Is the 1st Round Option a Reason to Trade Up In the Draft

Taking a break from our free agent reviews I wanted to look at the thought that teams with high 2nd round draft picks should be looking into moving into the backend of the 1st round due to the difference in option year prices, specifically at the quarterback position.

For those unfamiliar with the salary system now in place under the CBA the gist of it is that a non top 10 first round pick has a fifth year option that is worth an average of the number 3 through 25 highest paid players at his position whereas the only fifth year control on a non first rounder is the more expensive franchise or transition tag. In 2015 this looks to be a potential issue for the San Francisco 49ers and Cincinnati Bengals with their young quarterbacks. Had Colin Kaepernick or Andy Dalton been drafted in the tail end of round one the teams would control them at a price of $9,686,000 in 2015. Instead the tag option will likely cost $19,000,000 to utilize.

While that discrepancy seems large there are a number of considerations that a team should look at before making the move for solely economic reasons.

Contract Differentials

Any move up in the draft is going to cost more money for a team. How much is the difference?  We’ll use Andy Dalton as an example from 2011 and compare his actual contract with what his contract would have projected as had he been the 25th, 28th, or 32nd pick.

 

PickFirst Year CashTotal ValueGuarantees
25$4,432,456$7,641,502$6,224,479
28$4,269,000$7,416,750$6,030,375
32$3,676,456$6,602,002$5,326,729
Dalton$2,667,144$5,214,198$3,915,000

 

We are looking at saving anywhere from $1.39 million to $2.4 million over the initial four year period by holding firm on Dalton in the 2nd round of the draft.  Most of that money ($1 to $1.7 million) is saved in the first year of the trade, though we also need to factor in the cost of traded picks.

My assumption would be that the Bengals would have shed about $885,000 in salary if they moved up to the 25 slot and $212,000 if they jumped to the 32 pick. Here is what the true savings would look like for the team by holding onto Dalton and their other draft picks versus trading them off to move up.

 

PickFirst Year Cash SavingsFour Year SavingsGuaranteed Savings
25$880,784$1,542,776$1,424,951
28$996,294$1,596,990$1,509,813
32$797,312$1,175,804$1,199,729

 

Assuming the player remains for the duration of the contract and ownership was to reinvest the savings at 6% the team would have between $1.4 and $1.9 million in cash to help offset the large differential in franchise tag vs option value. Surprisingly I project the number 28 pick to bring in the most cost savings and that is due to the relatively small amount of bonus money sent away in the trade.

Draft Picks Lost

If a team is making this trade just for economic reasons they are giving up potential performance to gain a potential fifth year benefit. If the Bengals graded Dalton a second rounder they would not be jumping up to 28 to get a better player, there would simply be getting a second round player with a first round draft pick. Using the draft value chart as a guideline the Bengals would have surrendered their 2nd, 4th, 5th, 6th, and 7th rounder to jump to the 25th pick in the draft. To get to 28 would probably cost the 2nd, 4th and 5th while the 32nd would cost just the 2nd and 5th.

Going back to my look at the salary cap and the draft we can see the probability of finding a multi time Pro Bowler in each round. Since we are talking Dalton wherever we pick we don’t gain any on field upside by drafting him higher. Dalton is going to be Dalton whether taken at 25 or 35. We would give up just under a 9% chance of finding another very good player by jumping to 25, 5.7% by moving to 28 and 2.7% by moving to 32.

Likelihood of Option

When we look at a player like Kaepernick it’s easy to say that the option would have been a bargain- he’s a very good player. But is Kaepernick the exception or the rule?  From 1980 through 2010 there were 51 quarterbacks drafted between the 20th and 64th pick in the draft. Of those players just 12 made a Pro Bowl.

Of the 12 Dan Marino is probably the only one who would not have had the option even be discussed- he simply would have been extended right after the completion of his third pro season due to how good he was. For Brett Favre, Aaron Rodgers, and Drew Brees the option may have helped get a more team friendly contract but each would have been extended before their fifth year (though in two of the cases the original team gave up on the player).  I would think that neither Jim Harbaugh nor Jeff Hostetler would have had their options picked up.

So if we look at the option year to get another relatively low cost look at a player the ones where it would have been essential were Boomer Esiason, Randall Cunningham, Ken O’Brien, Neil Lomax, Jake Plummer, and Kordell Stewart. In looking at all the other players on the list I can’t imagine the option even being considered. Maybe Kevin Kolb would be the only non Pro-Bowler. So six out of 51 players it held a major benefit and maybe ten out of 51 where it held some benefit.

The reality is that the option only has between a 20 and 25% chance of even being utilized on a quarterback drafted in this range of the draft.

Expected Costs

There are a few situations that the team should assess when pushing forward a trade for the possibility of the fifth year option. There are numerous scenarios that the team needs to consider involving trades and releases, but to make things easier for us we are just going to consider a player being moved off the team as a release.

Because the new draft format is early in its life we do not have a great deal of data to rely on, but we can make a few assumptions.  If we look at the 2011 and 2012 draft we can get an estimate of top 45 picks lifecycles.

No player was moved off the team during the rookie year. We only had one player play just one season with his original team- AJ Jenkins of the San Francisco 49ers.  Another eight player either did not finish their second year or were moved after their second year. Those players are Trent Richardson, Brandon Weeden, Danny Watkins, Jonathan Baldwin, Gabe Carimi, Ras-I Dowling, Titus Young, and Jonathan Martin. We can already add Blaine Gabbert to the list of players who lasted just three years.  Odds are we will add to the totals this summer as more players from the 2011 and 2012 draft are released after camp.

For the purposes of this we’ll consider the first two years as a lock for the player. We’ll use a 10% estimate for the cut rate after two years and a 14% cut rate after three years. Finally we have the option year estimated from above and we’ll use a 23%likelihood chance of the contract option being upped. Using those numbers we can project a true cost of the trade performing a scenario analysis.  For this I used the salary cap outcomes rather than the cash flows.

Draft Pick Costs

In two of the cases odds are the team will be paying more money by executing the swap for a QB. We would need to run different scenarios for each position since each position will have a different guarantee structure (the QB is the only position that will garner a year 4 guarantee of some sort if taken in round 1 and a larger year 3 guarantee if drafted in round 2), option/franchise value, and option probability as well as every pick in the draft. For the Bengals in 2011 the trade spot would have to be the 29th pick or later to likely gain the economic benefit the option year brings.

Conclusion

The lack of the option year for second rounders certainly brings up an interesting strategy decision for a team. There is a higher upfront cash charge to make the transaction and the team is going to lose an opportunity to grab a high quality player in the later rounds of the draft.  The option itself may not have a high probability of being utilized in year 5.

Just based on the above example using Dalton (though it would apply similarly to Kaepernick that year as well), moving up to the 25th pick would have only made any sense if the team felt that the depth in the draft was so poor that they had almost no chance of finding a quality player with the additional picks. If they were confident in the draft pool talent the only spots worth moving up into would be the 30 through 32nd spots. You would not be giving up much potential, and there actually would be a cost benefit to having the option in those spots.

As the option and tag prices converge for different positions so will the benefits of having that option in your pocket a few years down the line. It may be more likely that the options will be more useful at different positions (for 2011 and 2012 I would project about half of the players selected 25-32 will have an option exercised) but the odds of that should be calculated internally by each franchise before the draft. It will be interesting to see how teams do approach this in the future, but there are many more considerations that they will be taking into account than just the desire to have an ability to strike an extra contract year.

This entry was posted in Uncategorized. Bookmark the permalink.