In 1991, the Dallas Cowboys, in part due to the Herschel Walker trade with the Minnesota Vikings, were entering the draft with a 17 total picks in the 12-round draft (five in the first round, including the #1 pick overall). A huge haul. With that stockpile of picks, it was likely that other teams were going to be calling for trades. Second-year coach Jimmy Johnson and his college ex-teammate and team owner Jerry Jones were willing to wheel and deal, but Jimmy couldn’t figure out how to make fast decisions when offered multiple picks. "I can’t assess value that fast; no one can," he complained at a pre-draft meeting.
Mike McCoy, a Cowboys executive and Arkansas petroleum engineer that partnered with Jerry Jones to form Arkoma Production Company, offered to work out a plan that would help streamline Jimmy’s evaluation process. Arkoma was highly successful, hitting on an astronomically high percentage of speculative wells. They sold the company to the state-run gas company in Arkansas, Arkla, for $175 million dollars, paving the way for Jones’ investment in the Cowboys. He took McCoy with him. To create the Value Chart, McCoy asked the Cowboys’ player personnel department to provide a list of every NFL trade conducted on draft day for the prior four years, and came up with a scoring valuation that reflected what teams had done with their trades. Starting with a value of 3000 for the first pick in the draft, it ended with .4, for the final "Mr. Irrelevant" pick. When draft time came, the Cowboys were able to quickly gauge the comparative value of offers. When the opposing team’s trade numbers were above the line, they seized the bargain; when they were below, they passed. At the end of the draft, they had a nice selection of 17 players, including three eventual Pro Bowlers, and set the stage for three SuperBowl championships in 1993, 1994 and 1996.
The Cowboys took advantage of other NFL clubs for a period from 1991 to at least 1993, and were extremely successful for the duration of the trade value chart’s dominance. They even learned, by evaluating the data, which teams would be prey to lopsided trades. Like the Saints, with their trade for Ricky Williams.
While McCoy admits it was a crass calculation, with little economic evaluation, the original chart has survived with some minor tweaks and, over the next decade, was passed around to other teams (coaches departing Dallas for other jobs took copies with them). The original chart, or some slight variant has literally served teams as the defacto "trade value chart" for trading most draft picks for over two decades now. But does it make sense?
Definitely not, according to Richard Thaler, a professor of behavioral economics at the University of Chicago, and Cade Massey, a behavioral economist at Yale. While watching the 2004 NFL draft, they saw the Chargers take Eli Manning with the first pick of the draft, then trade him to the Giants for Philip Rivers, the fourth pick, together with the Giants 3rd round pick (#65) and their 1st and 5th round picks in the 2005 draft. Thaler and Massey thought the trade, for the Giants to effectively move up three spots to swap the second-ranked quarterback for the first-ranked QB, plus three additional players, was an unreasonable haul for the Chargers, despite the fact that it matched the trade value chart exactly.
Thaler and Massey did an economic evaluation that considered the actual performance of players (including the performance of players drafted with additional picks), contracts, probability of making the roster, likelihood of making the Pro Bowl, etc., over a study period of at least thirteen years.
They concluded that the probability the first player drafted at a position is better than the second player drafted at that position is only 53%, or slightly over a tie. The probability that the first player is better than the third is 55%, and better than the fourth? Only 56%. Selecting the consensus top player at a position versus fourth-best player at that position increased performance by only 6 percent, based on the number of starts. They also found that teams paid a huge price in overvaluation in trading future picks to move up in the draft. Looking at those trades, the implicit discount rate for the future was 174%, nearly three times the value of taking the same pick in the next year’s draft! To put it in perspective, you’d comparatively have to accept the terms of a loan, even for only a year, for the principal plus a 174% interest rate.
Overvaluing a pick appears to be primarily based on gut instinct. The top player every year is almost invariably a "once in a lifetime player." The information and hype surrounding some players on media and blogs suggests that they might be nearly superhuman, singly responsible for changing a franchise’s fortunes. That’s rarely the case. Isn’t it hereditarily impossible for an athletic junior or senior in any college to be substantially superior compared to the next best junior or senior in all other colleges at their position? The Thaler/Massey study showed it was invariably not the case.
Has the NFL community revaluated McCoy’s draft chart? Said one executive, "We’re football guys, not math majors." "We’re all using this document that a buddy of Jerry Jones put together using picks in what, the late eighties? Put like that, it’s probably not so smart."
However, there appears to be some pushback. The latest collective bargaining agreement and the rookie wage cap have significantly reduced the huge economic impact of a high draft pick. In effect, it should have raised the value of the early picks. However, history has not shown an increase in values for draft trades. In fact, recent trades have shown a real downturn in values for trading up. In 2013, of eight pick-only trades, only two paid more than the standard trade value, and then only 7-9 points higher. The other six picks averaged some 179 points, or thereabouts, lower than the chart. It would appear the teams are recognizing the error of the chart.
In any case, teams could still make huge gains by trading down consistently, according to Thaler and Massey. The positive history of teams that trade down versus those that trade up is significant, statistics wise.
Don’t take my word for it. Much of the background for this post came from the book, "Scorecasting: The Hidden Influences Behind How Sports Are Played and Games are Won," by Tobias Moskowitz and L. Jon Wertheim. You should buy it, and read it. Really, you should buy two copies, and rush one to Thomas Dimitroff with Chapter 12 highlighted. It has a cool chart that shows the top draft picks from 1999 to 2009. Not one was the offensive or defensive rookie of the year, nor were Pro Bowl players during that period. More often than not, they’ve turned out to be busts. So think twice before suggesting we "trade whatever it takes to move up to the first pick for Jadeveon Clowney." According to Thaler and Massey, we’re better off going to the 10th pick.