Off-season economics

Off-season economics

The AFL finals series is at an end for 2014, and that can only mean one thing: draft and trade season is upon us.

Yes, it’s that time of year when team list managers become hard-nosed negotiators, player managers flood the airwaves, talent scouts ruminate on the various qualities of the latest crop of seventeen-year-olds and everyone in Melbourne tries to figure out how free agency actually works.

Consumed by rumour files about disgruntled and homesick players and long lists of phantom draft orders, I feel compelled to try to consider in a rational sense some of the decisions clubs face at this time of year in order to deduce the best possible strategies. So with that in mind, here are my five top tips for club recruiters.

1. Starting positions matter

General equilibrium theory explores some of the fundamentals of trade between parties in a market scenario, and how the market will deliver various efficient and equilibrium outcomes. Importantly, the Second Fundamental Theorem of Welfare Economics demonstrates how the outcome of trade is dependent on the initial endowments of each agent.

In trade week, this is reflected in the ability of clubs with strong existing lists to seemingly increase their advantage. They can extract high draft picks from low ranked teams by trading a single well regarded player without doing significant damage to their overall list, where lesser teams must retain the few quality players they have in order to stay competitive. For this reason, low ranked teams such as St Kilda and the Bulldogs must look to the draft, where they hold priority, in order to develop talent.

The same applies to the negotiations that team list managers go through. Teams should always talk up the value of players they have put on the trade table so that their eventual compromise position is better.

2. Exploit supply and demand

We know that high demand and low supply push prices up and vice versa, and teams should look to make the most of this where they can. Some types of players, such as key position forwards and defenders, are particularly hard to find, so teams potentially offloading a player like this (such as the Bulldogs’ Liam Jones or the Giants’ Kristian Jaksch) should shop them around and expect a generous return.

Teams should also beware of losing value by trading when supply is high. This year there are multiple ruckmen looking for a new home including Paddy Ryder, Jonathan Giles and Daniel Gorringe. Speculation has also surrounded Hawthorn’s Luke Lowden, but the Hawks might be wise to hold back on a trade until ruckmen are a more precious commodity.

3. Beware the diminishing marginal utility of labour

In a factory with constant capital, each additional worker will provide less output, and the same is true of an AFL team, where there is only room for 22 players on game day. As a result, teams should be exhibiting convex preferences, looking to maintain a fairly even mix of player types and experience levels.

This year, Brisbane has a large number of quality young midfielders, but is also fielding interest from Collingwood’s Dayne Beams and Geelong’s Allen Christensen. These players could provide experience but would potentially add less than their asking price in value amidst an already strong midfield group. With an ageing backline, the Lions could fall into a trap of inadequate diversity.

4. Draft according to value, not need

Often, teams enter the draft with a particular need and can be tempted to overlook the best player available in order to take a player that fills this need. St Kilda faces this conundrum in 2014, with midfielder Christian Petracca regarded as the best young player, but with the Saints desperately needing a tall forward to replace Nick Reiwoldt they are thus tempted by youngster Paddy McCartin.

Rationally, however, this is folly. By taking the best possible player, a team gains the most possible value from its draft selection. At the end of the following season, they can trade this player for a player of equal value that fills their need, thus ending up with a better tall forward than they otherwise would have received from the draft.

5. Always match a bid for a father-son-selection

The father-son rule allows clubs to ‘nominate’ the sons of past players that they would like to draft. Other clubs may then bid on nominated ‘sons’ with a particular draft selection, and if a team does so, the nominating team must then ‘match’ the bid by committing to use their next available selection on the son. If they don’t match the bid, the bidding team must take the son in the draft according to their bid.

Rationally, remembering that teams should draft according to value and not need, if a team bids on a nominee, the nominating team should always match the bid, as this indicates they are gaining more value than they would otherwise with their selection.