Why Have a Draft?

Posted on April 17, 2007 by


Let’s say your team is a loser. If your team played in a European league that would be a problem. European sports leagues have a system of promotion and relegation, which means the losers each season get demoted into the sports minor leagues and the best of the minor leagues are promoted to the majors. In other words, in Europe – where socialism is not exactly a bad word – losers are punished. In the United States – where winning is supposed to be everything – losers in professional sports are rewarded with high draft choices.

Now if you are a Detroit Lions fan – such as I – the reverse-order draft is a good thing. Every April the Lions get a fair amount of attention from the national media, as people wonder whose promising career the Lions are going to seek to ruin next.

In basketball the story is a bit different. In the NBA one outstanding talent can have a dramatic impact on a team’s fortunes. Consequently the reverse-order draft gives teams a clear incentive to avoid winning when the playoffs are no longer possible. The latest team to follow this strategy is the Minnesota Timberwolves, who are sitting Kevin Garnett now that the road to the playoffs had hit a dead end.

Talking about who a team will take or why losers do not do their best at the end of a season is certainly fun. But in all this talk we tend to ignore the larger issue. Why do North American sports leagues employ a draft? Let me spend a moment on how the leagues justify this institution, and then I will discuss why I think this institution was actually enacted.

The Competitive Balance Argument

According to the leagues, the draft is designed to encourage parity. As such, it’s part of an arsenal leagues employ to promote competitive balance. In the NBA’s arsenal we not only see a reverse-order draft, but also a cap on payrolls, a cap on individual salaries, and revenue sharing. All of these institutions are designed to promote competitive balance in the NBA. Unfortunately, the data suggests that these institutions don’t really work very well.

To see this, consider the level of competitive balance in the Association. Last year the standard deviation of winning percentage in the NBA was 0.136. The idealized standard deviation for the NBA – given its schedule of 82 games – is 0.055. So the ratio of actual to ideal – a measure we call the Noll-Scully (named after Roger Noll and Gerald Scully, the two economists who originated this metric in the 1980s) — was 2.47 for the NBA. Prior to last night’s games the standard deviation of winning percentage in the NBA was 0.134. So the ratio this year currently stands at 2.42.

For the NBA to have an actual standard deviation that is more than twice the ideal is hardly unusual. For the past 27 years, the NBA’s Noll-Scully has been more than two every single season.

To put these numbers in perspective we looked at the level of competitive balance in a collection of sports leagues in soccer, football, hockey, baseball, and basketball. The average ratio across all leagues is 1.9, but in recent years most sports have offered a ratio below this mark. For example, the NHL has only had 3 years with a ratio at 1.9 or higher in the last 20 years. In baseball, the American League has been at 1.9 or higher nine times in the last 20 years while the National League has equaled or exceeded the 1.9 mark only five times across the same time period. And in the NFL, we have not seen a ratio equal to 1.9 since 1944.

In sum, despite a reverse order draft, caps on payrolls and salaries, and revenue sharing, competitive balance in the NBA tends to be much worse relative to other sports leagues. This is not only seen in the disparity in regular season winning percentages, but also in the distribution of championships (as detailed in The Wages of Wins).

The Short Supply of Tall People

The problem for the NBA – as we said again and again in The Wages of Wins – is the short supply of tall people. The NBA takes its athletes from a very tiny population, specifically very tall people. As Stephen Jay Gould noted twenty years ago, when your population of talent is small, the variation in athletic talent will tend to be higher. Consequently, when baseball began to integrate in 1947, the talent pool expanded and the level of competitive balance improved. Unfortunately for the NBA, the talent pool cannot be easily expanded. There are just so many really tall people who are good at basketball. Hence some teams have access to really good tall people – like Michael Jordan, Shaq, Tim Duncan, Dirk Nowitzski – and others are left with less talented big men. And when the talented play the less talented, the results tend to somewhat predictable.

Why Have a Draft?

A draft is not going to manufacture additional Greg Odens and Kevin Durants. Two teams are going to get these players and probably improve. Others will get less talented players and not do much better. The draft – as well as caps and revenue sharing – cannot change the number of truly talented basketball players that exist in the world. And consequently, these institutions do not have much impact on competitive balance.

So what then is the point of the draft? What the draft does is restrict the salaries paid to newcomers into the league. Initially it restricted who was allowed to bid on a player’s services. The past tendency of high draft choices to hold out led the NBA to institute a rookie salary scale, which eliminated the rookies bargaining power completely. And what did the elimination of bargaining power do for the NBA? It allowed teams to pay far less for the wins and revenue the top talents create early in their careers.

In sum, people have argued that the draft as evidence of socialism creeping onto professional sports. In reality, though, the draft is really part of the darker side of capitalism. The owners of capital (if I can get all Marxist for a moment) have created an institution that allows them to exploit their workers (i.e. pay the workers a wage that is below the amount of revenue the workers generate for the firm).

So should Greg Oden turn pro and begin his exploitation by an NBA team? Well, right now he is being exploited even more by the NCAA. So he might as well join the Association where at least he can be exploited less.

Yes, that’s my advice to Oden. “Turn pro and reduce your level of exploitation.” Not exactly a slogan destined for a bumper sticker some day.

Update: Doug Drinen at Pro Football Reference (JC Bradbury’s primary co-author) has authored a great post on why the NFL Draft should be abolished.  Drinen makes a very good argument for why ending the draft is a good idea, although he fails to tell us what Lions fans are supposed to do in April. Given that my favorite time of the year as a Lions fan is the month of April, you can see why personally I am opposed to Drinen’s idea. As an economist, though, I can’t see a flaw in his logic.  Thanks to Katie Gold for pointing out Drinen’s comments.

 – DJ