FNQB: How Much is a Draft Pick Worth? Part III
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The main principles that were used in Part II of FNQB’s look at the cash value of an NFL Draft pick were the three variables listed below:
- Cost of using a draft choice, defined as the value of the first three years of the players contract, but acceptably estimated as the players’ signing bonus.
- Value to the franchise. I estimated a marginal wins above replacement value (expected at about $9.6 million in current, obscenely player friendly, market conditions), and then averaged the contribution of first round draft choices since 2003 to come up with the 0.85 wins per year figure for a first round draft choice. This is consistent to about 90% the expected value of receiving a veteran player in a trade for a first round draft pick.
- Negotiation power (in dollars) of a pick. Picks can be traded for existing contracts, and if done so, the right of exclusive negotiation on these contracts can take the market value of a contract extension, and cut it by about 30% in the case of elite players. That’s many millions of dollars saved, but at the first round level, it’s not expected to reach the level of the surplus value of the pick.
That last part is a little bit controversial. If we can safely conclude that the surplus value of a first round NFL draft pick exceeds all comparable instances of money saved from trading a first round pick for an elite talent and signing an extension (and remember, Jay Cutler’s extension with Chicago was about $20 million less than his open market value — that’s two first round picks at work there), then there would be no rational reason to trade first round draft picks for players. They would be too valuable.
That’s not exactly true, though. If we assume for a second that ALL football would cease to exist after the 2010 season, and that every play was going to be made within the context of two seasons, then the Jets would have been much better off beating Chicago’s price for Jay Cutler as opposed to drafting Mark Sanchez. Because, if we’re not valuing Sanchez’ 2011-2013 seasons at the expected value for a first round quarterback, and rather we prorate his $28 million guarantee to just $11.5 million for two seasons, Sanchez is unlikely to provide much surplus value on that contract.
The reasoning is as follows: Sanchez wasn’t a remotely replacement level player in 2009. That was to be expected with a rookie first round quarterback. Sanchez is expected, however, to be much better this year. Maybe better than Cutler (who was also bad). But the surplus value on that $11.5 million is hardly existent, even if Sanchez is worth a win or more this season. In a truncated football world, the cost of using that fifth overall pick on a player like Sanchez outweighs the return. Trading that pick (plus an extra one) for Cutler saves the cost, and picks up a huge asset of a contract that can then be extended at a lower rate if they need to expect to play a 2011 season. It doesn’t even matter that Sanchez might end up outperforming Cutler, because the Broncos have paid the cost of the pick on Cutlers contract, and the Jets would just owe a salary.
This, in essence, is the ‘win now’ philosophy encapsulated in a doomsday scenario. A rational party would suggest that the Jets get more value on their draft choices (Sanchez and CB Kyle Wilson) than the Bears got for Cutler, but that presumes that all wins are created equal when this is very obviously not the case. There are $25 million wins (such as the one the Bears failed to get over the Texans in Week 17 of 2008, missing the playoffs), and there are $0.2 million wins (such as the one the Bears got over the Detroit Lions in Week 17 of 2009). The average comes out close to the expected value of a win, but it’s not hard to see which game the Bears needed Cutler the most.
In short: there are times where it makes sense to toss away the surplus value of a first round pick and go try to pick up a very valuable contract that can provide immediate dividends over a shorter amount of time. Without context, however, it’s a losing proposition to trade a first round pick for a contractual asset, unless you’re getting an extreme value compared to recent trades.
But is this true of picks in other rounds as well? By extending the analysis to include 2nd, 3rd, and 4th round draft choices, we can evaluate the gradual decline of draft pick surplus value against the kind of return that trades of those picks return. If, prior to round four, there’s a point where it is seemingly more profitable to deal the pick when the opportunity arises rather than use it, this is what we are looking for.
These are the established “costs” of a draft choice in 2009, independent of draft position:
- Round 1: $14.4 million (median: $10.1)
- Round 2: $2.13 million (median: $1.97)
- Round 3: $0.72 million (median: $0.72)
- Round 4: $0.46 million (median: $0.47)
NFL salaries are up 42% since 2000, due mostly to the 2006 CBA and the crazy amount of money that has been pumped into the game in the last decade. Signing bonuses (guaranteed money) aren’t up nearly as much, and for players drafted in the 3rd round through the 7th round, they aren’t up at all since 2002. It’s those players who are making a higher percentage on their rookie deals compared to ten years ago because minimum salary increases have accompanied those signing bonuses. The 42% also accounts for the increase in the NFL rookie cap over time.
That number has jumped more than 42% inside the top six. Michael Vick’s 2001 contract had a three year value of $15.3 million, and David Carr got $16.3 million the next year, according to SI.com. Matt Ryan’s 3 year figure was $34 million, and Matthew Stafford’s is around $37 million. For Sam Bradford’s contract, that figure seems conservative. The NFL limits rookie salaries per team based on how many picks they have, but this hasn’t prevented top picks from getting mega bucks. The average first round pick made $6.4 million in guaranteed money in 2002, and that’s now $14.4 million in 2009.
Performance, of course, remains largely unchanged. With all the money in the game, a win is worth more now than it ever has been before, and teams obviously have to pay out the ear for those crucial wins. Meanwhile, we’ve seen the top pick push past the break even point in surplus value in the last four years or so. Furthermore, performance relative to draft position is a lot more linear than it was just seven seasons ago.
In terms of veteran talent, second round picks are the new first round picks, being thrown around more often these days, including for some of the following players.
- TE Kellen Winslow (0.0)
- TE Jeremy Shockey (0.0)
- CB DeAngelo Hall (1.0)
- QB Matt Cassel (o.5) and LB Mike Vrabel (1.0)
- DE Jason Taylor (1.0)
- QB Donovan McNabb plus 4th round pick (1.0)
- WR Brandon Marshall 2 2nd round picks (1.0)
- QB Matt Schaub 2 2nd round picks (1.5)
- WR Chris Chambers (0.0)
- DT Corey Williams (1.0)
Average: 0.67 wins per year per 2nd round pick
3rd round pick
- LB Kamerion Wimbley (1.0)
- CB Antonio Cromartie (0.5)
- WR Anquan Boldin (1.0)
- QB Brett Favre (1.0)
- DT Marcus Stroud (1.0)
- NT Shaun Rogers (1.0)
- RB Willis McGahee (-0.5) 2 3rd round picks
- NT Kris Jenkins (1.0)
- RB TJ Duckett (0.0)
Average: 0.6 wins per year per 3rd round pick
4th round pick
- CB Ellis Hobbs (0.5)
- CB Sheldon Brown (1.0)
- S Kerry Rhodes (1.0)
- QB Sage Rosenfels (0.0)
- RB Lorenzo Booker (0.0)
- QB Jason Campbell (1.0)
- LB Jonathon Vilma (1.5)
- CB Pac Man Jones (0.0)
- TE Anthony Fasano (0.5) and LB Akin Ayodele (0.5)
Average: 0.67 wins per year per 4th round pick
In reality, there doesn’t seem to be a big difference in the quality of player received for a mid round pick (be it 2nd, 3rd, or 4th), rather, the perception a team has of it’s own players (i.e. the Mangini Jets wanting nothing to do with Jonathon Vilma, and the Jason Campbell situation) greatly affects how much a team must pay for talent. One think that’s clear is that first round picks (1.1 wins per year per pick) go a LOT further in the trade market in terms of how elite a player is than second, third, or fourth round pick does.
What the draft pick compensation does seem to affect is how favorable the contract is when acquired. Up until 2010, a fourth round draft pick couldn’t net a player with more than a year on his contract: the team gained the right of exclusive negotation, but with players just a year from free agency, that wasn’t worth very much. Jonathon Vilma had a strong 2008 season for the Saints, and then hit the market before resigning. Not one of the players acquired for a 3rd or 4th round pick has ever been stuck with a franchise tag, either by the team trading them or acquiring their rights. Matt Cassel and Corey Williams were both given the franchise tag, and then dealt for second round picks. As explained a year ago in one of the first ever articles at this blog, Cassel’s franchise tag priced his extension WELL above the market rate for a backup who had won some games for the Patriots.
While it’s possible the market could have valued Matt Cassel more similar to super bowl champ Eli Manning than one fluke season of David Garrard, $30 million guaranteed was a flat overpay of a 5th year player with a limited history of success. Matt Schaub made a similar investment work out, but was much better in 2007 than Cassel was in 2008. With simple RFA tenders replacing franchise tag usage in this uncapped year, team investments in trade acquistions have fallen back to reasonable levels, increasing the value of a draft pick in a trade.
Of the 30 players listed above, 15 players were or have not been extended from the acquired contracts with a strong inverse correlation between age and extension. Trading for a player with a franchise tag meant a larger contract than the draft compensation would have otherwise suggested. There was a large difference between Matt Schaub’s practical $15 million guarantee, and Brandon Marshall’s practical $26.5 million (which drops to a Schaub-esque figure if Marshall gets suspended at any point before Week 1 of the 2012 season) even though both cost 2 2nd round picks.
Players who were extended tend to have deals comparable to mid-tier free agents, in the $6-$8 million per year range, even though these players are valued at a higher compensation level than mid-tier free agents. In about 60% of the cases, having the right to negotiate saved a negligible amount of money, if that. In the other six cases: Jason Campbell, Sage Rosenfels, Anquan Boldin, Matt Schaub, Brandon Marshall, and Kellen Winslow (all passing game components), Quarterbacks received up to 50% less than they would have made on the open market, and the Dolphins and Bucs both received $6 to $8 million more in first three years risk compensation than they would have been able to in free agency. Boldin had a team friendly contract, and clearly met the Ravens in the middle.
In the aggregate, trading a 2nd, 3rd, or 4th round pick saves about 18% of the total contract value, down from roughly 30% on the first round pick. If the average functional 3-year guarantee on sub-elite level players is $16-$22, and $6-$8 million of that is saved, based on the quality of the player, that’s a pretty big chunk of that player surplus that’s being saved. Of course, from that $6 million figure, we need to subtract the replacement cost of signing a veteran to do the same task, so what we’re really looking at is $5 million dollars value saved by trading a mid round pick instead of using it. This is largely consistent across the 2nd, 3rd, and 4th rounds. This figure is down from the $8 million dollars of market value saved by trading a first round pick.
We can then establish the holding value of the pick before it is spent or traded by adding that $5 million to the cost of using the pick, established above:
- Round 1: $8 million – $14.4 million = ($6.4 million)
- Round 2: $5 million – $2.13 million = $2.87 million
- Round 3: $5 million – $0.72 million = $4.28 million
- Round 4: $5 million – $0.46 million = $4.54 million
This reverse value added trend is made possible by the fact that more valuable draft picks DO NOT bring better players in trades, and certainly not according to a cost scale, so teams save more money (surplus independent) if they trade away their higher draft picks vs. their mid round picks. It creates better cash flows to build your team entirely out of 2nd-7th round picks, and undrafted free agents.
But surplus value is a primary driver of value creation for the franchise. And 3rd/4th round picks just don’t bring in the player value of the first two picks. On average, 3rd round picks turn into quality starters about half the time, superstars at no greater a rate than late rounders. 4th rounders turn into starters about one-third of the time. For third rounders, that’s a win estimate of 0.55/year for three years, or $15.84 million. For fourth rounders, the win estimate is about 0.37/year for three years, or $10.66 million. That can be straight added to our value-added equation to demonstrate the money value of a mid round pick:
- 3rd round: $4.28 million +$15.84 million = $20.12 million
- 4th round: $4.54 million + $10.66 million = $15.2 million
The second round estimate is a little trickier, since you could give the benefit of three years or four years on the average rookie deal, given that 3 year contracts for second rounders are non-existent. I will play it in the middle here and use a 3.5 year estimate, and a win factor of about 0.72/year.
- 2nd round: $2.87 million + $24.19 million = $27.1 million
Because of the massive difference in cost between a second round pick and a first round pick, the difference between the cash value of a teams first round choice and it’s second round choice is only about $6 million. This supports the conclusions made by Massey/Thaler in 2003 that 2nd round picks are undervalued (based on a higher surplus at the time). Even though the number of picks difference between the middle of the first round and middle of the second, and the middle of the second to the middle of the third, second round picks are almost as valuable as first round picks if they could be bought.
The main point in this research is that all draft picks are valuable. Trade value of a pick falls off considerably after the 4th round — into the $1-$2 million range, but teams that piss away their late round draft picks on flyers on injured players are still costing themselves about double that amount in franchise value. It’s just not a risk worth taking.
Additionally, teams don’t want to trade for first round draft picks anymore because to get even value, one franchise must trade it’s cornerstone player to another franchise. The market may adjust to this someday, but the next time you see a veteran player traded out of a city where he has a large reputation, and a pundit remarks that “that’s just the way the game is these days”, feel confident in the fact that the game isn’t like that at all. Great players in their prime don’t get traded anymore in $50 million value transfer trades for first round picks. That’s essentially what separated the Jay Cutler trade from the Matt Cassel trade.
In today’s market, the total worth of a player like Tom Brady, his history, his future, his contract, is about a single first round pick. If he signs a mega extension with the Patriots, he’s no longer even worth that much. There would be more than a few franchises who would gladly give up a first round pick just to have Brady for this season only, but those franchises are outnumbered by the ones who wouldn’t. A trade that dominates headlines for weeks is no longer worth a first round pick in franchise value, and until the market conditions change and draft picks begin to cost more, teams are foolish to trade them for returns that wouldn’t be panned as strongly in the favor of the team receiving veterans.
Teams in the NFL want to win. If they didn’t, they’d be willing to trade a first round draft pick for two fourths and a sixth. The NFL value chart is build less on the concept of value, and more on the concept of getting winning players. It’s not an efficient model, but as long as first and second round picks deliver the playoff wins and the Lombardi Trophy, the fans and players just don’t care.