NFL Draft Shenanigans

Entry drafts are used by all professional sports leagues in North America to allocate incoming talent to teams. They create monopsony power for teams because they assign the rights to drafted players to specific teams, denying these players the right to negotiate with any other team in the league. In the NBA, the collective bargaining agreement includes a rookie salary scale that removes all bargaining from the process: the player drafted in spot X in the first round gets $Y.

In the NFL, a drafted player and the team that drafted him must agree on a contract before the season starts. In this system, teams pay players based on expected marginal revenue product, not actual marginal revenue product, which generates information problems. The NFL solves this problem through an unofficial “slotting” system where compensation is roughly a decreasing function of draft order; the lower the draft position, the lower the salary. Wiggle room still exists in the NFL system, because teams and players still must negotiate a contract. The system gives little power to the player – holding out is his only effective bargaining chip.

Out in the Bay Area, the inscrutable Al Davis directed the Raiders to draft Maryland wide receiver Darrius Heyward-Bey with the #9 #7 pick in the last draft, allowing the 49ers to draft Texas Tech wide reveiver Michael Crabtree with the #10 pick. Under the informal NFL “slotting” system, Crabtree would be expected to earn less than Heyward-Bey. However, Crabtree has threatened to hold out because he was ranked higher in the gadzillion mock drafts that now take place before the actual NFL draft, and argues that he should be paid more than Heyward-Bey on that basis. He is effectively arguing: “Mel Kiper Jr. says I am better than Heyward-Bey, so the 49ers should pay me more than Heyward-Bey.”

Information asymmetries often lead to interesting economic outcomes. Crabtree certainly makes an unconventional argument. But the entry draft places players in a very weak bargaining position, because of the huge opportunity cost of a holdout. I expect that Crabtree will eventually sign a contract worth less than Heyward-Bey’s before the start of the season.

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Author: Brad Humphreys

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