#10: The NFL Draft Economics Happy Hour Podcast

In this episode, we explore a few of the economic concepts that come into play during sports drafts, particularly the NFL Draft. The conversation revolves around the misaligned incentives of teams during the draft process, where the objective of selecting the best player clashes with the desire to remain cost-efficient. We discuss some challenges of valuing talent accurately and explain the "winner's curse" phenomenon, where teams that win the draft lottery and select the top player often end up overpaying for their services.
In this episode, we discuss:
* Some of the economic concepts associated with the NFL Draft:
* Valuing draft positions and players
* Opportunity costs
* Misaligned incentives
* Pop culture references
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Some show notes:
Jadrian was drinking a Ramble On Juicy IP from Starr Hill Brewery, which was brewed in Virginia - like every drink he has had so far. Matt didn’t feel constrained by geography and had a Weihenstephaner, a German beer from the oldest brewery in the world (1040).
Our opening chat on valuing draft positions was based on work by Massey & Thaler, published in Management Science back in 2013. The authors look at efficiency issues related to pay and position in the NFL Draft:
We eventually transitioned into talking about opportunity costs, and how players who are drafted must decide whether to accept that offer or go play for another team. A great example is the very first pick from the NFL’s very first draft in 1936. Jay Berwanger won the Heisman Trophy the year before and was a graduate of the University of Chicago. His degree paid more than the Chicago Bears offered him, so he ultimately never played in the NFL.
Lastly, we wrapped up where we started by talking about misaligned incentives. We recorded this episode while the Dallas Mavericks were being investigated for tanking their final game in an effort to secure a top draft spot in the NBA Lottery. After we recorded the episode, the NBA announced that the Dallas Mavericks were fined $750,000 for “conduct detrimental to the league” due to resting key players. Drafts are supposed to help redistribute talent around the league, but poor teams have the incentive to lose in order to improve their odds of being the top pick next year.
This week’s pop culture references:
For pop culture references, Matt brought up a recent episode of HBO’s hit Succession. In it, Connor refers to Scrooge as creating a lot of value. Normally, Ebenezer Scrooge is thought of in a negative light, but by consuming sparsely, he is helping society. Matt has a series on economic lessons from Succession, you can watch one of them here:
Jadrian went with a sports-related pop culture scene from Young Sheldon, where Sheldon explains to his family that it doesn’t make statistical sense to always punt on fourth down. While the show is set back in the 1990s, the paper was published by David Romer in 2006. Here’s an article from The New York Times summarizing the work.
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