Athletes Are Assets: Understanding the Market for Talent in the National Football League (NFL)

Abstract

This thesis empirically investigates how National Football League (NFL) teams value player performance when determining compensation, specifically focusing on offensive skill positions. In particular, the paper answers the question: How do NFL player contracts account for individual-level performance for quarterbacks, running backs, wide receivers, and tight ends? Utilizing data on NFL free agents from the 2022 to 2025 football seasons, this study applies a pseudo-panel, two-way fixed effects model by year and NFL team to analyze the relationship between player performance (estimated with expected points added (EPA)), and contract values (measured by average annual value (AAV) and guaranteed annual value (GAV)). The findings indicate a significant, positive correlation between a player’s performance and their contract value: When a player’s EPA increases by one point, their AAV increases by $84,129. Further examination reveals that performance has the most substantial impact on compensation for wide receivers and tight ends, suggesting that metrics for these positions may be considered by NFL teams as more predictive. On the other hand, individual performance for running backs has an insignificant effect on their contract value, potentially reflecting the perception of running backs’ performance as more dependent on others on the field and contributing to the view of running backs as more replaceable assets of the teams. The study also explores the influence of race and team location on these results, finding that the latter has no effect, but the former does. Being White correlates positively with higher pay; however, race is also highly correlated with player position, confounding this result. The paper’s analysis highlights the complexity in how NFL franchises decide to allocate their resources under the limiting rules and regulations of NFL free agency and the salary cap, overall contributing to the understanding of optimization challenges accompanying player compensation in the NFL.