The Draft and Perverse Incentives

LOL the Jets won...

Wow, the Jets won… Just two weeks after a wave of conspiracy theories erupted based on their near-win against the Las Vegas Raiders, the Jets actually toppled the Rams on the road, keeping them from a winless season. The unlikely victory sent Jets fans into a tailspin because now the team is no longer in line for the #1 overall pick in the draft. Now, unless the Jacksonville Jaguars somehow run into a win in one of their final two games, the Jets will have, at best, the second pick, at which point Clemson QB Trevor Lawrence will almost certainly be off the board.

Two weeks ago, when I wrote about how the draft inevitably leads to conspiracy theories about tanking, I sort of glossed over the design of the draft itself, which awards the top pick to the worst team in the league. Obviously, though, that design is the original sin of tanking controversies. By tying such a valuable prize to having the worst record in the league, teams near the bottom of the pack have an incentive to lose. One obvious solution is to get rid of the draft completely, but that strikes most people as extreme. Leagues and their fans are too invested in the draft to eliminate the event entirely. A less dramatic alternative would simply be changing how amateur drafts are ordered, so that they don’t reward losing.

But even this suggestion is a radical departure—the structure of drafts has been remarkably consistent across American sports leagues. It’s true that the NBA and the NHL have lotteries, but they are weighted in favor of losing teams in such a way that they haven’t completely eliminated tanking. Solutions that really break the hold of “losers go first” are rarely discussed seriously. Given the obvious incentive problems, and the outright hostility towards systems that reward failure in almost any other context, it’s a little weird how durable this draft structure has been.

The last point is worth dwelling on: People really hate the idea of “perverse incentives.” The idea that people could actually end up better off by doing worse offends people on a visceral level. It is a major threat to many social welfare program in the United States, which people are constantly accusing of “rewarding” bad behavior. Even the possibility that a program might distort people’s incentives, without any empirical evidence that it does, can lead to cuts to programs like Medicaid and SNAP. And yet in professional sports, a particularly competitive area of an already competitive society, a draft structure that clearly incentivizes losing is not just tolerated but barely even questioned.

So what gives?

One possible explanation is that these drafts are examples of “socialism for the rich.” As many progressive critics are quick to point out, bromides about bad incentives and rewarding winners only come up when people are talking about the poor. If the people in question are exclusively rich people, then suddenly everyone is very understanding about bad luck and the importance of forgiveness and extending a helping hand. Bailouts for the investor class, tax cuts for the wealthy, government loans for businesses—rarely do people worry if policies like these will “reward” bad behavior. Given that the teams selecting players in these drafts are all billion-dollar enterprises, then perhaps that explains why nobody questions the wisdom of the current draft orders.

But I don’t really buy that answer. For one, the phrase “socialism for the rich” is catchy, but bad. Socialism, by definition, is for everyone. Socialism for only one group is just favoritism. Using the word this way confuses people and makes it sound like a pejorative to be used whenever someone prioritizes their friends over everyone else. And, in this context, that’s not even really what’s happening. Team owners are not imposing the draft on everyone else. Drafts are supported by other stakeholders in the league, like fans and media partners and even sometimes players, even with the obvious incentive problems they create.

My suspicion is that people are OK with the drafts rewarding losers because they can clearly see how it supports the larger, worthwhile goal of competitive balance. Perverse incentives are merely the price we pay for following a league where a bad team can quickly become a good team. From 2015-2017 the Cleveland Browns were 4-43—the worst three year stretch in the history of the NFL. This year, just three years later, they’re a playoff team and in the hunt to win their division, largely because they were able to build their team through the draft. This is good for the Browns, obviously, but it’s also good for the sport itself, since it keeps fans engaged through rough stretches and makes the league more interesting to follow.

Now, personally, I think there are other ways to maintain competitive balance. But the important takeaway here is that people are capable of overcoming their gut reaction to “perverse incentives.” Indeed, whenever I try to convince other sports fans that leagues should get rid of drafts, the initial reaction is concern about competitive balance—“What if the Yankees or the Cowboys just sign all the best players?!” (Well, you’d still have salary caps and luxury taxes and various forms of revenue sharing that kept teams from amassing all the best players, but that’s a story for another day…) It’s true that people do have an instinctive, negative reaction to rewarding people for doing poorly—but they also have an instinct, perhaps a stronger one, for fairness and egalitarianism. They don’t want to see the Patriots continuously dominate the league, even if in some sense they “deserve” to.

This is good news, and it’s worth keeping in mind when talking about social programs.