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Who Won the NFL Draft? Economics Says Green Bay: Kevin Hassett
May 1 (Bloomberg) -- The National Football League draft was held this weekend in New York. The sports pages have been filled with analyses by seasoned football scouts of the winners and losers. The consensus among sportswriters is that the New Orleans Saints, who were able to draft the cosmically gifted running back Reggie Bush with their first pick, were the big winners.
Economics suggests something else. The Saints actually were among the bigger losers this weekend, and the draft had one obvious big winner: the Green Bay Packers.
I arrive at these conclusions using recent research by Yale University economist Cade Massey, and University of Chicago economist Richard Thaler. They studied years of draft history, and used economics to evaluate the regular practices of NFL teams.
They found that teams make systematic errors that reflect a kind of economic illiteracy. Coaches and general managers place too high a value on the top few picks, and too low a value on picks a bit further down.
Here is how the economics works. NFL teams each face a salary cap each year. Every team has to fill its roster for about the same amount of money. The trick is to get maximum value for your salary expenditures. To do that, a team has to have a number of players on its roster who play a lot better than their salaries would indicate.
Draft Importance
A key way to do that is to be good at drafting. The rookie wage structure is held low by the collective bargaining agreement between the league and players. If you can select a competent starter in a late round, you may have him for five or six years at a salary far below what he could negotiate on the free market.
If, for example, the going rate for a star running back is $9 million a year, and you find one in a later round for $750,000 a year, that frees up lots of money to spend on veteran players at other positions. In this example, your rookie running back provides you with what economists call a ``surplus'' of more than $8 million dollars a year.
The problem with the draft is that salaries of the top picks are very high. Defensive end Mario Williams, the top overall pick, has already negotiated a salary package worth $54 million over the next six years. That pay is so high that even if he is the best player at his position for years, he will provide the Texans with very little surplus. The trick in the draft is to find bargains, and there are not many at the top of the draft.
Surplus Value
Massey and Thaler combed through years of data, and estimated the surplus value available historically to teams picking at different positions in the draft. They did this by using statistics to compare performance to salaries.
They found that the surplus value was actually highest for picks in the second round, and declines rather slowly thereafter. Second-round picks tend to perform well, but they don't get paid nearly as much as first-rounders. That frees up money to spend elsewhere, which can be the difference between winning and losing once the season starts.
Massey and Thaler estimate the expected surplus for each position in the NFL draft. They find, for example, that a player chosen with the 43rd pick can be expected to provide a performance worth $750,000 more than his salary, while the top pick will outperform his salary by far less.
Using my own back-of-the-envelope version of their estimates, it's easy to provide an economist's perspective on the winners and losers in the draft that doesn't depend at all on which players were chosen.
Pack Wins
To do this, I allocated each draft slot an expected surplus value based on the Massey and Thaler work. Then I tallied the expected gains for each team given the draft picks they ended up with. A team that only had the 43rd pick, for example, would have a surplus estimate of $750,000.
And the winner? The Green Bay Packers. They pulled off a number of clever trades, shrewdly stockpiling the enormously valuable second- and third-round picks. In the end, they drafted one player in the first round, two in the second, and two in the third.
Given the history of picks in the second and third rounds, Green Bay should have a number of players locking down valuable slots on their roster for years, freeing up resources to buy veteran stars when they need them. Other teams that pursued similar strategies included the St. Louis Rams, the New York Jets, and the Minnesota Vikings.
Redskins Lose
There was a clear loser as well: the Washington Redskins. They foolishly gave up draft picks for established veteran players, leaving them (after an especially silly trade that gave the Jets a second-round pick this year, a second-round pick next year, and a sixth-round pick this year, for the Jets second-round pick this year) with only one pick in the first three rounds.
They used it on University of Miami linebacker Rocky Macintosh. While ``Rocky'' is admittedly a promising football name, this is a very unimpressive harvest compared with the Green Bay five-player bonanza.
The problem with the Redskins' approach is that veteran players often have their salaries set in the free market, making their pay appropriate for their level of performance.
But with everyone playing under the same salary cap, it takes players with big surpluses for a team to outshine the others. The draft is the only place to find those in large numbers. The Redskins need some remedial economics classes.
Other losers in the draft include Miami, Denver, Atlanta, Tennessee and New Orleans. While they may have selected good players, they didn't load up on those likely to outperform their salaries.
The best way to test any economic theory is to use it to make predictions, and then evaluate those predictions after the fact. So here goes. The economics of the draft suggests that Green Bay, St. Louis, Minnesota and the New York Jets will improve the most in the coming seasons. Washington, Miami, Denver, Atlanta, Tennessee and New Orleans, the losers in this draft, are headed south.
To contact the writer of this column:
Kevin Hassett at khassett@aei.org
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