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Football teams have a relatively simple economic problem to solve. They have to fill their rosters with players, and have to pay the entire collection of players an amount fixed by the league. They can add players in two main ways: sign veterans as free agents or hire new players out of college in a league-wide draft. Veteran free agents get a salary set in the free market. Most draftees receive a relatively lower salary set by collective bargaining. What they are paid depends on the round in which they are drafted.Economics has a very clear prediction for optimal team behavior. Firms should load up on draft picks, especially from the inexpensive late rounds. Every team has the same cumulative salary to pay, so, to outperform the other teams, you must receive higher value relative to salary from your players than your opponents receive from theirs. If, for example, you select a Pro Bowl (all-star) receiver in the fifth round of the draft, that player may well receive a salary one-tenth that of a veteran Pro Bowl receiver of roughly equal talent who has had his salary set on the market. So your team gets a huge surplus.
It is nearly impossible to derive surplus from the veteran free-agent market, since you are paying market wages. While injuries and emergencies might require some veteran signing, the draft is the only place to build a winning team.
So economics would predict that teams would uniformly put an enormous effort into perfecting their drafts, and avoid sinking excessive dollars into costly free agents. In fact, this model predicts very well the behavior of one team, the New England Patriots. Their head coach, Bill Belichick, who received his undergraduate degree in economics from Wesleyan University in Connecticut, has been an artist at squeezing value-added out of his draft picks, and has won three of the last five Super Bowls.
We all know the fallibility of BB and Pioli in bust draft picks (e.g. Marquis Hill - Thanks Saban, you devious bastid!) but in the average and over the long run they have done very well, value wise.
Cheers, PWP. That's an excellent article. The thing I have never been able to understand is why teams pay extremely highly for FAs, to the detriment of a decent depth chart in a sport which is, erm, a tad injury-prone.
The article makes a great point about Branch. Seattle is saddled with a high cap hit for a player who is good but arguably over-valued. We also turned the second we used on him into a likely late round 1st, which isn't bad either.
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The blog of our recent trip to The States (September and October 2012):
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Re: Economists Analyze The Pats Formuler (sic) For Success
The key, certainly, is to maximize on the draft. Finding top-end starters like Koppen, Asante, Brady and Givens in the later rounds is the best way to keep the cap healthy.
Even better is to find players like Gay, Neal and Wright from the lists of the undrafted. Those players contribute for next to nothing, the NFL chips in to compensate them with bonuses for performance, and they turn into real players that we can either roll for Compensatory picks when they leave in FA, or we backfill them with new no-name finds that we turn into players.
Not mentioned, but deserving, is the fact that BB has yet to draft a first round bust. All his first rounders have turned into players: Seymour, Warren, Graham, Wilfork, Warren, Mankins and Moroney. Holy crap. He's on such an incredible streak that I wonder if it's a streak at all. People say drafting players in the first round is a risk proposition, but I dont see it out of Foxboro. Those selections are not a mistake. BB just recognizes talent and value. Not a single Chris Canty in the bunch.
This is key because drafting a first rounder is actually a significant commitment of $ for the team, and a long term commitment at that. A few bad first round picks in a row can really hamstring an organization against the cap.
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"We want to build a big, strong, tough, smart, fast, disciplined football team that will consistently compete for a championship."
-- Scott Pioli, from the Patriots scouting manual
Re: Economists Analyze The Pats Formuler (sic) For Success
Quote:
Originally Posted by rookBoston
The key, certainly, is to maximize on the draft. Finding top-end starters like Koppen, Asante, Brady and Givens in the later rounds is the best way to keep the cap healthy.
Even better is to find players like Gay, Neal and Wright from the lists of the undrafted. Those players contribute for next to nothing, the NFL chips in to compensate them with bonuses for performance, and they turn into real players that we can either roll for Compensatory picks when they leave in FA, or we backfill them with new no-name finds that we turn into players.
Not mentioned, but deserving, is the fact that BB has yet to draft a first round bust. All his first rounders have turned into players: Seymour, Warren, Graham, Wilfork, Warren, Mankins and Moroney. Holy crap. He's on such an incredible streak that I wonder if it's a streak at all. People say drafting players in the first round is a risk proposition, but I dont see it out of Foxboro. Those selections are not a mistake. BB just recognizes talent and value. Not a single Chris Canty in the bunch.
This is key because drafting a first rounder is actually a significant commitment of $ for the team, and a long term commitment at that. A few bad first round picks in a row can really hamstring an organization against the cap.
You make what I consider to be a very significant point about Belichick/Pioli success rate on 1st rounders. As I have also commented on in numerous posts, it really strongly appears that one of the big weighting factors for BB/SP in picking first rounders is to pick 'sure things' (ie low risk) rather than take highly touted players who might have a significant risk element. Obviously, from the fact that only about one-third of the first round picks really work out solidly for teams, other teams just take some risks - even though they may not be clever enough to realize that this is what they are doing. But the results tell the story.
Re: Economists Analyze The Pats Formuler (sic) For Success
Quote:
Originally Posted by RayClay
Pretty good analysis execpt for this.
Since there are relatively few marquee free agents and lots of street free agents and draft picks on their first contracts who are also part of the "market", Marquee free agents actually command above market wages.
Same as employees in unions, from Ivy League colleges or in the best companies.
Will the market for David Givens ever be as high? I doubt it. He took advantage of optimum market conditions, not average market price.
Ray, I may be splitting hairs to an extent, but the existence of a high end of a market does not mean the marquis free agent is getting "above market" wages. Same goes for an ivy educated employee, actually... you're just looking at people commanding the market rate for their services. They are still part of the market mechanism, just a happier part of it.
But your Givens comment points up on subtle Belioli advantage and disadvantage: through their successes, they have artificially inflated the value of many "ex-Pats," both in their own eyes, and in the eyes of their new teams. This is especially true in terms of the wideouts. Givens and Patten come first to mind for me. Branch seems to be earning his keep, by contrast... but you get the idea. People come to Foxboro, get a ring, believe their own press, and negotiate with other people who believe their press. Their market value goes up.
But the Belioli model dictates that a value be set for that player for the Patriots. That number is less responsive to the fact that the player is on a Super-Bowl winning team, since many Pats have been on such a team... hence, player's self-evaluation and other teams' evaluation of player, exceed Patriots evaluated worth of player.
Over half of the Pats are drafted Patriots... ...which one poster says means "almost half of them were acquired through trade or free agency."
Well, okay... this count is meaningful if that is more than most teams carry from trade or FA. In other words, the figures are only significant in relationship to the league at large. If the Pats carry 1/2 homegrown and 1/2 FA/trade, and the league average is 1/4 from the draft, then the Pats DO use the draft exceedingly well, by the standards of the article. But if the average NFL team is carrying 75% draftees, then the Pats just aren't (by comparison) a draft-heavy team.
I don't have these numbers, but unless someone else does, it seems pointless to characterize the Pats as particularly draft-heavy or not.