As the draft approaches, many fans (and presumably general
managers) may be asking themselves a basic question: What’s better, a safe and
solid pick or a high risk but high reward pick?
It seems initially like a pretty simple question to
answer. Given a choice of two
investments with the same expected return, most people would choose the
investment that is less risky. It’s the
right idea – the goal should generally be to minimize risk as much as
possible. The only problem is that
sports teams tend to do the opposite.
Time after time in every sport, teams go for the player that has upside
and potential.
Why are so many of the people running sports teams so
stupid, you might ask? The answer is that
they’re not. Let’s use an example.
Hypothetically, let’s say the only thing that mattered in
the NBA is how many points per game each player scored. Let’s also say a team was faced with two
choices for a draft pick: a “safe” player who had a 100% chance of scoring 15
points per game, or a risky player who had a 50% chance of being a star and
scoring 25 points per game and a 50% chance of being a bust and only scoring
5. Both players have an expected output
of 15 points per game, but one is less risky.
You go with the safer player, right?
Wrong. The secret
twist in sports is that teams have option values. In other words, if the player you draft turns
out to be a bust, you can get rid of him.
You can trade him, waive him, or, at the very least, bench him. And you can probably find a mediocre player
who’ll score 10 points a game to replace him.
All of a sudden, the risky pick has a 50% chance of 25 points per game
and a 50% chance of being replaced by a 10 points per game player. The expected return is now 17.5 points per
game, higher than the 15 points per game of the safer pick.
Of course, many team-specific factors come into play. If a good team low in the draft knows that it
needs just one more decent piece to win a championship, it might make more
sense to take the sure thing. However,
in general, with all else being equal, the riskier pick may make the most
sense.
