We wrote last week about how the Consumer Price Index barely moved in March, meaning the economy doesn’t have much chance of experiencing inflation any time soon. That’s good if you’re an average person buying everyday goods. But if you’re the owner of an NFL football team paying professional athletes, the CPI doesn’t really apply to the inflation you have to deal with.
The contracts doled out to rookies selected in the NFL Draft are growing larger by the season, causing some to wonder if having a high pick in the draft is more of a curse than a blessing.
First-Year Contracts Shooting Through The Roof
The NFL Draft uses a “slotting system” to dictate how much each pick is paid, from the first selection down. In 2003, quarterback Carson Palmer received $16 million of guaranteed money as the first pick. In 2009, quarterback Matthew Stafford set the league record by snaring $41.7 in guaranteed money, more than 250% of what Palmer received just six years prior. According to the Wall Street Journal, 2010 top pick Sam Bradford, also a quarterback, is set to earn about $47 million guaranteed. Rookies taken in the top five spots of the 2009 draft collected a combined 81% more than they did in 2005.
Professional football is a booming business and the owners are not short on money, but the main concern is that inflation on first-year contracts has easily outpaced inflation on contracts for veteran players and helped drive up salaries around the league. Under current rules, rookies who have never played a second of professional football are permitted to hold out — sometimes even until several weeks into the season — until they agree upon a contract. If the team chooses not to meet the player’s demands, it has forfeited a draft pick and a sizeable part of its future. Last year, rookie Jake Long, before ever even attending an NFL practice, signed a contract that made him the highest-paid offensive tackle in the league.
The imbalance between rookies and proven commodities is especially troublesome considering the fact that 14% of top five draft picks did not complete five years in the NFL and 37% never made the Pro Bowl, the NFL’s all-star game.
Early Pick A Blessing Or A Curse
The draft, which includes seven rounds, gives the teams that finished worst the previous season the highest picks. For example, the St. Louis Rams finished last in 2009, so they picked first in 2010. But with the privilege of having their choice of all the available players, however, comes the burden of having to pay the biggest salary.
Economists Richard Thaler and Cade Massey released this month a study on the market efficiency of the NFL Draft. They found that a team with more second and low-first round picks could fare better than a team with a top five selection.
“Although the market prices of picks decline very sharply initially, we find surplus value of the picks during the first round actually increases throughout most of the round,” said Thaler and Massey. “The player selected with the final pick in the first round on average produces more surplus to his team than the first pick, and costs one-fifth the price!”
The study makes the point that NFL teams should be making much better decisions with their money — and not spending nearly as much — because of their ability over the years to analyze both their picks and their competitors’ picks. That teams have not come to the same conclusions as Thaler and Massey is a bit surprising, considering the escalating costs involved.