The NFL as “not for long”: the NFL draft and teams’ discount rates

Abstract

Purpose

To present a method for calculating the discount rate that teams apply to future-year draft picks relative to current-year draft picks and then apply that method to the actual draft picks and trades over the period 2011–2022.

Design/methodology/approach

The National Football League (NFL) Draft permits teams to trade the selection rights for current-year and future-year draft picks. We seek to calculate the discount rates associated with NFL Draft trades. With this method, we calculate the discount rate for each trade by NFL teams involving a combination of current-year and future-year draft picks since 2011, when the NFL ratified a new collective bargaining agreement that instituted a draft-pick salary scale and capped the length of draftees’ contracts.

Findings

We find that teams' annualized discount rates in trading away future-year draft picks are quite steep, averaging more than 100% per year. These steep discount rates suggest that teams are pressured by market competition to adopt a “win now” approach in devaluing the future draft choices relative to the present draft choices.

Research limitations/implications

The actual discount rate for each trade is not known with certainty when the trade is transacted. This uncertainty arises because the within-round order of future-year picks is determined by teams’ future performance, which is not known at the time of the transaction.

Practical implications

In reporting these findings, we acknowledge the limitations of our analysis. The dataset is small, as there are on average between five and six trades per year involving current-year and future-year picks. More observations could have been included by extending the timeframe to before 2011, but we opted against doing so because the NFL’s 2011 CBA changed teams’ draft calculus by imposing a draft-pick salary scale and capping the length of draftees’ contracts. In addition, our discount rates as calculated are ex post facto in that they are calculated after the future-year drafts have been held. While these are the actual discount rates for the trades as transacted, the actual discount rate for each trade is not known with certainty when the trade is transacted. This uncertainty arises because the within-round order of future-year picks is determined by teams’ future performance, which is not known at the time of the transaction. As an aside, we also re-estimated each trade’s discount rate with an adjustment for that uncertainty, and the median discount rate for all 61 trades was still over 100% per year.

Originality/value

Providing insights into NFL Draft management behavior and decision-making for current-year and future-year draft picks since 2011, when the NFL ratified a new collective bargaining agreement that instituted a draft-pick salary scale and capped the length of draftees’ contracts.

Citation

Duquette, C.M. and Cebula, R.J. (2024), "The NFL as “not for long”: the NFL draft and teams’ discount rates", Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MF-06-2024-0419