Free Markets and the NFL Draft
Tonight, the Saint Louis Rams and the Kansas City Chiefs will announce their picks for the first round of the National Football League (NFL) college draft. That will decide which college football players will be forced to negotiate with them, if the players wish to join the NFL employee pool.
You see, unlike most industries, where workers are free to solicit offers from a range of potential employers before choosing the one most to their liking, NFL teams have a collusive agreement: Only one NFL team at a time may negotiate with the best of the rookie class. This relieves teams of the need to bid against each other for these young players, meaning that the players are stripped of most of their bargaining power when negotiating their initial contracts. However, the practice has also resulted in unanticipated negative consequences for teams. Thus, the limitations that the current NFL drafting system imposes on teams and rookie players distorts the laws of supply and demand, resulting in an inefficient allocation of resources.
If you will, join me in a thought experiment. Several teams this year would like to add a promising young quarterback to their roster. Right now, the Rams are in the best position to do so because they hold the first pick in the draft — and they are widely expected to select Sam Bradford, a Heisman Trophy-winning quarterback out of the University of Oklahoma. If another team (such as the Cleveland Browns, Oakland Raiders, or the Buffalo Bills) wants to be sure it has a chance to secure Bradford’s services, their only option is to negotiate a trade in which the Rams would give up the number one draft slot in exchange for players and/or draft choices offered by the other team.
Why would the Browns, Raiders, or Bills make this trade? Because they place a certain value on obtaining Bradford as a player. The problem is, even though Bradford’s particular skills and attributes are the reason he is so highly valued, he will not personally get to realize the return on the value he offers. As I point out below, Bradford’s rookie contract will have roughly the same parameters, regardless of which team selects him. But a team that trades up to get him would, by doing so, demonstrate its willingness to pay not only the size of that rookie contract, but all the additional costs that they would be sinking into the trade. And the recipient of the additional largess would not be the individual creating the value, but rather the Rams, whose only contribution to the transaction was being a particularly awful team last season. This arrangement is clearly not fair to Bradford.
But even if the Rams valued Bradford most highly, it is extremely unlikely that he could maximize the value that should result from demand for his services. As the draft system currently exists, there is an informal pay scale imposed on teams and players that depends on the slot in which a player is drafted, rather than the value that the team believes it will realize as a result of employing the player. The pay scale is determined both by a set, limited amount of “rookie pool money” and the contracts signed by the previous year’s set of rookie players. Very rarely can either teams or players deviate from this pay scale, although it is not uncommon for them to try.
Last year’s draft provides an excellent example. Matthew Stafford, the first player selected in 2009, signed a contract guaranteeing him more than $41 million. The Rams drafted second and ultimately agreed to pay Jason Smith $33 million. Kansas City chose third and guaranteed Tyson Jackson $31 million. These transactions demonstrate how the pay scale usually works. But interesting things then happened with four of the next six players selected. The Seattle Seahawks, picking fourth, chose Aaron Curry, a player many regarded as being the best in the draft and a potential number one pick. The Seahawks ultimately ended up guaranteeing Curry $34 million — more money than either the second or third players selected. In the meantime, the Oakland Raiders used the seventh pick in the draft to select the first wide receiver taken last year, Darrius Heyward-Bey. This was a highly unusual pick for two reasons: First, most experts figured Heyward-Bey to be only the third- or fourth-best receiver available. Second, the Raiders guaranteed him $23.5 million — significantly more money than would normally be expected for the seventh selection in that draft. Heyward-Bey’s contract had a direct effect on contract negotiations for two other rookie players. The Cincinnati Bengals selected Andre Smith with the sixth selection, and, after Heyward-Bey signed, Smith demanded to be paid more money than the player selected after him. Meanwhile, the San Francisco 49ers had used the 10th overall selection to take Michael Crabtree, who was almost unanimously considered to be the best wide receiver in the draft. Despite being selected three spots lower than Heyward-Bey (and, despite Heyward-Bey’s unusually large contract), Crabtree demanded to be paid as though he were the first receiver selected.
Both Andre Smith and Michael Crabtree ended up refusing to report to their teams (the only kind of real leverage afforded to rookie players) in order to get the kinds of deals they wanted; neither was ultimately successful. Smith missed several weeks of training camp before settling for $21 million guaranteed — which, accounting for the fact that he signed a four-year contract rather than the five-year deal more commonly given to high draft picks, is about what would have been expected given the slot in which he was selected. Crabtree, on the other hand, refused to join the team until well into the season, eventually signing for a guaranteed $17 million — slightly less than was given to the player selected ninth, and slightly more than was given to the player selected 11th. In both cases, the negotiations that resulted from the NFL draft and its resulting “slotting” system cost both the players and the teams weeks of distraction and invaluable time with which to prepare for the upcoming season.
A much more efficient system would have the teams bidding against one another. The most-desperate team would likely secure the player most likely to meet their needs because they would be willing to sacrifice more than any other team to sign that player. A slightly less-desperate team would be able to sign the next-best prospect, and so on, until teams were no longer willing to pay the amount a player demanded. Thus, players would realize the full market value resulting from the demand for their services, and teams would be able to maximize their utility by focusing on the players they most wanted to employ, rather than just those who happened to remain on the draft board. Freed from the restrictive confines of the “slotting system,” teams and players should be able to come to mutually agreeable contracts well before training camp begins, eliminating the hassles and lost opportunities that result when teams and players are limited in their freedom to negotiate with other prospective partners.
The law of supply and demand maximizes efficiency in free markets — and the NFL could help to maximize its own efficiency by abandoning its current, anti-competitive labor model in favor of a model more closely resembling a free market.
While I am no expert, I do know that many of today’s NFL intricate rules are heavily influenced by the NFL Players Association, the union for veteran players. The draft system stinks of the veteran friendly union.
There are many many aspects of team and individual salaries in the NFL that are designed to protect aging vets. Interestingly enough, the NFLPA doesn’t have credible representatives at the bargaining table for incoming players. Once players are drafted, then they have direct representation, not before. I have heard that some elected young NFL players often represent a ‘young’ voice but since these players are already in the NFL for probably 2-3 years, their interests do not coincide with the incoming players.
Also, many times the salaries of the top few pick carry weight when calculating top paid players at a position. For instance either of the two top defensive tackles will likely after this draft be in the top 10 of highest paid defensive tackles in the league. This factors into arbitration numbers and franchise tag salaries for other veteran Defensive Tackles, or at least used to before this season’s end of the salary cap.
Comment by Adam Lodes — April 23, 2010 @ 8:59 a.m.
Spoken like a non-sports fan. Sports leagues are contrived competitions meant to be competitive – even if it is necessary to reign in the “free market” to ensure competitiveness. Otherwise, why have classes in high school football? The free market says Blue Springs has 4000 students and Podunk high has 200 so they have to play each other, never mind the game would not be fun for either team. Likewise, my child’s league requires player be under 7 years old. Why? To make it competitive and fun. We don’t need a football league to tell us that New York has the most resources of any community in North America – we already know that. I want a league to be representatives of all cities with an equalized if not equal opportunity to compete for talent – even with a metro area 10 to 15 times the size of St. Louis. I am a free market guy, but it is not the answer to every issue in the world.
Comment by Tom — April 23, 2010 @ 3:52 p.m.
Leaving aside the good points that both Dave Roland and the commenter “Tom” make, I must come to the defense of Dave Roland as a sports fan. He is a pretty devoted college and pro football fan who played high school football. I believe his favorite college teams are Vanderbilt and Alabama…
Comment by David Stokes — April 23, 2010 @ 4:44 p.m.
You can consult my fantasy football championship banners regarding the level of my sports fandom, Tom. ;)
I can prove that you’re entirely incorrect when you suggest that free market principles will necessarily result in one set of wealthy, dominant franchises dominating their realm of competition. Why? Because money can’t cure stupid. In fact, the sports world is full of examples of teams spending out the wazoo, yet failing to achieve ANY form of success, much less winning championships.
In 2009 the Yankees finally managed to win a World Series title – but it was the first time they’d even been IN the series since 2003, despite the fact that in every single one of those years the team spent roughly 150% of what the next-highest-spending competitor spent. And for the past couple of years the next-highest-spending competitor was the New York Mets. How did that work out for them? They didn’t really get close to the playoffs in 2008, and in 2009 the Mets finished 11 games below .500. Also consider that in 2008 the World Series was contested between the Phillies, with the 12th highest payroll, and the Tampa Bay Rays, whose payroll was only higher than the lowly Florida Marlins.
And look at the NFL! How has spending like a drunken sailor on “talent” worked out for Dan Snyder’s Redskins or Jerry Jones’s Cowboys teams? In the meantime, small-market teams like the Indianapolis Colts, the Green Bay Packers, and the reigning Super Bowl Champion New Orleans Saints seem to be managing okay against the larger-market franchises.
The fact of the matter is that – *especially* where rookies are concerned – what a team perceives a player’s value to be is frequently completely divorced from the player’s eventual impact on the field. But that is the teams’ problem, not the players. If demand for the players’ services is so high, the players themselves should be able to maximize the amount they receive for providing their services. And, as I pointed out, I think this would also allow needy teams the greatest opportunity to improve themselves. Even if their efforts eventually prove to be misguided.
P.S. – Stokes, you will be receiving a strongly-worded letter from an attorney regarding your libelous statements suggesting that I have any affinity for the two teams you mentioned. Watch your friggin’ back the next time you’re in Knoxville. I know people.
Comment by Dave Roland — April 23, 2010 @ 5:30 p.m.
Are players forced into the draft system? Is there a cap on how much you can pay an undrafted free agent?
Comment by David C. Miller — April 26, 2010 @ 11:29 a.m.
Players have no choice but to be subject to the draft. Undrafted players become free agents able to sign with any team they prefer, but a player cannot refuse to be drafted. If they don’t like the team that selected them, their only option is to threaten to sit out the next season and re-enter the draft the following year. This is precisely what John Elway (drafted by the Baltimore Colts) and Eli Manning (drafted by the San Diego Chargers) threatened in order to get themselves traded to Denver and New York, respectively.
I’m not aware of any cap on what you can pay an undrafted free agent, but as demand for their services is demonstrably very, very low, they are not usually paid much in comparison to their drafted teammates.
Comment by Dave Roland — April 26, 2010 @ 11:35 a.m.
The players most certainly have a choice to not be subject to the draft. They can play for another league outside of the NFL. The NFL is the business entity here, not the teams. They are also overwhelmingly the most successful professional sport in the USA.
The NFL has a salary cap that Jerry Jones and Dan Snyder must abide by. Otherwise the Green Bays, the New Orleans, and the Indianapolis’ would all end up like the Expos, the Pirates, and the Brewers.
The NFL salary cap causes parity and a major reason why the NFL has succeeded the MLB as America’s Past Time. I would bet that changing the draft to a free market and getting rid of the salary cap would be overwhelmingly voted down by these owners making millions upon millions with their current system. They love the parity all this provides…
Comment by DaveG — May 4, 2010 @ 6:20 p.m.
DaveG,
Whether the NFL is a single business entity or not is very much up for debate; that question will likely have to be decided by the courts. http://profootballtalk.nbcsports.com/2010/01/13/oral-argument-in-american-needle-hints-at-nfls-broader-position/
And, in fact, if the league does insist that it is a single entity for labor purposes, it could make itself vulnerable to an antitrust lawsuit.
Did you overlook the comment in which I pointed out how Major League Baseball’s unlimited spending has largely failed to translate into championships? And how small market franchises can and do field competitive (even championship-winning!!) teams? Here’s a quick update of the most successful franchises thus far in the 2010 season:
Tampa Bay – 18-7 (21st highest payroll)
St. Louis – 18-8 (13th highest payroll)
NY Yankees – 17-8 (1st highest payroll)
Minnesota – 17-9 (11th highest payroll)
San Diego – 16-10 (29th highest payroll)
Detroit – 16-11 (6th highest payroll)
Is this just an early-season anomaly? Nope. Check out the playoff teams from the past few years:
2009 – Yankees def. Phillies in World Series
NY Yankees – $201.4 million; 1st highest payroll
LA Angels – $113.7 million; 6th highest payroll
Boston – $121.7 million; 4th highest payroll
Philadelphia – $113 million; 7th highest payroll
St. Louis – $88.5 million; 13th highest payroll
Colorado – $75.2 million; 18th highest payroll
Minnesota – $65.3 million; 24th highest payroll
2008 – Phillies def. Rays in World Series
LA Angels – $119.2 million; 6th highest payroll
Chicago Cubs – $118.3 million; 8th highest payroll
Tampa Bay – $43.8 million; 29th highest payroll
Boston – $133.3 million; 4th highest payroll
Philadelphia – $98.2 million; 12th highest payroll
Milwaukee – $80.9 million; 15th highest payroll
Chicago White Sox – $121.1 million; 5th highest payroll
LA Dodgers – $118.6 million; 7th highest payroll
2007 – Red Sox def. Rockies in World Series
Boston – $143 million; 2nd highest payroll
Cleveland – $61.6 million; 23rd highest payroll
LA Angels – $109.2 million; 4th highest payroll
NY Yankees – $189.6 million; 1st highest payroll
Arizona – $52 million; 26th highest payroll
Colorado – $54.4 million; 25th highest payroll
Philadelphia – $89.4 million; 13th highest payroll
Chicago Cubs – $99.6 million; 8th highest payroll
2006 – Cardinals def. Tigers in World Series
NY Yankees – $194.6 million; 1st highest payroll
NY Mets – $101.1 million; 5th highest payroll
Minnesota – $63.4 million; 19th highest payroll
Detroit – $82.6 million; 14th highest payroll
Oakland – $62.2 million; 21st highest payroll
San Diego – $69.9 million; 17th highest payroll
LA Dodgers – $98.4 million; 6th highest payroll
St. Louis – $88.9 million; 11th highest payroll
Only eight baseball teams out of thirty make the playoffs any given year. By the logic you use, it should be absolutely stunning to see a team make the playoffs – much less compete for a championship – unless it is among the highest-spending teams. Yet year after year after year, teams compete and win because they make smart decisions rather than because they break the bank. The Cardinals won the World Series in a year where they spent 45% of what the Yankees spent that season. Colorado played in a World Series in a year where they spent less than 29% of what the Yankees spent that season. When the Phillies and Rays played each other for the championship, they only spent 47% and 21%, respectively, of what the Yankees spent in NOT making the playoffs.
So… care to explain again how free market principles would bring about the end of the sporting world as we know it?
Comment by Dave Roland — May 4, 2010 @ 9:45 p.m.
I never said free market principles would bring about the end of the sporting world as we know it. I do think your ideas are great for a college economics classroom discussion. It makes me fondly look back at the old “guns ‘n butter” lectures…
I did not overlook your comment at all about championships. IMHO, your sample size is far too small when so many variables affecting who wins the actual championship. I think a more interesting analysis would be to look at who in the MLB is consistently making the playoffs over a longer period of time. 15-20 years? Without Googling, I would bet that the Yankees are overwhelming the most consistent Playoff attendee as well as having the highest payroll for that same time period. Who wins after making the playoffs is a bit of a crap shoot and in my opinion not necessarily the best team of that season, but rather who was peaking at the right time.
Ultimately it is the customer who decides the winner, not who more closely follows economic principles. The customer, the sports fans, overwhelming have chosen the NFL over MLB as the national pastime due to their economic system that acts as its foundation. That makes the current NFL format the right choice.
Comment by DaveG — May 5, 2010 @ 9:39 p.m.