Thursday, April 22, 2010

The WSJ on the football draft and market design

Writing in the Sports section of the Wall Street Journal, Reed Albergotti considers the NFL player draft, and some possible alternatives.
Why the NFL Draft Drives Economists Crazy
Fixed Costs, Variable Talent and Changes in the College Game Make Big Mistakes Unavoidable; Time for an Auction?

In an accompanying graphic, he writes "Harvard researchers Lucas Coffman, Itai Ashlagi, and Itay Fainmesser came up with an alternative based on an idea called a simultaneous ascending auction."

Along the way, the article has some nice things to say about market design.
"Thanks to market design, medical-school students are matched with hospitals through a complicated computer algorithm. Governments use "communal auctions" to distribute things like cellular bandwidth to telecommunications companies. Even the New York City public schools have used market economics to ensure parity in its school-choice system. "
"Three researchers at Harvard Business School—who studied under Alvin Roth, a Harvard professor and a pioneer in market-design theory—have proposed an alternative to the NFL draft.
Under their plan, all 32 teams would be given seven picks. They would have to abide by a spending cap that would go higher to lower—with the worst team (based on its record the previous season) having the most money to spend. When the bidding opened, the most sought-after players would draw multiple bids. Teams could then raise their bid as high as they'd like for a player they coveted.
Theoretically, a team could get any player it wanted—so long as it was prepared to pinch pennies on everyone else. Meanwhile, a team that didn't want to break the bank on any particular player could pick up lots of useful parts by spreading its money around evenly. Teams could also thrive by focusing on the bidding and looking for bargains.
"I think that it would significantly help teams get the right guys," said Lucas Coffman, one of the study's authors. If nothing else, Mr. Coffman said, the auction format might be more exciting than the draft, which allows for long gaps between picks.
In any case, there's some evidence the draft could be the next fix for a league that fixes everything. One NFL executive said patience is running thin. "There's a huge trail littered with guys who got the big dollars but were a bust," this person said."

Postscript: Luke Coffman, Itai Ashlagi, and Itay Fainmesser were all on a differently organized labor market this year, and will be at Ohio State, MIT Sloan, and Brown next year.

For another take on the design of the NFL labor market, by another recent Harvard grad Gregor Matvos, see his paper "Renegotiation Design: Evidence from NFL roster bonuses."

Update: Luke Coffman points out that the allocation of tickets to attend tonight's NFL draft could use some market design, and he points me to this, on Craigslist.
Experienced line sitter available to get tickets for NFL Draft - $75 (Midtown)
"I am an experienced line sitter who has worked many events. I am always on line early to secure tickets. I will be available to stand in line for tickets for the 1st 2 nights of the NFL Draft at Radio City Music hall. The procedure is as follows I will line up the evening before to get my wristband and will be back on line in order to get the tickets at 5:15 the day of the draft. The gates at Radio City will open at 6 p.m. each night. My charge for this service is $75 per ticket I can also bring people with me to secure extra tickets if you need more than 1, Please reply with the night(S) you want tickets for and how many tickets you need. Round 1 will be held Thursday night April 22nd and rounds 2-3 will be held Friday April 23rd. "


Very tall Chris said...

If the top picks cost so much and are a bust 50% of the time, why don't more teams trade away the top picks for established players? This doesn't seem to happen too often.

Abe Othman said...

Hey guys, nice work here!

As a draft replacement though, it seems like you would really want to run a formal iterated combinatorial auction with sophisticated side constraints (e.g., I might be interested in both Sam Bradford and Colt McCoy but never give me more than one quarterback).

Also, there might be all sorts of weird non-IPV effects in terms of the allocations that your division rivals receive.

Stephan said...

The implementation of this design could be extremely repugnant. Walking someone onto a stage (often a minority) and having bids placed on them for physical service could be devastating to the NFL's image and business.

While the draft design may make the outcomes more interesting, its parallels to our image of slave auctions are a likely impedance to any attempt at its adoption.