Three years ago in this space, I began tracking the performance of an economic model of the National Football League draft that was developed by Richard Thaler of the University of Chicago and Cade Massey of Yale University. When I did so, it seemed unlikely that the model would be successful in determining the winners and losers of something as dicey as the annual draft.
The model's performance, though, has been striking.
Its rankings of each draft provide a statistically significant predictor of wins the following season, and some of the predictions have been startling. For example, of the eight clear draft winners in 2007 and 2008, four were in the playoffs this past season, including three rather unlikely candidates--the Miami Dolphins, the Baltimore Ravens and the Carolina Panthers. Since losing teams tend to start the draft with the most ammo, such a hit rate is impressive.
The model also identified nine big losers in the 2007 and 2008 drafts, including such big-time favorites as the Dallas Cowboys and the New England Patriots. Only one of the nine, the Minnesota Vikings, made the playoffs last season. The Vikings lost in the first round.
So while the television screens were buzzing with expert analysis of the draft this weekend, I dutifully entered numbers in my computer.
The headline is that this year, two of the biggest winners are already powerhouse teams. It looks like there is a strong chance there will be another Super Bowl between the Patriots and the New York Giants, who faced off in February 2008, with the Giants prevailing.
Cap Is Key
Before jumping all the way to the Super Bowl, let's review how the system works.
Since NFL teams operate under a salary cap, success requires that a team find players who perform better than their salaries would suggest.
If there were no cap, you could just pay $10 million to every player on your roster and produce a winner. Call this the New York Yankees Strategy.
With the cap, if you spend that much on one player, you have less money to spend at the other spots. You need to get superstar performance at low, low prices.
The draft allows you to do that. Players chosen in the first round get stratospheric salaries. This year's top pick, Matthew Stafford, has already signed with the Detroit Lions for an astonishing $78 million maximum over six years. But players chosen later on get much lower salaries.
Thaler and Massey examined the history of drafting and found that teams that choose at the top do not necessarily get their money's worth, while teams picking in the later rounds, especially the second, tend to get real bargains.
To put their system into practice, I used their results to calculate the historic value associated with each spot in the draft--10th, 55th, 97th, etc.--and then added up the values for each team's choices in the first four rounds.
The system is player-blind. That is, it doesn't care who the fourth pick in the second round is; it simply gives a team credit for selecting a typically successful player in that slot.
Looking at this year's scores, the four big winners were, in order, the Patriots, the Denver Broncos, the Lions and the Giants.
New England's coach, Bill Belichick, who majored in economics in college, has clearly been reading the literature. He ditched his first-round pick altogether and loaded up on four second-rounders. In addition, he traded some of his later picks for other teams' second-round picks next year.
The Patriots' haul was the second-highest-scoring draft since 2003, when my calculations begin. The only team that did better was the 2004 Cincinnati Bengals, a team that, if you are keeping score, went on to win its division in 2005.
Belichick disciple Josh McDaniels, now coaching the Broncos, clearly has taken a page from the master. His team, and the Lions, are probably rebuilding next year, and they are off to a great start.
The big news is that the Giants maneuvered to get two second-round and two third-round picks, elevating their final scores. Expect them to once again be the class of the National Football Conference.
It didn't take a computer to spot the big loser in this year's draft, the Washington Redskins. The Redskins once again revealed their extreme economic ignorance, trading away their second-round and fourth-round picks. U.S. bailout money is the only thing that can save the Redskins now. (How convenient: Their plea for help would be a local call.)
The other big losers were the San Francisco 49ers and New York's other team, the Jets.
Still the Jets
The Jets made a classic error, falling in love with University of Southern California quarterback Mark Sanchez and virtually guaranteeing they will have a large number of undrafted scrubs on their roster. Given the high salaries at the top of the draft, Sanchez will probably not generate much value above that demanded by his salary, even if he becomes a superstar.
Why has the Thaler-Massey system worked so well? The best explanation is that football is a violent sport. Having a star might not guarantee success, since the star might get injured. Having two solid second-round talents at a position might well be a better call, since the backup plan is in place if the starter gets injured. And that backup plan is cost-effective, since second-round salaries are relatively low.
So next year, if New England loses its starting safety to injury, its first pick in the second round, Patrick Chung, can step right in and perform adequately. The Giants will be just as prepared. When injuries strike the Redskins, the replacements will come from the street. Which is why Patriots and Giants fans should be feeling pretty good right now, and Redskins and Jets fans should prepare for yet another disappointing season.
Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.