Early Entry to the Draft

My friend Ani is a huge Kentucky basketball fan and is nervously counting down the days until freshman John Wall makes a decision about entering the 2010 NBA draft or staying in school. If he stays, she’ll be happy because the Wildcats will be automatic contenders for the 2011 Final Four. If he leaves, Kentucky will have to scramble for another great recruiting class to make a run.

Wall’s coach, John Calipari, recently said that Wall was interested in staying at Kentucky, but they’d discuss his options after the season finished. According to the Orphan, Calipari has historically urged his players to move on to the pros, rather than staying in school. I think that’s a phenomenal attitude. Here’s why:

The draft rules stipulate that a player must be one year out of high school, preventing star prep players from jumping straight to the NBA. Instead, they play a year in college, as Wall has this year, before they’re eligible to enter the NBA draft. A player like John Wall, arguably among the best college players in the country, is a first-round draft choice and could easily be selected among the top 5 picks. Even if he stayed in school and developed his game more, he is unlikely to improve his draft stock by playing in college any longer. In fact, it’s conceivable that he could hurt his chances for going pro by suffering a career-threatening injury. (As a player of explosive speed, a significant knee injury could cripple his ability to blow past defenders, severely reducing his value.) Moreover, the rules of the NBA bargaining agreement don’t give a player much room to negotiate their first three-year rookie contract—they’re slotted by draft pick and pre-assigned by the collective bargaining agreement. So even if he developed his skills by staying in school, this additional value would not show up in his contract. It would be a straight up surplus enjoyed by his NBA team.*

Let’s stipulate that a player has a useful career bounded by some unknown age. Some guys have longer careers, others don’t develop and are done sooner. Even if he stays healthy in school, the longer he stays, he foregoes his professional basketball salary. (That is, he doesn’t get a 12-year career after he goes pro—rather he’s done at age 32 regardless of whether he went pro at 19 or 22.) There’s a huge opportunity cost for him to stay in school. Probably something like $2 million per year in guaranteed money plus another $2 million in un-guaranteed money. The sooner he gets through that first contract, the earlier he can negotiate a true free-agent deal. However you slice it, the sooner he gets to the NBA, the more money he earns in his career before he reaches the age boundary.

As with most economic issues, there’s a tradeoff. A player who is not likely a top pick in the current draft might gain enough experience by staying an extra year in college to offset the chance of injury or a regression of skills. But for the top picks in the draft, I’d guess that the opportunity cost of that extra year of salary easily outweighs any additional value from staying in school.

One argument you hear about staying in school is that a player will need something to fall back on after his career. I definitely agree that a retired player needs to have the discipline not to spend his career earnings poorly, but I’m pretty sure that with proper planning and discipline, you can make millions of dollars last a long time. Even so, I’m pretty sure that many players go back to school to earn their degrees. That’s the beauty of college—you can be a student well into your thirties and beyond (example: me!).

Another argument you might make for staying in school is that the school has “committed” to him. It’s offered up a four-year scholarship in exchange for playing ball for the team. But I’m pretty sure any objective observer would agree that in a tradeoff of a year drawing huge crowds to your arena and the TV coverage generated by Wall, versus approximately $25,000 for room, board, and tuition per year, that the university makes out like bandits on the deal. It’s not even close—the marketing alone is probably worth several million dollars to the University of Kentucky. They’re effectively absorbing a huge surplus on a player of Wall’s stature each year he’s playing for the ‘cats.

A college coach, who’s got huge incentives to win, would be hard-pressed not to lean on a great player to stay and help win titles. To hear that Calipari, the Wildcats’ coach, might actively encourage his star players to jump to the NBA suggests that he’s got his players’ best interests at heart. It might make his job tougher and his team might not win as frequently, year-in and year-out, but it suggests that he understands that most of these kids are sitting on winning lottery tickets and should cash them as soon as possible for the maximum value. Calipari is effectively foregoing a small portion of his salary by encouraging his players to jump and that’s sort of admirable. A passionate Wildcat fan might disapprove, because Calipari’s also forcing her to accept a slightly tougher road to the Final Four next year without Wall. But that’s the beauty of sports—you never know how the next year’s going to turn out.


*It’s conceivable, I suppose, that he could develop skills that could he monetize in his first free-agent contract (or associated marketing deals), but that’s probably 3+ years away. The three-year discounted value of that additional salary is probably dwarfed by the opportunity cost of one year of pro salary.