Compounding endowment effects when trading draft picks in the Australian Football League.

Endowment effect relates to a situation when decision makers are more likely to retain an object they own, than acquire the same object when they do not own it. Studies have often concluded that players recruited early on through drafts are more likely to be held in team rosters irrespective of their marginal utility. We tested the hypothesis wherein this effect would compound when the pick used to select a player is traded between teams. Using a sample of draftees selected between 2003 and 2016 in the Australian Football League, we created a proportional hazard model to predict the career longevity of a player with their drafting team and overall career. The results suggest each subsequent trade marginally reduced the exit of a player by a log normal rate of 0.269 in their career with the team that initially drafted them. The findings were attributed to the premium requested by the original team that is compounded with every exchange as the reference points used to determine value have also shifted with the trade.

Valuing Australian football league draft picks.

To ensure uncertainty in match outcomes, professional sporting leagues have used various competitive balance policies, including player salary caps, revenue sharing among teams and player drafts. The Australian Football League (AFL) introduced a player draft in 1986, and to refine its operation, a draft value index (DVI) was introduced in 2015. The DVI allocates a numeric value to each individual player draft pick, with these values determined by the AFL using historic player compensation or wage and salary data. The AFL DVI plays an essential role in the operation of its player draft; however, other research has questioned the validity of such indexes. This paper aims to produce an alternative to the AFL DVI. The former index uses career compensation as the determinant of value, whereas we use other measures of player performance. First, various models were developed to predict on-field performance, such as games played (both in a recruit's career and season) after a draftee was selected for the first time by a team. This was then retrofitted to the pick used to select these draftees to create the new DVIs. Even though the predicted DVI followed an inverse monotonic function like the existing index, the decline in value for the DVI produced here was less steep, unlike the AFL's. This allowed us to conclude that players' salaries did not always strongly correlate to performance. The change in performance between players selected at different points in the draft did not vary as much as their wages. Though this scheme is applied to the AFL, the underlying concept could be directly exported to other player drafts.

Optionality in Australian Football League draftee contracts.

Though player drafts have commonly been utilised to equitably disperse amateur talent and avoid bidding wars, often they have also been accused of creating a monopsony labour market which restricts player movement. Within the Australian Football League (AFL) some have called for the increase of the initial draftee contract from two to three seasons, which further pushes the envelope on monopsony power. Instead of increasing the contract length, this paper suggests a call option to be purchased by the teams allowing them to add a further season to the draftee contract at a predetermined compensation package should they choose to do so at the end of the initial contract. The call prices per pick were calculated using the Black-Scholes model and were valued between 1% and 1.5% of the pick value. However, it failed to follow a monotonic function similar to pick value, owing to managerial overconfidence and sunk investment plays. Overall, the findings allow teams to procure the option of increasing initial draftee contracts and not impede further on a player's ability to move.