There is no better sign of the NFL’s domination of the American sports landscape like the phenomenon of the NFL draft.
The event, which is essentially a glorified business meeting, has evolved from a one day affair held in a smoke-filled single hotel conference room into a made-for-TV spectacle. Not only does it annually dominate the competing NBA playoffs in television ratings, but in 2014 more people watched the first round of the draft than either Game 7 of the World Series or any NBA championship game.
In America, democracy may be a failing god — but NFL is king.
The NFL draft also happens to be my favorite time on the sports calendar, in part because it is also a great illustration of many foundational economic concepts relevant to Austrian economics.
Subjective Theory of Value
For those who may be unfamiliar, the NFL draft is the process in which NFL teams take terms selecting new players entering the league – mostly made up of former college football stars. While the process itself takes place over the course of three days, the real action happens in the prior months as teams of scouts, coaches, and front office executives go around the coaching watching games, testing players, and conducting in depth investigations into the lives of the people their franchises are considering making a significant financial investment in.
What’s important to note here is that, for the most part, every team has the potential to access most of the same information about each player. All teams can look at how fast a player can run a 40 yard dash, see the same game film, have the ability to interview potential players, etc. While each franchise has equal access to this raw data, it is how teams are able to interpret it that separates the Cleveland Browns from the New England Patriots.
Or, as Ludwig von Mises put it in Bureaucracy:
There are no such things as absolute values, independent of the subjective preferences of erring men. Judgments of values are the outcome of human arbitrariness. They reflect all the shortcomings and weaknesses of their authors.
The subjective values of each team leads to a wide variety of opinion on almost every player in the draft. Prior to, each organization builds a draft board reflecting the internal rankings of how each team evaluates the prospects. Some of these differences stem directly from team strategy. For example, a defensive lineman may fit a 4-3 defense scheme better than he would fit a 3-4 front. Some running backs are better equipped for a zone blocking scheme over others. Some teams have firm requirements on physical measurements, refusing to draft a player at a certain position who doesn’t reach a specific height or have a specific 40 time. Just as consumers in the market have their own unique preferences when it comes to purchases, each franchise has their own list of what they look for in a player.
Every year you can count on a draft story involving a team drafting a player much higher than draft pundits or the rest of the league values them. The late legendary Raiders owner Al Davis became infamous for drafting players early based on their 40 time or other prized physical attributes. In 2009, ESPN’s Mel Kiper ripped the Raiders for drafting a safety, Mike Mitchel, he considered undraftable in the 2nd round. Mitchel has gone on to have a strong NFL career, a vindication of Davis’s evaluation process.
Of course sometimes factors that have nothing to do with the football field can have an impact on the value a team places on a player.
Legend has it that a key factor in the Cleveland Browns decision to draft quarterback Johnny Manziel during the 2014 draft was that the owner, Jimmy Haslam, was approached by a homeless man who begged for him to draft the former Heisman trophy winner. To Haslam, the excitement from the public to bring in the scintillating “Johnny Football” was too great a value for the team to pass up – even though the team’s own scouting department had identified Teddy Bridgewater as a better professional prospect. Two years later, Johnny Manziel currently is out of the league – demonstrating that Haslam’s valuing of factors outside of the game of football was an example of bad entrepreneurial judgment.
General Managers as Entrepreneurs
Of course entrepreneurship is what the draft is really all about.
As Peter Klein writes in The Capitalist and the Entrepreneur:
Entrepreneurs rely on judgment, or what Mises calls understanding. Understanding is intuitive, subjective, and qualitative, and thus inherently imperfect.
Whether it be the owner, the general manager, or the head coach, whoever has the final say on draft day is making a judgment in the face of uncertainty that they hope will benefit their organization.
Every draft selection carries risk. Some have been mentioned above – scheme fit, or the having the physical talents necessary for pro ball. Injury history is important, with accomplished players sometimes watching their draft stock fall due to concerns over chronic health issues. Some players have red flags for off the field behavior, and each team has their own judgment on how many red flags they are willing to overlook in selecting a player.
In his book The War Room, Michael Holley looks at the draft process of Bill Belichick and compares it to that of two of member of his Patriots staff that went on to become NFL GM’s, Scott Pioli and Thomas Dimitrioff. The entire book is a fascinating look at the evaluation process of three competing entrepreneurs and the unique way each men evaluating talent, including their willingness to take on risk. As Holley wrote:
When Dimitroff was with the Patriots, he could watch the same film as Scott Pioli and Bill Belichick and sometimes the three of them would walk away seeing different things. He had learned a lot of football and management from them both, but becoming them was never the point; he was an extension of a Belichick Tree, not a Belichick Monolith.
The book highlights, for example, how Bill Belichick was willing to select a player with a history of red flags that caused him to be removed from the draft board of Thomas Dimitrioff. The player in question was Aaron Hernandez, a talented tight end who had a highly productive NFL career before being convicted of murder.
A proper understanding of entrepreneurial judgment also demonstrates the nonsensical nature of trying to “grade” a draft class immediately. As Peter Klein puts it:
Final judgments about success and failure can be made only ex post, as the market process plays itself out.
In the case of football, the market process happens when the actual games are played. It’s humorous to see draft pundits fall guilty of their own “fatal conceit” by pretending to be able to predict the future performance of new professional players. Mel Kiper, along with a variety of other sports media, was highly critical of the Seattle Seahawks 2012 draft class. Two years later, the Seahawks won the Super Bowl in large part due to the performance of quarterback Russell Wilson and linebacker Bobby Wagner – both members of what is now considered an elite draft class.
All of this is a reminder that economics is all around us and, as Mises wrote, “must not be relegated to classrooms and statistical offices and must not be left to esoteric circles.” It doesn’t matter if it is trying to create a start-up, building a professional sports team or trying your luck at romance, we are all entrepreneurs in life and all can benefit from thinking like an economist.
Especially if you’re a Cleveland Browns fan.
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