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On the NFL Draft and Chelsea's youth policy

The name of the game is "risk diversification."


There's a big thing happening in the world of football tonight and this weekend.  No, it's not Manchester City winning the league.  It's about the other football, you know, the one played mostly with your hands.

The 2014 NFL Draft starts Thursday night.  For those unfamiliar, it's the strangely popular, incredibly boring multi-day event where the 32 NFL teams select new players into the league from all the available players from universities and colleges across America.  Or at least the vast majority of new players, as some do sign later as undrafted free agents or as transfers from the few other leagues that exist.  Think of it as if all the youth academies of the world pooled their graduates of that year together and then let everybody pick from them in reverse order - the worst teams going first, best teams going last.

Obviously, the conventional thinking is that you want to draft as high (i.e. as early) as possible, as that's where the best prospects are.  That's where you'd find the likes of Thibaut Courtois or Romelu Lukaku.  NFL teams often trade away other, lower draft picks for one (much) higher draft pick just so that they can get the one guy they believe will make all the difference to their teams.

Sometimes, this works out quite well.  Often, it does not.  Much like as it is in the youth academies of Europe, evaluating talent in the colleges of America is not an exact science.  For every Peyton Manning (#1 pick in 1998) or John Elway (#1 pick in 1983), you'll get a Ryan Leaf (#2 pick in 1998) or a JaMarcus Russell (#1 in 2007).  The first two are two of the greatest quarterbacks to have ever played the game.  Of the other two, one's currently serving a seven-year prison sentence for felony burglary and drug possession, while the other is attempting a comeback after managing to escape a similar fate for possession of a controlled substance.  Leaf and Russell each have barely 20 NFL starts to their name for a combined 10 wins or so after collecting over $40m in guaranteed salary.

For the right to draft Leaf in the second spot, the San Diego Chargers traded away three other draft picks and a Pro Bowl player.  They basically took the gamble that Leaf would be worth more than those four combined.  If that sounds mad to you, well it is, though it makes a tiny bit more sense in a league with a salary and a roster-size cap.  Objectively, however...

NFL executives invest huge amounts of time and resources into scouting players and ranking them, hoping to draft stars in the first round and solid contributors later on.

But here's the thing: despite years of data, most NFL teams still have no idea how to work the draft most effectively.

It's not their imperfect player evaluation, but something more basic - their refusal to follow the principle of risk diversification. That's the conclusion economists Cade Massey and Richard Thaler came to after analyzing fifteen years of draft data in a series of papers - and it's still true, despite recent changes to the wages rookies are paid.

Draft picks can be traded, and the success of any one player picked is highly uncertain. Because of that, their data says that in the current trade market, teams are always better off trading down - that is, trading one high pick for multiple lower ones - but many teams become overconfident in their evaluation of one particular player and do the exact opposite: package several low picks for the right to take one player very early.

"There are one or two teams out there that philosophically follow this idea," says Massey, who serves as a draft consultant with several NFL teams that he can't disclose. "But in my experience, teams always say they're on board with it in January. Then when April rolls around, and they've been preparing for the draft for a long time, they fall in love with players, get more and more confident in their analysis, and fall back into the same patterns."

-How NFL teams ignore basic economics and draft players irrationally

The research shows that what teams should be doing instead is trading down to amass more draft picks.  (I do recommend you read the whole article over on our sister site VOX.) That's what they're calling "risk diversification."  Instead of one egg in the basket, you have many eggs in the basket for a very similar price even.  It makes sense especially in a league like the NFL where all draft picks are basically the cream of the crop, the best of the best college football players.  The talent gap from one pick to another is probably very, very small, unless you find that one diamond.  For example, the Seattle Seahawks just made Richard Sherman the highest paid cornerback in the league.  He is the best, so it makes sense.  He was drafted 154th.

Where it also makes sense is the other football, you know, the one played with your feet.  Except in this football, since we're not limited by roster sizes or any real salary caps, we get to run our own private drafts from our very own pool of players.  For us, the risk diversification happens at the academy or youth prospect level.  This is why we signed Kurt Zouma when we already had Kenneth Omeruo, Tomáš Kalas, and Andreas Christensen.  It's why our U18 and U21 squads, as well as the essentially two squads of loanees we have dispersed all across England and Europe are brimming with talent.

There are no guarantees in scouting and player development, so we amass as much talent as possible, and pick the cream of the crop.  Other teams are doing much the same, but because parity is not a concern, as a good team with a world class academy, we almost always get our man.  One of whom, one day might even be our next #1 draft pick.

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