in acquiring or keeping other talent. The $3 million difference only matters only in evaluating your own calculations on the market. It is always in the interest of the team to pay the least amount possible, even if a position or area of the team is arguably "worth" more of your cap and cash than another.

[denverYooper]

At the height of an auction, when the money has become no more than a way of keeping score, a thing happens which I am reluctant to admit: one becomes detached from the earth.

There is a loss of gravity, a reduction in weight, a floating in the capsule of the struggle. The ultimate goal crosses a delirious frontier. Its achievement and our survival become -- yes! -- fictions.

And fictions, I have come close to suggesting before, are dangerous.

In fiction's grip, we may mortgage our homes, sell our children, to have whatever it is we crave. Alternatively, in that miasmal ocean, we may simply float away from our desires, to see them anew, from a distance, so that they seem weightless, trivial. We let them go. Like men dying in a blizzard, we lie down in the snow to rest.

"At the Auction of the Ruby Slippers", Salman Rushdie

[pbmax]

As for blind auction versus negotiation, I think in most cases the initial offer is shopped around. That means an initial offer is very similar to a blind bid. Because of you hit the number suggested, its likely the play stays in town and signs. If you shave your bid (or in this case, as perhaps Thompson might do) then you risk it being shopped. If that happens, there is a dynamic at play that is also similar to a blind bid. You can either top the previous bid (or match the agents proposal) or not have the player. Any other offer risks losing the asset. So while the exact nature of the determination of the final offer is different than blind bids, I am not sure its that much different for each team.

[sharpe1027]

I don't think they are considering the alternative (not signing the player) in these scenarios. While valuing a Free Agent at $10 million and signing them for $7 million seems like real savings, that is only if you consider bidding against yourself. The value in question should be what others would have paid, or do pay for similar talent.

If you think you saved $3 million, but other teams would have paid only $6.3 for similar players, then that $700,000 is real value lost that could be used in acquiring or keeping other talent. The $3 million difference only matters only in evaluating your own calculations on the market. It is always in the interest of the team to pay the least amount possible, even if a position or area of the team is arguably "worth" more of your cap and cash than another.

First, that assumes that teams have no knowledge of other teams bids and that they only bid once. While there is always the risk that a player might not give you a second chance to bid higher, it is not in their best interest to do so. So, for a theoretical model, it makes more sense to assume that all teams will shave their bids unless other teams force them to their respective limit.

Second, the "true value" of the article was not the same as what you mention above. It was not simply the difference between the top bid and the second highest bid. If you concern is not over-bidding relative to other bidders, then you would wait for the other teams to bid first and/or adjust your bid as necessary.

I am not convinced that most teams end up bidding their absolute maximum number all that often. Thus, I believe all teams bid shave.

[pbmax]

First, that assumes that teams have no knowledge of other teams bids and that they only bid once. While there is always the risk that a player might not give you a second chance to bid higher, it is not in their best interest to do so. So, for a theoretical model, it makes more sense to assume that all teams will shave their bids unless other teams force them to their respective limit.

Second, the "true value" of the article was not the same as what you mention above. It was not simply the difference between the top bid and the second highest bid. If you concern is not over-bidding relative to other bidders, then you would wait for the other teams to bid first and/or adjust your bid as necessary.

I am not convinced that most teams end up bidding their absolute maximum number all that often. Thus, I believe all teams bid shave.

The 6.3 mil was not supposed to represent the next best contract, but the average cost of a similar player around the league during the course of the contract, which is what I believe the article is comparing the FA signing to. While I think the factors you mention are real and do perhaps work to lower bids, I think the agents and players have an interest in making only certain information available about other bids. Certain info would likely not help max an offer.

And I think there is pressure to keep a player in town and get the signing done, to avoid bid shopping. And that pressure works to keep bids close to the agent's suggested price.

[sharpe1027]

The 6.3 mil was not supposed to represent the next best contract, but the average cost of a similar player around the league during the course of the contract, which is what I believe the article is comparing the FA signing to. While I think the factors you mention are real and do perhaps work to lower bids, I think the agents and players have an interest in making only certain information available about other bids. Certain info would likely not help max an offer.

And I think there is pressure to keep a player in town and get the signing done, to avoid bid shopping. And that pressure works to keep bids close to the agent's suggested price.

Gotcha. The article, however, does not use the average value, but rather references a hypothetical "true value, which will be revealed only after he plays out his contract." Even with the 6.3 being the average cost, it comes back to my original point. An extra few million dollars over the average cost across the league is not a good measure since the money saved is not a zero sum game. The money saved would only be relevant to the extent that it represents a lost opportunity that would have otherwise benefited the team. If the money goes unspent, or is spent in a manner that does not improve the team as much as getting the player in, the opportunity cost for the team is the more important factor than the average cost across the league.

While the article tries to account for (by ignoring) a "synergy" factor, it says nothing about the differences in opportunity cost, which could likely vary much more than the synergy factor and would therefore render the analysis less relevant.