03-03-2007, 01:34 PM
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On The Game Day Roster
Join Date: Feb 2005
Posts: 395
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Comp picks, holdouts, draft valuations: a general analysis of the NFL labor market
The 2007 NFL offseason has started in full. The Scouting Combine two weeks ago provided the overwhelming majority of the college prospects an equalized system to demonstrate some of their raw physical attributes, and the free agency period started on Friday at 12:01AM. The initial rush of the free agency period is producing a massive and concentrated distribution of windfall profits. The 49ers have signed cornerback Nate Clements to an eight year, $80 million dollar contract with $22 million guaranteed. Two guards who are not All-Pros signed seven year, $49 million contracts with the Bills and the Browns. The Falcons signed a decent but not great fullback to an $18 million, six year contract. These are price levels that three years ago would have seen for elite players in high skill, low substitution positions such as 4-3 undertackles, pass rushing defensive ends, left tackles and adequate but not great starting quarterbacks.
Enough information has been gathered that a couple of predictions can be made.
Most teams will not be satisfied with the comparative performance levels of the high priced free agents. The teams that are able to sign the expensive free agents in the first round of contracts will suffer from the winner curse. Free agency is a competetive market where a number of teams are interested in players, but each team has its own indepedent evaluation of how good a particular player is. Teams don't want to pay players more than what a player can contribute to the probability of victory. So the team that thinks a player will contribute the most, should, all else equal, offer the player the most money. However evaluation is imperfect and here is where the winner's curse comes into play. The winning team has a high probability of overvaluing the player and thus pays more money for the future performance.
I am also anticipating a significant increase in the number and severity of hold-outs by veteran players who signed contracts three or more years. Players want to maximize their lifetime earnings, and when they signed their contracts several years ago, they were anticipating slower revenue growth and therefore higher proportional compensation. I assume that most players have an internal evaluation of their comparative value and ability across their own team and the league. So when a player sees his peers getting ridiculous guaranteed money and large non-guaranteed promises, he will want to renegoatiate is contract to the new market value for comparable players. The dynamic intensifies when a player sees a clearly inferior player getting superior money. If the NFL was a field where average and median career lengths were measured in decades, holdouts would be rare as players would see their market value equalize to contract value pretty quickly; careers are only one to three contracts long, so players need to maximize income potential in every single year as they bear the risk of catastrophic injury.
The value of draft picks have increased. The rookie salary cap is increasing at a significantly slower rate than the general salary cap. The NFL Players Association represents current players, so they place heavy emphasis on current and retired players as these groups are the primary stakeholders; future potential players do not vote or pay dues, so their future interests are secondary issues. Rookies and first contract players will become more valuable for teams that are willing/able to spend to the cap as their production is constant for a smaller share of the constrained cap space. I expect fewer veteran player for draft pick trades and what trades of this type do occur for the draft picks to be a round or two lower then we otherwise would have expected.
Finally, unless the new CBA agreement contains a significant rerewriting of the compensatory pick formula, expect a record number of 3rd round compensatory pick selections next year. Currently the compensatory pick formula primarily gives low round draft picks to teams that lost free agents. The round of the pick is determined overwhelmingly by the average annual salary of the contract that was signed. The cut-off points seem to be based on the restricted free agent tender levels and the year over year change is based on the change in the RFA tender levels. The RFA tender levels are increasing signifcantly slower than general cap space and salary levels.
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