Nfl Draft Econo
metrics Research Prospectus | Draft or Free Agency | Using High Profile Athletes to Maximize Revenues | | Christopher Walsh | 3/3/2011 |
I. Introduction
Professional sports teams are one of the most intriguing operations in the economic climate. Fans want nothing more than for their team to win games and more importantly championships; however, this is not the goal of the majority of owners. Sports teams require a large amount of capital up front in order to purchase one, and because of this, owners are looking to see returns on that investment in the form of revenue and profit for their team. Throughout the course of their tenure as sports executives, owners must make pivotal decisions in regards to talent for their team. Fans will not go to see a team without any winning potential, and thus owners invest a large amount of money in enlisting the talents of high profile superstars. The interesting decision that comes from this dilemma is how to approach the superstar market. Every year, the National Football League (NFL) and the National Basketball Association (NBA) hold entry level drafts for rookies. These drafts are full of talent that owners can pursue. In both the NFL and the NBA, there are salary caps for how much teams can spend on the initial contract of these rookies, and they must also work within the salary cap space of their respective league. These salary restrictions would seem to mark an interesting capability of maximizing the profit generated based on the extra revenue created by these high profile athletes, while also minimizing their cost to the team, as their talent in the professional leagues is still unproven. However, teams, such as the New England Patriots, are notorious for trading out of the first round in order to save some money if they cannot find the talent they want since first round picks often command a high salary. Teams such as the New England Patriots often pursue other markets then the rookie draft in
I. Introduction
Professional sports teams are one of the most intriguing operations in the economic climate. Fans want nothing more than for their team to win games and more importantly championships; however, this is not the goal of the majority of owners. Sports teams require a large amount of capital up front in order to purchase one, and because of this, owners are looking to see returns on that investment in the form of revenue and profit for their team. Throughout the course of their tenure as sports executives, owners must make pivotal decisions in regards to talent for their team. Fans will not go to see a team without any winning potential, and thus owners invest a large amount of money in enlisting the talents of high profile superstars. The interesting decision that comes from this dilemma is how to approach the superstar market. Every year, the National Football League (NFL) and the National Basketball Association (NBA) hold entry level drafts for rookies. These drafts are full of talent that owners can pursue. In both the NFL and the NBA, there are salary caps for how much teams can spend on the initial contract of these rookies, and they must also work within the salary cap space of their respective league. These salary restrictions would seem to mark an interesting capability of maximizing the profit generated based on the extra revenue created by these high profile athletes, while also minimizing their cost to the team, as their talent in the professional leagues is still unproven. However, teams, such as the New England Patriots, are notorious for trading out of the first round in order to save some money if they cannot find the talent they want since first round picks often command a high salary. Teams such as the New England Patriots often pursue other markets then the rookie draft in
Bibliography: Groothuis, Peter A., James R. Hill, and Timothy Perri. "Early Entry in the NBA Draft: The Influence of Unraveling, Human Capital, and Option Value." (2005). Hendricks, Wallace, Lawrence DeBrock, and Roger Koenker. "Uncertainty Hiring, and Subsequent Performance: The NFL Draft." Journal of Labor Economics 21.4 (2003): 857-86. Massey, Cade, and Richard H. Thaler. "The Loser 's Curse: Overconfidence vs. Market Efficiency in the National Football League Draft." (2006). -------------------------------------------- [ 1 ]. Hendricks, 870 [ 2 ]. See conclusions of Groothuis article