Market inefficiency
Imagine if the NFL picked its new talent the way that banks or law firms or tech companies do
Before the NFL begins its annual draft Thursday night, how about a thought experiment: What would it look like if other industries — here we’ll use Wall Street firms — took the same approach to hiring young talent?
I like to imagine the head of the Financial Industry Regulatory Authority standing on a stage proudly announcing something like this: “With the ninth overall pick in the 2015 Wall Street draft, Morgan Stanley selects the 3.85 GPA investment banker out of Duke University, Jennifer Martin.”
And the crowd goes wild (aside from a few jerks who boo — Goldman fans, possibly). Jennifer Martin (the name is made up) walks on stage, beaming, holding up her new Morgan Stanley blazer.
The CNBC commentator rambles on about how “she’s going to be a real impact player, has great speed with Excel modelling, and really impressed everybody on her summer internship last year,” but then adds, “It’s a shame they are sending her to equities in Dallas.”
The reason that sounds so strange is because the way the NFL and other pro sports leagues draft talent out of college is strange. In finance, and almost every other industry outside sports, employers offer jobs to promising young prospects out of college, and the would-be employee gets to decide which offer to accept based on which one makes the best offer (however the job applicant defines best).
In pro sports, the focus on putting a more competitive and entertaining product on the field can come at the cost of the freedom and flexibility of young elite athletes — and sometimes the sports franchises themselves.
Occasionally, an aspiring NFL player, generally a very top prospect, will exert some power over where he ends up playing, as in 1983, when John Elway told the Baltimore Colts, who had drafted him No. 1 overall, that he would quit football and play baseball if they didn’t trade him. They acquiesced, and he became one of the game’s greatest quarterbacks while playing for the Denver Broncos. Similarly in 2004, Eli Manning made it known he wouldn’t play for the San Diego Chargers, who traded him to the New York Giants, whom he has led to two Super Bowl victories.
But the average NFL prospect does not have that clout, and as such has little to no control over where he ends up for his first four seasons or so.
Do you, promising young football player, place a very high priority on playing somewhere with warm weather, or close to home, or for a team that promises to play you in your preferred position? You’re probably out of luck, even if you would be willing to sacrifice some money to get those preferences.
From the leagues’ perspective, holding a draft is about maintaining competitiveness. If the NFL brought in new talent the way that banks or law firms or tech companies do — if teams just made offers to whatever players they wanted to hire, and the players had a choice among their suitors — then the most promising recruits would favour winning teams and those in appealing cities over others.
The New England Patriots (strong record of success) and Miami Dolphins (fun city) would do fine; the Cleveland Browns could be stuck in a vicious cycle in which they had to overpay to get quality players, ensuring continued mediocrity. (Their owners have managed to attain continuous mediocrity even with a draft, as it happens, perhaps in part because this dynamic already applies with signing free agents.)
But the league as a whole is better off when every team has a good chance of success and games are competitive. Teams that are perpetually terrible won’t build a fan base, and blowout games aren’t much fun to watch. The NFL draft serves as a mechanism for assuring parity, not just by forcing young stars to play for whichever team drafts them but by giving the worst teams higher picks.
But even if the draft makes sense from a leaguewide perspective, it can work against the interests of individual teams.
If a team really wants a player who is on track to be drafted ahead of the team’s draft slot, it is a clunky process to try to get its man anyway, including trading other draft picks to get him, and often involves mortgaging the future of the team by trading away multiple draft picks.
This year, for example, Philadelphia Eagles coach Chip Kelly is said to have wanted Marcus Mariota, the Oregon quarterback. But because Mariota was expected to be taken by Tennessee with the No. 2 pick (which he was), and the Eagles had the No. 20 pick, the price to get him would probably be so many other picks that it could compromise the Eagles’ ability to be competitive for years. And if they made such a deal (as the Washington Redskins did to obtain Robert Griffin III in 2012), it could be another team that profited from the Eagles’ view of Mariota’s promise, not Mariota himself.
Imagine if instead the market for Mariota’s talents worked the way every other market for talent did. Eagles officials would signal they value Mariota by offering him more money than any other team. They could get their man without risking the future of the franchise (except to the degree they may overpaying him, leaving them with less money to pay other players).
It turns out many fantasy football leagues are way ahead of the NFL in adapting this insight. Instead of randomly assigning a draft order, many fantasy leagues use auction systems in which the person who gets a given player is the participant who offers the most (fake) money for him.
And if you think it’s entertaining to watch the NFL draft as it currently exists, imagine if instead it worked this way: Commissioner Roger Goodell names a player, and then a public bidding war commences for that player’s services, with the team willing to pay him the most winning the day.
The league would still maintain competitive balance, because NFL teams operate under a salary cap, and so a team that overpaid for one player would by necessity have less money to spend on the rest of its roster. This approach wouldn’t do much for giving the players more control over their destiny, but it would at least allow them to be paid their full market value.
That’s closer to how the market for any other type of talent works, and would make for better TV, too.