The NBA Draft

Abstract

The National Basketball Association (NBA) has a fixed salary schedule that allows us to examine this labor market to understand the incentives for players to enter the draft. Previous studies have focused on labor as a choice from the team's perspective. Early entry into the NBA draft is similar to the decision to exercise an American style put option early; the draftee sells his remaining time in college early. Using mock draft and actual draft data, the authors find early exercise to be rational for all class ranks; though the early exercise boundary is considerably different for freshmen and juniors.

Should I Stay or Should I Go Pro? Early NFL Draft Entry by NCAA FBS Underclassmen

“…The paper also develops a model of teams' hiring decisions similar to the models by Hendricks et al (2003) and Bollinger & Hotchkiss (2003). Arel & Tomas (2012) modeled the decision to declare early for the draft as analogous to exercising an American Put Option from the finance literature. A put option is the right to sell an asset at a predetermined price, called the strike price or exercise price.…”

“…In order to link the predictions of the model developed by Arel & Tomas (2012) to our empirical analysis, we exploit a well-known empirical regularity: the higher a player is selected in each year's entry draft, the larger his salary during the period before he gains free agency in the professional labor market. Earlier draft picks earn higher salaries than later draft picks.…”

“…Our data contain information on college players who declared early for the draft and who decided to remain in college another year. This enables us to assess the validity of the predictions made by the models developed by Groothuis et al (2007) and Arel & Tomas (2012). Although the models by Groothuis et al (2007) and Arel & Tomas (2012) focus on the NBA draft, the decision made by football players to declare early for the NFL draft or stay in college another year closely resembles the decision made by college basketball players.…”

“…This model emphasized the importance of human capital investment in decisions to declare early or remain in college, as well as the role of forgone professional earnings. Arel & Tomas (2012) developed a model based on the idea that the decision to declare early resembles the decision to exercise an American put option by the option owner in financial markets. Arel & Tomas (2019) extended the put option model to include a salary "racheting" effect.…”

Improving Sports Outcome Prediction Process Using Integrating Adaptive Weighted Features and Machine Learning Techniques

“…With the growth of sports market value, sports team management attracted considerable attention and became a popular topic from researchers. For example, some studies established decision support methods to assist the teams' decision of rookie draft [1,2]. Some research aimed to analyze the teams' player selection and scouting policy [3,4].…”