Deferring draft picks: Empirical analysis of the AFL draft

Area of Science:

• Sports Analytics
• Economics
• Player Evaluation

Background:

• Player trading, especially of future draft picks, is prevalent in professional sports leagues like the Australian Football League (AFL).
• Determining an appropriate discount rate for future picks is crucial for fair and strategic trading.
• Existing trade practices suggest a potential undervaluation of future draft assets.

Purpose of the Study:

• To propose and validate a discount rate function for AFL draft picks.
• To analyze the difference in player contribution between a player's first season and their entire career to establish a discount rate.
• To evaluate the impact of discounting future picks on trade value and decision-making.

Main Methods:

• Developing a discount rate function based on the variance in player contribution from the first season to career total within the AFL.
• Applying the function to analyze historical AFL draft pick trades.
• Simulating the effect of discounting picks over a four-year period.

Main Results:

• A varying discount rate, ranging from 42% to 51%, was identified, decreasing with draft progression.
• Discounting picks over four years significantly reduced pick value variance due to player delisting.
• Historical trade analysis indicated parties commonly discount future picks by up to 120%, prioritizing immediate returns.

Conclusions:

• The proposed discount rate function provides a data-driven approach to valuing AFL draft picks.
• Teams tend to overvalue immediate draft selections compared to future ones.
• Strategic decision-makers aiming to maximize pick value should consider deferring current-year selections.