The Folly of Free Agency (and trades) - The Winner's Curse

The Bucs have steered away from acquiring big-name, popular players in free agency in recent years. I'll show you exactly why this is a good policy in this piece, and why Mark Dominik's strategy of drafting and re-signing his own players is the right way to go. To do so, I have to start with an economic phenomenon known as "The Winner's Curse".

The Winner's Curse is a theory that claims in its most basic form that the winner of an auction will pay more than the object's value. This occurs because in an auction, the winner is the person who is willing to pay the highest sum. Because he's willing to pay more than other bidders he thinks the object is worth more than all the other bidders do - and he's likely to be wrong about that. 

To demonstrate this, I'll give you an example called "Albert Haynesworth". When he became a free agent every team in the NFL undoubtedly evaluated him and set a price they would be willing to pay for him. If that number was insufficient for Haynesworth's services, they thought they could add more wins to their team by spending that money in other ways either in the immediate future or in the longer term. So when the Bucs and Redskins remained as the only bidders at his very high price point, every other team in the NFL thought Haynesworth wasn't worth as much money. So who is then more likely to be right? The 30 other teams in the NFL, or the Redskins and Bucs?

Now, there are a number of problems with this curse's applicability to the NFL. First of all, each player will provide a different amount of wins for each team. The Minnesota Vikings had Kevin and Pat Williams as starting defensive tackles, while the Bucs had Chris Hovan and Ryan Sims. So Haynesworth would've provided a marginal upgrade for the Vikings, but he would've represented a much bigger increase in quality of play for the Bucs. Similarly, a 3-4 team like the Patriots would not have found Haynesworth's penetrating skills as useful as a 1-gap 4-3 team. And I'm not even talking about the locker room fit and team chemistry now.

Furthermore, the auction for a player's services is about more than just money, as the quality of the team, the size of the market, the income tax situation and the attraction of the city all play a role in a free agent's decision, and the team has little control over those factors. But this theory applies to trades as well as free agency, and trades are not affected by any of those factors, although the currency used is not salary but draft picks. 

So it would seem that a good way to spend your money most efficiently is to avoid these sorts of auctions, or to have a better scouting apparatus than everyone else. While the latter is always useful, that's something every team (except the Bengals) strives to have. Avoiding these auctions is easier than you might think, though. One possibility is to avoid large free agency investments altogether, which may still result in overpaying for marginal players (as the Bucs have done quite a lot in the past decade), but the impact of missing on these players is a lot smaller than at a higher price point. 

A second way to avoid overpaying for free agents is to go after free agents that are specifically useful for your system. When the Bucs ran a conventional Tampa 2 they drafted and otherwise acquired cornerbacks that were very specific to their system, but not particularly useful for teams running other systems. Man cover skills were largely irrelevant, and abilities in run support and in zone were the key to this system. It's why Ronde Barber was drafted by the Bucs but wasn't as desireable for other teams. It's important to look for players that can fit your specific system and be more valuable for your team than for other teams. 

A final way to avoid the Winner's Curse is to extend players before they hit the open market. Since there is no auction at that point, you can avoid a bidding war. Besides that, the fact that the player is with the team already gives the team a lot more information about the player's value to them specifically. 

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