To many it would seem that the NFL draft needs some adjustment, if not a full reworking based on their assumption that first-round picks are making too much money. Alex Smith, JaMarcus Russell, and Matthew Stafford all became instant millionaires without proving themselves in the NFL, and the former two at this point in their careers look like busts and wastes of money.
To the 49’ers, Alex Smith appears to be what economists call a sunk cost (I’m sure you can figure that one out from context).
However, while Alex Smith exists for the ‘Niners, Mario Williams exists for the Texans (as does David Carr, as I’m sure they’d remind you). Williams clearly was a fine investment for the Texans, while Smith, was, well, a sunk cost.
So, what limiting rookie salaries does is decrease the team’s risk associated with drafting a player. That’s right, at issue is that the most profitable sports organizations in the world feel there’s too much financial risk in drafting new, high-end prospects.
And that may well be the case. If you look at the NBA, there is zero risk associated with the draft. You draft a player, they get a slotted contract at a below-market value, and move on. Failure in the draft simply leads to failure on the court, not financial tightening off the court.
As you may be catching on, I’m not all that sympathetic for the teams. They negotiate poorly with rookies. The rookies have close to zero leverage. There’s no alternative league to go running to, and they don’t magically appear as free agents if they don’t sign by September. What happens to them, you ask? They sit on the shelf and lose value as they gain age without gaining playing time.
Personally, I feel that there should be risk involved in drafting a player that doesn’t pan out—other than a wasted roster spot and chump change on the side—but where can we find the balance?
The solution is simple. Instead of coming up with an arbitrary slotting system, or capping what players can negotiate from teams, keep the long term monster contracts with one tweak: add a mutual option after the third year.
So, if a player signs a six-year deal, after year three, allow him to opt out and become a restricted free agent. Or, conversely, if the team feels he’s underperformed, let the team opt out of the contract and let the player become a restricted free agent.
With restricted free agency, the player can get paid his market value based on what he’s done in the league, and the original team can match any other teams’ offers and keep their player, or, if the player leaves, the team gets a compensation pick.
For those of you that follow baseball closely (where mutual contract options exist with the greatest frequency), you know that nearly all mutual options get declined by one party or the other, so one would think there’d be a ton of high-value RFA’s every year with this system.
But, with this system, the player can earn money based on his perceived potential through the first three years (as rookie contracts are currently done), and then get the market value for what he's actually done on the field after that.
The team’s risk is cut significantly as they can more cheaply cut an unwanted contract, and if another team drives the price up in restricted free agency, the original team is compensated with a pick if they lose the player. The system would offer balance in the risk-reward ratio, and work out for everyone.