For the second time in a week, a top-two pick traded hands, and again the team that traded down and acquired a boatload of picks appears to have come out on top.
Moving up in the draft is always costly. We can measure just how costly a trade is using a measure of surplus value provided by each pick. Surplus value is a concept first conceived by economists Cade Massey and Richard Thaler. It measures both the expected on-field impact of a player as well as his cost.
For example, if the No. 2 overall pick costs $5 million per year and a free agent who can be expected to have the same on-field performance as that pick would cost $7 million per year, that pick will not only gain the performance from that player, it will also have another $2 million in cap space each year to help keep and sign additional talent. That’s what makes draft picks so valuable.
Looking at the Eagles-Browns trade through the lens of surplus value, we can tally the total value exchanged by each team. The Eagles get $2.2 million of total surplus value while the Browns get $10.2 million, nearly a fivefold increase. The difference is so stark for at least three reasons.
First, the Browns’ new picks come in the second and third rounds, where surplus value is still very high. These picks have a lot of performance upside but are not expensive and do not carry much in terms of guaranteed money.
Second, two of the Browns’ new picks come in 2017 and 2018. In the same way that many people carry large credit card balances, NFL teams tend to devalue or discount future-year resources because of the pressure to win now. The reality is that some of the decision-makers in high-profile trades might not be around to pay the future price.
Perhaps the biggest reason driving the disparity in surplus value is the unique importance of the quarterback position. A team trading up specifically for a QB might be so confident that the player will turn out to be successful that the trade seems worth the cost.
The teams themselves have traditionally used the “Jimmy Johnson chart” to value draft picks in trades, or at least some variant of that tool. The chart was commissioned by the former Cowboys coach to help him make quick decisions on trades during the draft and has stuck as the de facto standard around the league.
The values in the chart are extremely top-heavy, meaning that the top picks in the first round are significantly overvalued. This is what drives the market for trades and helps explain why teams must pay so high a price to move up.
The Browns’ windfall might be thanks in part to their analytics staff, well aware of concepts like surplus value. Newly arrived Chief Strategy Officer Paul DePodesta was one of the brains behind the original Moneyball phenomenon in baseball, and he’s now helping give analytics a louder voice in Cleveland. The trade was a slam-dunk good decision for the Browns no matter how you look at it.
Philadelphia is betting a lot on the quarterback that falls to them at No. 2. We won’t know if it’s a smart gamble for a few years, but the analytics say it’s a long shot.