This is a post that I’ve been meaning to write for a while, but I’ve kept putting it off. In the wake of the Frank Clark trade I figure it’s time.
Trading valuable draft picks for a player and then signing them to a new, market rate contract is just about the worst thing a team can do. Sure, Clark will make the team better in 2019, but in the long term it will only hurt us.
To understand why let’s simplify things. Instead of dealing with the NFL with it’s 53-man rosters and positional values and scheme fits, we’re going to talk about an imaginary professional tennis doubles league.
Our team, the Kansas City Tennis Club, is a new expansion team looking to fill it’s 2 roster spots from the pool of free agents.
This is an easy choice, Bob Smith and Jim Brown are the two best players, so we grab them.
But of course every professional sports league needs to pay its players, so we need to take salary into consideration.
But as the owner of the Kansas City Tennis Club, I can easily afford the $70 for those two guys, so our roster looks the same.
Now let’s say the league doesn’t like rich owners like myself being able to outspend other teams, so they institute a salary cap of $50. So while Bob Smith is a good player, we can’t afford both him and Jim Brown so he has to go.
Now let’s introduce draft picks. The key here is that, just like in the NFL, draft picks are on very cheap contracts. They may be good or bad, but because of how cheap they are you can surround them with expensive players. If they turn out to be good you’ll have an unbeatable team.
Notice that our draft pick doesn’t even have to be all that good for the team overall to be better. Even with a skill level of 25 would make the team better than our one built purely from free agents.
Let’s go back to our salary cap team. Now our GM sees a player on the Seattle Tennis Club team called Clark Frank. This guy is really good, with a skill level of 80, and at $40 he has the price tag to match. So we give Seattle our draft pick to get him on our team.
Unfortunately since Clark Frank took up so much of our salary cap we had to go cheap for the rest of our team.
But notice something interesting. Even though we gave up our draft pick, our overall team skill isn’t any better! Because we had to downgrade the rest of the roster to make room for our new star, the team overall didn’t improve.
This is caused by the player’s market being efficient. In economic terms “efficient” means that everybody has the same information, so the price you pay reflects the quality of player you’re getting.
In short, every player has the same exact value on the open market.
As you can see when we played around with building the team, if you only have market rate players you’re not going to be able to build a particularly good team. Even if they’re elite players, if you have to pay them elite money it still doesn’t help you.
This means trading for elite players makes no sense if you have to pay them market rate. I can get market rate players in free agency without having to give up picks, so why would I trade for them.
The NFL is a bit more complicated, but the logic still applies. Clark’s contract extension will mostly kick in in 2020, but why not spend that $20 million on free agents without giving up a draft pick? Unless the Chiefs have identified something that no other team has noticed, those free agents would have contributed just as much to our win-loss record as Clark.