Scorecasting (29 page)

Massey and Thaler also found that the inflated values teams were assigning to high picks were remarkably, if not unbelievably, consistent. From used cars to commodities to real estate, markets inevitably vary. After all, different people with different needs and different resources make different valuations, and you’d think the market for football players, inherently subjective and speculative, would be
especially
erratic. But when it came to NFL draft picks, virtually every team agreed on the same values. No matter the circumstances or a team’s needs, teams routinely assigned the same value to the same pick. Why?

It turned out they were all using the chart Mike McCoy created in 1991!

To test their suspicions that the chart overvalued high picks, Massey and Thaler compared the values teams placed on picks—either in terms of the picks and players they gave up or in terms of compensation—with the actual performance of the players. The economists then compared those numbers with the performance of the players given up to get those picks. For example, in the case of Eli Manning, how did his performance over the next five years compare with that of Philip Rivers
plus
the performances of the players chosen with the picks the Giants had to give San Diego to get Manning? Likewise, how did those numbers stack up against Ben Roethlisberger’s stats
and
those of the players the Giants could have had with the additional picks they would have received from Cleveland?

More generally, if the chart says the number one pick will cost you the number six pick plus the number eight pick, if the chart is right, the performance of the number one player drafted should be the same as the total performance of the number six and number eight picks combined. The economists looked at the probability of making the roster, the number of starts, and the likelihood of making the Pro Bowl.

They found that higher picks are better than lower picks on average and that first rounders on average post better numbers than do second rounders, who in turn post better stats than third-round draft picks, and so on. No one will try to tell you that collectively first-round picks do not end up as better pros than third-round picks or that third-round picks don’t outperform sixth-round picks.

The problem was that they weren’t
that
much better. For example, according to the chart, the number one pick in the first round should be worth roughly five times the thirty-third pick, that is, the first pick in the second round. But it turns out that the top pick on average is not even twice as good as the thirty-third-picked player, yet teams pay the number one pick four to five times more than the thirty-third player drafted. Even within the first round, the chart claims that the number ten pick is worth less than half as much as the number one pick and accordingly is paid about half as much. But in reality, the typical number ten pick is almost as good a player as the typical number one pick.

Even looking position by position, the top draft picks are overvalued. How much better is the first quarterback or receiver taken than the second or third quarterback or receiver? Not much. The researchers concluded the following:

• The probability that the first player drafted at a given position is better than the
  second
  player drafted at the same position is only 53 percent, that is, slightly better than a tie
  .
  
• The probability that the first player drafted at a position is better than the
  third
  player drafted at the same position is only 55 percent
  .
  
• The probability that the first player drafted at a position is better than the
  fourth
  player drafted at the same position is only 56 percent
  .
  

In other words, selecting the consensus top player at a specific position versus the consensus fourth-best player at that position increases performance, measured by the number of starts, by only
6 percent. And even this is overstating the case, since the number one pick is afforded more chances/more starts simply because the team has invested so much money in him. Yet teams will end up paying, in terms of both players and dollars, as much as four or five times more to get that first player relative to the fourth player. If we look back at the 2004 NFL draft, was Eli Manning really 50 percent better than Philip Rivers and twice as good as Ben Roethlisberger? We could debate the ranking among those three today. Putting aside Roethlisberger’s troubling and well-chronicled “character issues,” most experts and fans probably would rank them in reverse order from their draft selection in terms of value today. You’d be hard put to convince anyone that Manning is appreciably more valuable than Rivers or Roethlisberger; in any event, he’s certainly not
twice
as valuable. Yet this pattern persists year after year.

Is having the top pick in the NFL draft such a stroke of good fortune? It’s essentially a coin flip, but not in the traditional sense. Heads, you win a dime; tails, you lose a quarter. Massey and Thaler go so far as to contend that once you factor in salary, the first pick in the entire draft is worth
less
than the first pick in the second round. (For kicks, imagine the team with the top pick showing up on draft day, the fan base brimming with exuberant optimism, only to hear the commissioner intone: “With the first pick, the Detroit Lions … pass. The Cleveland Browns are now on the clock.”)

Massey and Thaler discovered another form of overvaluation as well: Teams paid huge prices in terms of
future
draft picks to move up in the draft. For example, getting a first-round draft pick this year would cost teams two first-round picks the next year or in subsequent years. Gaining an additional second-round pick this year meant giving up the first- and second-round picks next year. Coaches and GMs seemed to put far less value on the future. Looking at all such trades, the so-called implicit discount rate for the future was 174 percent, meaning that teams valued picking today at more than twice and nearly three times the value of taking the same pick in the next year’s draft! Think of this as an
interest rate. How many of us would borrow money at an annual interest rate of 174 percent? Even loan sharks aren’t that ruthless.

Why do NFL teams place so much value on high picks? Psychology explains a lot of it. As anyone who’s ever watched the game show
Deal or No Deal
or has placed a bid on eBay or at a charity auction can attest, we tend to overpay for an object or a service when we’re in competition with other bidders. We know the value of that $500 gift certificate and raise our paddles accordingly. That’s easy. What if the value of the item is uncertain? When a coveted piece of art or jewelry is up for grabs and the value is unclear, the real bidding war begins, often resulting in overpayment. There’s even a term for this: winner’s curse.

To demonstrate the winner’s curse, a certain economics professor has been known to stuff a wad of cash into an envelope, stating to his students that there is less than $100 inside. The students bid for its contents; without fail, the winning bid far exceeds the actual contents—sometimes even exceeding $100! (The surplus is used to buy the rest of the students pizza on the last day of class.) The top picks in the NFL draft, by its very nature an exercise in speculation, are singularly ripe for the winner’s curse.

Here’s another factor in the overpayment of draft picks: As a rule, people are overconfident in their abilities. In all sorts of different contexts, we’re more sure of ourselves than we probably should be. In a well-known study, people were asked at random whether they were above-average drivers. Three-quarters said they were. Similarly, between 75 and 95 percent of money managers, entrepreneurs, and teachers also thought they were “above average” at their job. Not everyone, of course, can be above average. You’d expect roughly half to be. How many times are hiring decisions made on intuition because a boss on the other side of the desk is convinced that in a 30-minute interview she’s found the best candidate? How often do doctors advise a treatment plan because of intuitive decision-making, not because of evidence-based decision-making? They’re just sure they’re right. In the same way,
NFL general managers (and sometimes their interfering owners) tend to be overconfident in their ability to assess talent. They trust their gut. Not altogether a bad thing, but they trust it too much and overpay as a result. Never mind the math; they fancy themselves the exception. They
know
they’re right about this player, just as every entrepreneur knows his business plan is better and every mutual fund manager
knows
she’s got the winning stock picks.

Overvaluing because of gut instincts also helps explain why teams invest so much in this year’s pick and so little in next year’s prospects. The guy in front of you is “a once-in-a-lifetime player,” a term invoked almost without fail at every draft. The guy next year is just an abstraction. (Another explanation for the immediacy: GMs and coaches typically have short tenures, so winning now is imperative to keeping their jobs. Even a year can seem beyond their horizon.)

Overvaluing draft picks isn’t confined to football. In the NBA, teams value this year’s pick at two to three times the value of the same pick in next year’s draft. Collecting data on the NBA draft going back to 1982 and looking at trades for current draft picks that involved future draft picks, we found that future draft picks were discounted heavily at 169 percent, almost to the same extent that NFL teams discounted future draft choices. Again, this could be because GMs and coaches have short windows or because teams overvalue what they see now and undervalue what they can’t see readily. Top draft picks in the NBA, however, were only slightly overvalued—not nearly to the extent they are in the NFL. This makes sense: The NBA, after all, has only two draft rounds. Player ability is also easier to predict, there are fewer players and fewer positions to consider, and a single player has a much larger impact on the team than in football. In
baseball—where the draft is less important, as so many foreign players sign as free agents—there is also a huge discount applied to future picks, and top picks again tend to be overvalued.

The truth is that evaluating talent is
hard
. How hard? For an illustration, consider the case of Eli Manning’s older brother, Peyton. In 1998, Peyton Manning entered the NFL draft with tremendous
hype. But teams weren’t sure whether he would be the first or second quarterback taken. There was a comparably touted quarterback from Washington State,
Ryan Leaf, considered by many NFL scouts to be the better prospect. Leaf was bigger and stronger than Manning, two easily measurable characteristics, and, again with the support of numbers, was regarded as the better athlete. Although Manning acquitted himself capably at Tennessee, he never led the formidable Volunteers to a national title, a cause for some concern.

The San Diego Chargers originally held the third pick of the draft but made a trade with the
Arizona Cardinals to move up to the second pick to ensure that they got one of the two tantalizing quarterbacks. This move cost them two first-round picks, a second-round pick, reserve linebacker
Patrick Sapp, and three-time Pro Bowler
Eric Metcalf—all to move up one spot!

In the end the Indianapolis Colts, holding the number one pick, took Manning. The San Diego Chargers took Leaf with the second pick and signed him to a five-year contract worth $31.25 million, including a guaranteed $11.25 million signing bonus, at the time the largest ever paid to a rookie—that is, until the Colts paid Manning even more: $48 million over six years, including an $11.6 million signing bonus.

You probably know how the story unfolded. Peyton Manning is the Zeus of NFL quarterbacks, a four-time MVP winner (the most of any player in history), a Super Bowl champion, riding shotgun on the express bus to the Hall of Fame. And Leaf? As we write this, he is currently out on bond as he defends himself against burglary and drug charges in Texas. (He was sentenced to probation after pleading guilty to illegally obtaining prescription drugs.) In the summer of 2009, he was arrested by customs agents as he returned from Canada, where he had been in drug rehab. He played his last NFL game in 2001, his career marked by ineffective play; injuries; toxic relations with teammates, coaches, and the media; and a general lack of professionalism. Leaf once complained of wrist pain to avoid practice but reportedly had played golf earlier in the day. Another time, while serving a four-game suspension
for insubordination and ordered to rehabilitate a shoulder and wrist, he was videotaped playing flag football with friends.

After three disastrous seasons, the Chargers released Leaf, which actually broke with convention. Time and again, ignoring what economists call sunk costs, when a high draft pick underperforms, teams tend to keep investing in him for years in the hope that he’ll turn it around. The team rationalizes: We paid a ton to get him; we have to keep trying to make it pay off. But the money’s gone, and continuing to invest in the underperforming player is simply making a bad decision worse. Ever ordered a food item, bitten into it, and found it tasted awful? How many of us eat it anyway because, well, we paid for it? Or how often do we insist on holding on to a stock we bought for $50 that is worth $40 today and $30 tomorrow? Is the off-tasting sushi really going to taste better if we keep eating it? Is the company that is tanking really going to see its stock price return to $50? The money is gone; we may as well cut our losses now. But we hardly ever do. Everyone hates admitting a loss, football executives included.