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I've found myself using the term "draft equity" a lot lately. I figured it was a common figure of speech I had picked up at some point. Everybody knows what it means, right? Not according to my Google search of "draft equity" that netted exactly zero relevant results. I guess it falls on me to define the term I essentially made up.
Wikipedia defines "equity" as: "the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid." Well, that's gibberish.
For those of you not familiar with a balance sheet, here's how accounting works: on one side of the balance sheet are the assets (assets are essentially things you own); on the other are the liabilities (liabilities are essentially things you owe). In layman's terms, equity is essentially the difference between these two sides.
When I use the term "draft equity", what I am trying to describe is the value the pick holds compared to the potential uses of that pick. Potential uses encompasses using the pick to draft a player, trading the pick to acquire more picks, trading the pick to acquire a pick or picks next year, and trading the pick to acquire a player.
It's important to note that the value of the first pick in 2013 is not the same as the value of the first pick in 2014...at least not as of this second. The known holds more value than the unknown. Nobody knows for certain what will happen between now and draft day 2014, but we do know the players available in this year's draft.
To create our "Draft Balance Sheet", I will need to compare assets to liabilities. In the case of draft picks, I feel the best way to demonstrate this is to have a list of factors that will contribute to the value of the pick and assign those factors either positive (asset) or negative (liability) value based on the proposed use of the pick. The factors I believe should be used are the following:
- Overall talent
- Positional need
- Positional value (the relative value of one position vs. another)
- Positional ease of acquisition (how easy is it to acquire a capable player at this position?)
- Scheme fit (how well does the player fit in the team's scheme?)
- Injury status
- Ceiling (what is the maximum potential return on investment?)
- Chance of reaching ceiling (what is the probability the player reaches their full potential?)
- Intangibles (includes off-field issues, intelligence, etc.)
- Opportunity cost (what are you giving up in order to use the pick in this way?)
Let's take a look at what a balance sheet might look like for a specific player. I will be using a grading system similar to that of Pro Football Focus. A line item with a high positive value will score a +2.0, and one with a high negative value will score a -2.0. Items in between will be scored +1.0, -1.0, or 0.0 (neutral items will be listed as assets).
THIS IS IN NO WAY AN EXACT REPRESENTATION OF MY POINT; THIS IS SIMPLY AN EXAMPLE USING NUMBERS TO GIVE YOU AN IDEA OF WHAT I BELIEVE THE TERM TO MEAN. +2.0 DOES NOT HAVE ANY CONCRETE MEANING WHATSOEVER; IT'S JUST AN EXAMPLE.
I'll start with West Virginia quarterback Geno Smith:
| Assets | Liabilities | |
| Overall talent | Geno Smith is one of the most talented players in this year's draft, so: +2.0 | |
| Positional need | Position has a very high degree of need, so: +2.0 |
|
| Positional value | QB has a very high degree of positional value, so: +2.0 | |
| Positional ease of acquisition | It is very difficult to acquire an above-average QB, so: +2.0 | |
| Scheme fit | Geno would be a great fit in the Jaguars' scheme, so: +2.0 | |
| Injury status | None that I know of, so: +2.0 | |
| Ceiling | I consider Geno Smith's ceiling to be high, but not elite, so: +1.0 | |
| Chances of reaching ceiling | I feel like Geno is a relatively safe bet to be a contributor, but I see a moderate bust risk, so: +1.0 | |
| Intangibles | No off-field issues, supposedly is a film junkie, so: +2.0 | |
| Opportunity cost | Taking Geno entails passing on a potentially elite pass-rusher and not making a trade, but the talent level at other positions is relatively flat and the trade market at 2 isn't likely to be robust, so: +0.0 | |
| TOTAL | +16.0 | -0.0 |
The draft equity gained by using the second overall pick in the 2013 NFL Draft to select Geno Smith would be a +16.0. I'll discuss what this means a little further down.
Now let's take a look at another player using the same balance sheet. Someone who I feel would be a poor use of draft equity. Let's look at Luke Joeckel. Since Joeckel would play right tackle for the Jaguars, he will be graded as a right tackle:
| Assets | Liabilities | |
| Overall talent | Joeckel is one of the draft's most talented players, so: +2.0 | |
| Positional need | Right tackle has a high value of need, so: +2.0 | |
| Positional value | Right tackle has a relatively low positional value, so: -1.0 | |
| Positional ease of acquisition | It is not especially difficult to acquire a good right tackle. In fact, there are several good ones available in free agency. -1.0 | |
| Scheme fit | I believe Joeckel would be a very good fit in the Jaguars' new zone blocking system, so: +2.0 | |
| Injury status | None that I know of, so: +2.0 | |
| Ceiling | Joeckel has the talent to be one of the NFL's best right tackles, so: +2.0 | |
| Chances of reaching ceiling | Joeckel has a very good chance of reaching his ceiling, so: +2.0 | |
| Intangibles | High: +2.0 | |
| Opportunity cost | Drafting Joeckel would mean passing on players at positions with much higher positional value but equal amounts of need. -2.0 |
|
| TOTAL | +14.0 | -4.0 |
This leaves Joeckel with a draft equity balance of +10.0, significantly lower than that of Geno Smith.
What does this mean?
The value of the second overall pick is based on what it's used for. The trade value of the pick is equal to the amount it would return in a trade, but that can only be known if the pick is, in fact, traded.
If the second overall pick is used on Luke Joeckel, the pick's value is being squandered. Joeckel would not generate as much value to the Jaguars as Geno Smith would. Why? Look at the liabilities:
- Joeckel plays a position with far lower positional value than Geno Smith
- The position Joeckel plays is far easier to fill with a positive contributor than the position Geno Smith plays
- The opportunity cost of passing on Geno Smith is greater than the opportunity cost of passing on Luke Joeckel. The talent at right tackle is similarly flat to the talent at quarterback, and the trade value of the pick in both scenarios is obviously the same, but the opportunity cost of taking each of these two players is, simply put, the other of the two.
If the Jaguars select Geno Smith, they are costing themselves Luke Joeckel (along with all other draftable players that will no longer be available by their next pick). If they select Luke Joeckel, they are costing themselves Geno Smith. Given the other seven factors involved, Geno would be a greater loss than Joeckel.
The "Draft Balance Sheet" can be used for any prospect. Obviously this is just as subjective as attempting to evaluate players, but I feel like this puts a more analytical slant on the value of a draft pick. You can't just look at prospects in a vacuum; it's important to look at the value of the pick and all its possible uses. Three sections of the balance sheet are devoted to the player's talent, both in terms of certainty and upside, so it's not like this doesn't take talent into account. Simply put: a right tackle would have to be a SIGNIFICANTLY better prospect than a quarterback to be worth taking over that quarterback with the second overall pick.
Essentially, draft equity is a breakdown of what kind of value you're left with after you make a pick. It all boils down to: take the player that provides you with the most assets and the least liabilities. That doesn't mean make the safe pick; it means make the pick that helps your team the most.
Let's sum it all up in one sentence:
Draft equity is the value of the player's talent, the value of the player to your team, the value of the player relative to the rest of the available players, and the value of the player relative to the return for which the pick could've been traded.
Make sense? No? Argh. Never mind.