Deferring draft picks: Empirical analysis of the AFL draft

Trading picks is a common transaction observed in sporting leagues that employ player drafts. However, many current and revised draft formats employed by professional leagues allow for the trading of picks in the current year for those in the future. This in turn raises a question of an appropriate rate of discount which can be used to account for the delay in relinquishing current picks for those in the future. This study proposes a discount rate function in the Australian Football League based on the difference between a player's contribution to his team in his first season to that of his career. The findings reveal a varying discount rate that decreases with the progression of the draft ranging between 42% and 51%, given the increasing deviation of post draft outcomes in the same range. Furthermore, after discounting said picks for four years, the variance in pick reduced considerably as poor performers are delisted after their initial contract period. Upon adopting the model to evaluate previous trades, it is evident that almost all parties infer a higher value on current year selections than future selections (discounting future picks by up to 120%), seeking instant returns over deferred options. Hence, a decision maker trying to capitalise on pick value only would be better off deferring the right to choose in the current year.