Risk equivalence as an alternative to balancing mean value when trading draft selections and players in major sporting leagues

Abstract

In sports leagues that use an annual draft to assign eligible players to clubs, having a value associated with a draft selection can allow clubs to anticipate future growth of players and, if a trading period exists, assist negotiations when exchanging draft selections and players. Typically, mean draft values often decline in either an exponential or geometric manner with increasing draft selection number. Aggregate mean values have been used to compare trade packages. However, clubs may also want to ensure that a trade does not increase the probability of obtaining poor players in the draft. This paper therefore considers equivalence of risk as an alternative trading strategy for club list managers. Here, risk is defined as the probability of the aggregate value of the received draft selections being below a minimum acceptable level. For risk equivalence, a premium over and above mean market value may need to be provided when trading to secure higher draft selections.

The AFL Pick Trading Market as a Coasian Utopia

“…In terms of explanatory variables, the log of pick was used to coincide with a conventional production function (Tuck & Richards, 2019) instead of two iterations of the same (one as is and the other a quadratic) used by many to represent the diminishing decline in the value of a pick. This is further compensated using positional dummies to evaluate on field biases together with an indigenous indicator to account for any hints of racial discrimination.…”

Valuing Australian football league draft picks

“…The choice of player salaries was justified because it was ‘an indicator of relative market value of players at each draft pick’ [ 17 , 24 ]. Upon further investigation, it is evident that the DVI follows a conventional log normal wage function [ 19 ]. Akin to the PVC in the NFL, the DVI declines exponentially in the first-round selections, while teams often use it as a guide in trading picks during the draft.…”

“…However, as player compensation is not generally determined by marginal productivity [ 18 ], the trade correction referred to earlier will fail to materialise. For the draft to be effective it important that players selected through the draft represent their pick value as this will reshape the rosters of each team cyclically [ 19 ]. This study will first model player performance using various alternative measures considering factors such as race, physical metrics and drafting scenarios.…”

Compounding endowment effects when trading draft picks in the Australian Football League

“…After all competing teams make their respective choices (also called a round), the process is repeated. The principle governing the draft aims to cyclically alter the fortunes of each team in the league assuming they all intend to maximise their wins [ 2 ]. Though some teams might aim to maximise profits, maximising wins will correlate to this objective through fan engagement, commercial partnerships, and brand value appreciation.…”