Economics of the NFL Player Entry Draft System

The National Football League instituted the reverse order draft for entering players (rookies) in 1936. The NFL system is the original version of a player entry draft, and subsequent draft systems developed by North American team sport leagues are based on this model. The draft determines the initial contract assignment for (most) entering players. The entry draft creates a monopsony situation whereby the player may bargain only with one potential employer. Negotiation leverage for entering players is greatly reduced, and theoretically the monopsony (single buyer) model restrains salaries. As with most restrictions limiting labor mobility, the NFL draft was initially promoted as a tool to remedy competitive imbalance, and has since been defended as necessary to maintain competitive balance. Although the effect of the draft on competitive balance is ambiguous at best, the elimination of a competitive labor market and bargaining power for entering players’ services accomplishes the league’s objective of eliminating bidding competition and quite clearly reduces salaries. Notwithstanding, the very best entering players, the top draft choices, may also possess significant bargaining power. Contract negotiations in these circumstances may reflect a bilateral monopoly outcome where negotiated salaries compare to a competitive market result.