The Winner's Curse

As the funstravaganza (not a real word) that is NFL free agency winds down, I am reminded again that there is a structural reason that free agent contracts in every sport pay more than players are “worth.” It turns out that the reason is slightly more complicated than: The owners are all crazy (though it still explains why Daniel Snyder, in particular, is crazy). The exception to this is the late 1980s in baseball, when owners agreed to simply not offer contracts to free agents from other teams. This actually happened, you can look it up. It bears mentioning that if this were attempted today, the internet would melt.

One more graph on the NFL Draft Value Chart

After re-reading my post from last night, I realized that I left out one more graph that may be of interest to readers. The normalized chart showing the change in the salary cap and guaranteed money to number one overall picks from 1994 to 2009 came up but then was never revisited to see the impact of the new CBA. With the final data point with Cam Newton’s $22 million and the new salary cap number of $120 million the graph below shows the full set (2010 salary cap excluded because it did not exist):

Guaranteed money (red) and salary cap (blue) 1994=100

In terms of relative difference between the change in the cap and guaranteed money from 1994, this puts 2011 on a level with 2003, 2000 and 1995. The big unknown now is whether the straitjacket the owners placed themselves into will hold or if salaries will somehow creep up faster than the cap as they did from 2003 to 2009.

Thoughts on the NFL Draft Value Chart

Edit - Take a look at my expanded thoughts on the NFL Draft Value Chart - and a proposal for revising the Chart - in this post from November 2012.

Let’s say, hypothetically, that you had just traded the best player on your team (one of the best in the league) for a whole mess of draft picks. If you had just done this, wouldn’t you want to convince people of the wisdom of your choice? Wouldn’t the best way to do that be to convince everyone that draft picks, particularly of the type you received, were highly valuable assets? I am not suggesting in that the Herschel Walker trade was anything short of brilliant for the Cowboys (this was not a hypothetical), but in order to convince people of the wisdom of the trade it certainly helped to establish a baseline valuation for draft picks that made the Cowboys’ haul look even better before those picks even had a chance to play out.

Since that time the Draft Value Chart developed by Jimmy Johnson’s organization in Dallas has become the gospel for a great number of NFL teams. At various times much of the NFL has used the chart and reports suggest that a number of teams still do. At a minimum it is still the go-to for reporters speculating on potential trades. Once the chart became widely accepted, draft picks became easily exchangeable as teams agreed on the value and constructed trades accordingly.