Economists Richard Thaler and Cade Massey authored a widely-read research paper analyzing the value of NFL draft picks, and they've recently published an updated version. The paper's primary finding was that teams are overconfident in their ability to choose the best players. In essence, the very top picks are overvalued relative to later picks, both in terms of what teams are willing to trade to move up in the draft and in terms of salary.
Recently Richard Thaler penned an article for the NYT discussing his paper. But puzzlingly, he goes on to make a claim that clearly contradicts his own research. He writes, "it makes absolutely no sense to be giving so much money to unproven rookies, many of whom turn out to be busts." Further, he writes, "veteran players would probably agree with the principle that eight-figure salaries should be reserved for players who have already proved themselves on the field."
The Massey-Thaler paper is very sound and persuasive, and perhaps the most concrete finding is that draft picks in all rounds are underpaid compared to free-agent veterans. In short, the study assigns a value to a player based on a variety of measures such as Pro Bowl selections, games started, and years on a roster. The research finds draft picks are paid less than free-agent veterans for the same expected performance.
This graph taken from the paper is the study's bottom line. The black dotted 'compensation' line is the average annual pay for each draft pick. The green 'performance' line is the salary a team would have to pay a 6-year veteran free agent for the same expected performance. The blue dashed 'surplus' line is the difference between the two pay levels.
According to Massey and Thaler, although the top picks appear to be overpaid relative to later picks, draft picks in all rounds are underpaid relative to veteran players. Thaler's own research contradicts his recent statement that it makes "absolutely no sense to be giving so much money to unproven rookies." It makes perfect sense to me.
Now that I'm thinking about the Massey-Thaler paper again, I'm wondering if the overvaluation of top picks might be justified, at least to some degree. Massey and Thaler seem to assume a linear "bricklayer" model of football player production. By that I mean that a bricklayer who lays 10 bricks per minute and makes $10 per hour can be replaced by two slower bricklayers who each lay 5 bricks per minute and make $5 per hour. In this model, absolute performance is what's important.
But one great QB cannot be replaced on the field by two average QBs, and a team can only field 11 players on the field at a time. It can only carry 53 players on its roster. The bricklayer model does not apply. Further, relative ability is what matters in football, not absolute ability.
As I wrote last year, football players are more like gladiators than bricklayers. When two gladiators square-off in the Coliseum, and one is slightly but consistently better than the other, the superior gladiator would almost always win. The winner survives, basking in glory, while the outcome isn't so pleasant for the loser. The NFL is similar to gladiatorial combat: Every game is a winner-take-all competition, and there can only be one champion. Put simply, if you're not among the very best it matters little how good you are in absolute terms, which is what the Massey-Thaler paper measures. The nature of football puts a premium on singular excellence, and that's why the players with the highest likelihood of great success are prized so highly.
While I trust the statistical findings of the paper, it doesn't suggest that rookies are overpaid. It suggests the opposite. And further, there may be a good reason why the very top picks are so highly valued. It may not be due to the overconfidence and irrationality of team executives.