Adam Grossman

NFL Draft turns players' dreams into clear financial realities

NFL Draft turns players' dreams into clear financial realities

For virtually every player not named Myles Garrett, tomorrow's NFL Draft will be filled with uncertainty.  It is not clear what number draft pick he will be or which team will select him.  There is one thing, however, that these future NFL players do have virtual certainty about – they will know exactly how much they will be getting paid once they are drafted.

The document that governs relations between the NFL, teams, and players, as well as sets the basic ground rules for NFL business and conduct, the NFL Collective Bargaining Agreement (CBA). The 2011 CBA radically altered the way rookie contracts are both structured and negotiated.  The new rookie salary cap effectively created a set wage structure for all rookies entering the league, each draft position with a specific slotted salary based on a league-wide rookie compensation pool that is largely non-negotiable. Another significant change was rookie contract length, which with the institution of the 2011 CBA was capped at four years, with a fifth-year team option for first round picks, versus contacts that could span as long as six seasons under previous iterations of the CBA.

Since each draft position has a predetermined salary value, salary cap considerations in draft trades are diminished since there is no risk of inflated and unreasonable contract demands from top picks.  With fewer monetary limitations, teams are able to more freely move around within the draft order to position themselves to be able to select the player they want without fear that they will be taking on a likely high salary or using significant cap space with a player who has yet to play a single down at the NFL-level.

A prime example of the impact of the rookie salary cap on rookie compensation can be observed by comparing two contracts: Sam Bradford's 2010 contract and Cam Newton's 2011 contract.  Drafted just one year apart, Bradford and Newton were both number one overall picks, however both their first-year and overall compensation differed greatly.  According to Jason Fitzgerald and Vijay Natarajan, authors of Crunching the Numbers: An Inside Look At The Salary Cap And Negotiating Player Contracts, Sam Bradford originally signed a 6-year, $78 million contract, with $51 million in guarantees and the potential for the deal to escalate to $86 million with the inclusion of Likely to Be Earned Incentives (LTBE) in the deal, while just one year later Cam Newton signed a 4-year, $22,025,498 fully guaranteed deal (i.e. guaranteed for skill, injury, and cap), with the opportunity to earn a fifth-year team option with a salary substantially larger than in the first four seasons of the contract. The difference between the overall compensation and general contract structure between Bradford and Newton's deals clearly illustrates the change in rookie compensation that the 2011 CBA implemented.

Paying millions to first-year players meant that teams had to set aside huge amounts of salary cap space to accommodate these deals.  This effectively limited the amount of money and salary cap space available for teams to sign veteran free agents. Creating more predictability for teams of the salaries of their newly drafted players resulted in cap space became available for free agent veteran players.

With simplified rookie contract negotiations, teams are better able to avoid lengthy holdouts that stretch into the summer and possibly even training camp.  Rookies signing their deals soon after the draft means rookies arrive at team facilities earlier in the offseason, they can begin learning their teams' playbooks sooner. More offseason practice time for rookies is one major reason why more and more rookies are making immediate impacts for their new NFL franchises at a lower cost than before the new CBA was put into place.

These factors make early round picks have become an extremely valuable asset that are difficult to acquire. The more early picks a team has the more likely a team will be able to draft a young player that can have an immediate impact on its roster. Through a series of trades and personnel decisions over multiple seasons, the Cleveland Browns have assembled an additional pick in the second round in 2016, extra first and second round picks in 2017, and two additional second round picks in 2018.  That means for three-year period between 2016 and 2018 the Browns have amassed fifteen picks that come within the top 100 selections. This has positioned the Browns to maximize the team's probability of adding significant talent to its roster over the next few seasons.

The Chicago Bears have been and will continue to build through the draft as well. Young players such as Kyle Long, Leonard Floyd, and Jordan Howard have become important parts of the team's future plans for success. In addition, the injuries to 2015 first round pick Kevin White have been less detrimental to the team than in past years because of his relatively low salary cap number.

By no means is the current version of the NFL's CBA perfect.  For example, players may feel they are being undercompensated as compared to the previous CBA, in which teams still were required to make significant investments in players that had yet to play a snap of professional football. However, for the players drafted on Thursday and throughout the entire weekend, they will have little doubt about how much they can expect to be paid when their names are called to be drafted.

Adam Grossman is the CEO and Founder of the sports sponsorship technology and analytics firm Block Six Analytics (B6A). In addition, he is a lecturer for Northwestern University’s Masters of Sports Administration where he teaches classes focused on develop and communicate strategic insights through data. 

Ross Chumsky is a Senior Partnership Analyst at B6A. 

Sports business: Using targeted promotions to earn more dollars

Sports business: Using targeted promotions to earn more dollars

In Monday's episode of National Public Radio’s (NPR) Fresh Air Joseph Turow, professor of communications and associate dean for graduate studies at the Annenberg School for Communication at the University of Pennsylvania, ominously "Warns That Brick-And-Mortar Stores Are Watching You."

While this may seem a bit like the real-life equivalent of "Big Brother" from George Orwell's book 1984, Turow is describing the reality that the tracking companies do in e-commerce has moved more fully into the offline stores. Using technology including mobile applications, iBeacons, loyalty cards, geo-targeting, and geo-fencing companies have more information about customers in-store buying and behavioral patterns. This enables companies to design targeted adds and promotions specifically tailored to customers that can increase the likelihood of them making a purchase.

While the ethical implications of this activity would require and entirely separate blog post, Turow and host Terry Gross discussed an important idea that comes from having this technology. In the past, companies have focused on rewarding and retaining loyal customers. Those are the customers that keep coming back and buying a company's products or service offerings. Because the cost of keeping a customer has been much lower than attracting a customer it would seem to make sense that companies would want to focus on keeping the customer's they have.

However, this may no longer be the optimal strategy for maximizing revenue growth. Instead, companies should be focused on the marginal customer rather than the most loyal customer. A loyal customer is loyal for a reason – he / she likes the company's service offerings. Why spend money on advertising and promotions if that person is already likely going to buy the product anyway?

Instead, targeted promotions should be focused on customers that will only make a purchase if they are influenced in the right way. For example, let's say a customer is indecisive about buying a pair of jeans. In the past, this customer may have tried a pair of jeans on and then left the store without purchasing them. Now, a customer can download a company's app to access additional content, deals, and other helpful information. In return for delivering these benefits the company can receive information from the app that shows the location of the person while he/she is in a store. It can then use a geo-fence, a virtual fence that surrounds a geographic area, to determine when a customer leaves a specific geographic area. If this customer leaves the store without making purchase after spending a certain amount of time (i.e. the time to try on the jeans) then the company could send a targeted ad saying that the customer has 15 minutes to come back to purchase the jeans at a 15 percent discount. Essentially, companies now can identify "disloyal" customers and then attempt to bring them back to stores to make purchases.

Using technology to reward "disloyal" customers is something that sports organizations need to increasingly focus on given the demands of the business. More specifically, there are loyal fans that are going to buy tickets, watch games, and purchase merchandise even if they do not see any advertising from a team. These customers add significant value and should not be ignored. However, sports organizations want to focus on targeting the marginal customer using new technology to encourage ticket sales, in-venue purchases and increase game viewership.

The added benefit of using technology and customer outreach in this way is that it should increase sponsorship revenue as well. Not only can sports organizations use targeted promotions to help their current sponsors expand reach, but organizations can also show how these targeted marketing efforts cause lifts in purchasing. For sports teams, clearly communicating how sponsorship/marketing assets are used to create a lift in sales provides powerful evidence of how similar tactics can drive new revenue for partners. Rewarding "disloyalty" seems counter-intuitive, but there are many ways that targeting marginal customers should lead to substantial revenue growth.

Adam is the CEO and Founder of Block Six Analytics. He is also a lecturer for Northwestern University's Masters of Sports Administration and the co-author of The Sports Strategist: Developing Leaders For A High-Performance Industry.

Indians looking like 'Major League' version, while both World Series teams adopt 'Moneyball' practices

Indians looking like 'Major League' version, while both World Series teams adopt 'Moneyball' practices

The Oakland A’s were not the first MLB team to use Moneyball. It was actually the Cleveland Indians that first used a version of advanced analytics. Well, at least the fictional Indians from the 1989 movie "Major League." The main plot of "Major League" is that a rich widow becomes the owner of the Indians after her husband dies. She wants to move to the team to Miami (which did not have a team at the time), and she intentionally signs players and hires a manager who should cause the team to lose games. Losing games would cause attendance and revenues to decline enough that she could move her team to Miami.

In a deleted scene from "Major League," however, the Indians’ owner actually states this a ruse. In fact, she wanted to create a cover story for why she was signing players that were undervalued using more traditional methods. She says she scouted all the players and the manager personally to find the best possible team for lowest amount of money because the team was broke. She created a narrative using herself as the villain to inspire the players to win to spite her and have the city rally around the team.

For many fans of "Major League," this is an incredible plot twist that changes how they view the movie. What is arguably more interesting is that this is almost a perfect summary about how advanced analytics are used in sports today and in particular by the two teams in the World Series: the Indians and the Cubs. In the movie, the owner’s goal was to find undervalued players that could help her team win games. That is thesis of "Moneyball" and perhaps what the book and movie are best known for by most people. However, another interesting part is that owner scouted the players and the manager, as well. That is something that is a common misconception about "Moneyball." In fact, many teams have actually increased spending and/or relied more heavily on scouting while also using advanced analytics more frequently to evaluate players. 

The Indians and Cubs are good examples of this approach. In fact, the current, real iteration of the Indians is almost eerily similar to the fictional Indians of "Major League." The Indians had the 26th (out of 30) highest payroll for the 2016 season yet had the fourth highest team WAR in MLB (WAR is the most commonly used advanced analytic in baseball). This starts with manager Terry Francona. While he did win two World Series titles with the Boston Red Sox, Francona was let go by the Red Sox after the team lost a nine-game September lead for the American League Wild Card to the Tampa Bay Rays in 2011. This included stories that focused on how players were eating chicken, drinking beer and playing video games during Red Sox regular-season games that year. It is easy to see why many teams thought that Francona’s best managing days were behind him when the Indians hired him in 2013 — similar to Lou Brown of the fictional Indians.

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Francona is not the only similarity between the two Indians teams. Catcher Mike Napoli is almost the spitting image of catcher Jake Taylor. He is a veteran catcher brought in more for his clutch hitting and the way he can handle young pitchers. Pitcher Trevor Bauer’s drone accident prior to his playoff start would remind "Major League" fans the antics of Rick “Wild Thing” Vaughn. Up and down the Indians rosters are players that many baseball fans have never heard of but are delivering significant results to the team.

The team with the highest WAR total and best record in baseball in 2016 is the Cubs. It is easy to think that the Cubs are the exact opposite of the Indians. More specifically, almost every baseball fan knew of Cubs stars such as Kris Bryant, Anthony Rizzo, Jake Arrieta and Jon Lester. Yet, the Cubs only have the 12th highest payroll for the 2016 season. How could that be possible? Many of the Cubs players are still operating on the deals signed as draft picks. Younger players typically are more cost effective than veterans because players need to have six years of MLB service time before they can become free agents. Finding young players who can have significant impact creates extraordinary value for a team. For example, likely National League MVP Bryant is only making $652,000 this year.

Having younger players on your roster that can make an impact is something that most, if not all MLB teams understand. Finding those players, however, is a different story. Cubs president of baseball operations Theo Epstein has excelled at finding these players. Whether it is drafting players such as Bryant or trading for young talent like Rizzo, Epstein has built a team where the oldest starting infielder is 27. In addition, the team prioritized “building an offense from within and a pitching staff from spare parts. This flies in the face of more than a century of conventional baseball wisdom, which states that (1) pitching wins championships, and (2) a team can never have too much pitching.” The Cubs gained an advantage by taking a different approach to the draft than most teams and then developing a scouting department that would find the players needed to compete for championship.

"Major League" might have been ahead of its time in 1989 using Moneyball concepts, but that time has clearly arrived for both the Indians and Cubs. As Taylor said in "Major League," now there is only one thing left to do with this strategy: “Win the whole f---ing thing.”

Adam is the CEO and Founder of Block Six Analytics. He is also a lecturer for Northwestern University's Masters of Sports Administration and the co-author of The Sports Strategist: Developing Leaders For A High-Performance Industry.