Early First Round Fifth-Year Option Differences

In some of my recent research into fifth-year options in NFL contracts, I found one very important distinction in value between the top ten first round picks and picks eleven through thirty-two. For players at the same position in the two different groups of first-round picks, the salary for the top ten picks is higher than the salary for picks eleven through thirty-two. Players drafted in the top ten receive the equivalent of the transition tag for their position, while players drafted in the latter part of the first round receive a salary equivalent to the average of the salaries of the 3rd through 25th highest salaries at their respective position.

This certainly makes sense, given the sliding salary scale in the NFL draft, but it allows for a sizable distinction in value between picks at the end of the top ten and picks in the early part of the second tier. There is not a huge difference in quality between the average player drafted seventh overall and the average player drafted fourteenth overall. As a result, the drop off in salary allows for players drafted in the early double digits to produce better value for their team.

To demonstrate some of the differences in value, I will use the draft class of 2011. In Table 1, I have listed the salaries for the duration of the five years of team control for players taken in the first round of the 2011 NFL Draft, with the fifth-year option only being exercised 60.16% of the time based on a projected AV threshold that players would need to meet for the team to keep them for a fifth season (more on that in a bit). 2011 was the first year of the rookie wage scale as currently constructed, which meant that rookies were no longer entering the league with massive contracts like the ones given to Sam Bradford and Matthew Stafford. The five years comprise of the initial four-year contract and the fifth-year option added onto the end.

table 8

Now, it certainly makes sense that a player drafted seventh will receive a more lucrative contract than a player drafted fourteenth. In theory, a player drafted seventh should also be a better player than one drafted fourteenth, but the data does not exactly bear that out. In Table 2, I have listed the different levels of Approximate Value through the initial four years of a player’s career for players drafted seventh through fourteenth overall for all drafts between 1980 and 2011.

table 9

The average AV generated through four years for players drafted seventh through fourteenth shows a lot of noise. The sample size is not huge, so it appears for players drafted seventh through thirteenth there is no notable difference in the quality of player you are getting. There is a drop-off at fourteen, but I would be willing to bet that in a larger sample than about 30 examples of each selection that the difference is not a major one. Thus, I chose to take the average of all the players in the sample to get a better sense of what the “true” talent level for this pool of players would be. Through four years, the average amount of AV generated is 24.66.

If we were to break up the two groups by average AV generated, it would make the most sense to split the two groups at the point where their pay changes. A two-sample t-test between the pool of players drafted seventh through tenth and the pool of players drafted eleventh through fourteenth, where the null hypothesis is that the means of the two groups are the same and the alternative hypothesis is that the means are different, yields a p-value of 0.5714, meaning that we fail to reject that the average AV between the two groups is the same.

Now that we have a measure for how good these players are through four years, we need to account for the fifth-year option. The fifth-year option is only guaranteed for injury when a team exercises it, meaning that teams can cut a player and not have to pay a dime unless that player suffers a significant injury (which is part of why the Washington Redskins sat Robert Griffin III all season long). Since the fifth-year option salary is not an insignificant salary commitment, I would imagine that teams would only want to keep the player at that salary level if they think they have a starter-quality player.

We now will revisit the retention rate for the fifth year of the contract. For the purposes of this exercise, I chose to use 6 AV as the threshold where a team would keep a player on the fifth-year option salary. It would be possible to use a different threshold for where a team would want to keep a player on the fifth-year option salary, but we will proceed with the assumption that a team will not keep the player at that salary level based on a fourth season of worse than 6 AV. In 60.16% of the cases examined, the drafted player met these requirements. Then, for the players that were kept, I calculated the average AV generated in their fifth year, which turned out to be 7.80. This means that for teams drafting in this range of picks, there was a 60.16% chance of selecting a player that would, on average, produce 7.80 AV in their fifth season.

If we were to split the two different option pay levels and look at their rates independently, the percentages are slightly different, with 59.38% of players meeting the threshold for picks seven through ten and 60.94% of players meeting the threshold for picks eleven through fourteen. A quick two-proportion hypothesis test, where the null hypothesis is that the proportion of players meeting the threshold in both groups is the same and the alternative hypothesis is that the proportions are different, yields a z-score of 0.255, meaning that we cannot reject the null hypothesis that the true proportions are the same. Thus, we will proceed using the pooled proportion.

A quick glance at the average AV in year 5 across the two different groups shows that players drafted seventh through tenth from 1980 to 2011 generated an average of 5.83 AV in their fifth season while those drafted eleventh through fourteenth generated an average of 6.20 AV in their fifth season. The two-sample t-test p-value for a difference in means is 0.6446, which means that we fail to reject the null hypothesis that the two means are the same and we will simply use the overall average of AV in players’ fifth seasons instead of splitting it up.

Based on the expected average AV for the fifth year of the contract of 7.80 * 60.16%, we can add that to the four-year average of 24.66 to get a projected five-year AV of 29.35 from these players. Using that as the expected outcome of the five years of team control, we can then calculate the projected cost per AV for draft selections seven through fourteen. Effectively, there is a 100% chance of having a four-year contract for an average of 24.66 AV, and then a 60.16% chance of having the fifth year at an average of 7.80 AV. Table 3 shows the cost per unit of value for the projected 29.35 AV produced over the course of the five year contract.

table 10

The main conclusion to draw here is that players drafted seventh through fourteenth are more or less of equal quality through the first five years of their career. With the sharp distinction in pay between top ten picks and picks in the early teens, due to both the sliding salary scale in the first round and the drop-off in cost of the fifth-year option, teams sitting seventh through tenth should absolutely be looking to trade down into the early teens in the first round.

Obviously, each team will have their own draft board and evaluations of prospects, so it may be the case that a team needs to stay in the top ten to draft a player they have evaluated as being worthy of a top ten pick. However, given the relative scarcity of options at premium positions like quarterback, teams would do well to take advantage of other teams’ strong desires to move into position to draft a player like Carson Wentz or Jared Goff, much like the Titans did in their trade with the Rams.

An added perk of moving down is that teams are entitled to acquiring extra draft capital in the form of more picks. A team moving from seven to fourteen would be entitled to the equivalent of a late fourth-round pick (around 115th) using Chase Stuart’s AV methodology of valuing draft picks, while the Jimmy Johnson chart would dictate that the team trading down should receive a mid-to-late second-round pick (around 50th).

While the Jimmy Johnson chart is not necessarily the most accurate method of measuring the trade value of draft picks, it is what the vast majority of teams use in their negotiations. This would actually pay off for the team moving down because they could claim, based on the Jimmy Johnson chart, that they deserve a higher pick than they would using Stuart’s methodology for the trouble of moving down from seven to fourteen. So the benefits of trading down from the end of the top ten to the early teens are really twofold. One: the team gains extra draft picks that they wouldn’t have had otherwise, and two: the team gets to select a player of essentially the same quality while having the privilege of paying them less money over the course of their rookie contract.

Sources: pro-football-reference.com, NFL.com

Carl Yedor

Georgetown Class of 2016

Twitter: @CarlYedor61

LinkedIn: Carl Yedor

Email: cey10@georgetown.edu

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s