Football and the principles of economics have more in common than you might think. They are both based on one common theme: value. In economics, value is determined by the worth or benefits that something provides to something else. If I am a good and productive worker at my job, then I possess value. The same thing applies to players in college and the NFL. For example, Tom Brady’s worth and his ability to produce and provide benefits for the New England Patriots are what determines his value to them. Economics, much like football, is all about creating choices that result in positive outcomes. These positive outcomes help to enhance the value or worth of an individual or organization. There are many principles that serve as the foundation of economics, some of them being very relevant to analyzing contract situations, salary cap, the draft process, etc. They are largely founded on the ideas of trade-offs, opportunity costs, and incentives.
One of the primary principles of economics is that people will experience trade-offs. In order to get something, you must give up something else. A great example of this is when the Bills were looking to acquire a solid running back for their running scheme. However, in order to gain that running back they had to give up a player or draft pick. The player or draft choice that they had to give up is known as the opportunity cost (something that you give up to get something else). This trade-off between the Bills and Eagles included RB LeSean McCoy and LB Kiko Alonso. Both the Bills and the Eagles engaged in this economic “trade-off,” since they had to make a decision that required giving up one asset (player, in this case) for another.
Another primary principle of economics that relates well to the National Football League is that parties respond to incentives. What this means is that people will make an informed decision based on the positive or negative consequences of that decision. Free agents will normally respond to a team that offers a higher contract salary, based on the fact that most of the higher salary contracts offer more valuable incentives for that player. In this case, most of the contract incentives are positive, including workout bonuses, signing bonuses, and statistical bonuses (certain # of passing yards per season, etc). Incentives bring out a desire to do work, and therefore front office personnel and agents who are negotiating contracts are very likely to focus part of their negotiations on incentives. The incentives in contracts are given through money allocated to that player. This is similar to economics, where, in an economic market consumers and producers respond to incentives through price signals. If the price of a good, such as apples, were to rise or fall, then consumers and producers would buy more or less and sell more or less based on the change in price. In the NFL, free agents respond to prices through proposed salaries. As mentioned previously, the higher the proposed salary by a team, the more likely a player is to sign. Teams also respond to incentives given off by the player. If players and agents value themselves at a certain price, like Stephon Gilmore at $15 million per year, then teams will base their decision of whether or not to sign that player based on the price.
As I mentioned in my last article about economic theory and Deshaun Watson, teams will often make sure that their marginal cost (in this case the cons of a player), do not outweigh the marginal benefits (pros of adding a player). Teams in the free agent market will make sure that the costs of signing a player do not outweigh the benefits of the player. If the benefits (pros) are equal to or greater than the costs (cons), then that organization is likely to add incentives to the player’s contract, hoping to gain top quality performance from that player. Both sides aim to gain as much as possible from the negotiation or deal, as would any buyer or seller in an economic market. Each side wants to create and gain value from an interaction. The more value that is created or gained, the better off that party is in the short-term and/or long-term.