Introducing VCR: Value/Cap Ratio, a Return on Investment (ROI) Metric for the NFL

When the Philadelphia Eagles’ coach, Chip Kelly, traded LeSean McCoy, one of the NFL’s most popular stars for the lesser known Kiko Alonso the entire public shook with incredulity. That McCoy, a perennial All-Pro running back was traded, alone was a big story. The surprise was magnified by the paltry return of the Eagles: a lesser known linebacker known to only hard core NFL fans. When asked to explain the trade, Chip Kelly said:

“The money that was freed up — we looked at it as we got Kiko Alonso and Byron Maxwell for LeSean McCoy. The bottom line is almost every decision you have to make is governed by money. We’d love to keep everybody if we could pay everybody but it’s not baseball. We’re all limited by a cap number.”

With this statement, Kelly expressed an insight into salary cap management that has rarely been stated publicly by NFL coaches. The true reason(s) behind the trade of McCoy are known only to Kelly. After the trade, theories abounded as to its reason(s). There were rumblings that Kelly prefers more of a north-south runner in a running back, as opposed to McCoy, who has been described as an east-west runner. Other reports indicated that McCoy’s outsized personality does not fit the mold that Kelly seeks. Regardless of the real motivations for the trade, the salary cap was the pretext used by Kelly and the explanation he provided was fascinating for several reasons.

The underlying point that Kelly made was that while LeSean McCoy has value for his on-field production, his high salary cap figure is a factor since it precludes the team from maintaining other players on its roster. In a salary cap world, a player’s value is not simply a factor of his on-field production (putting aside any off-field concerns) but rather a hybrid of 1) the players production and 2) the opportunity cost of that production. If player A is paid three times the amount of an average player, then the cost of maintaining player A on the roster is the loss of players B and C who can’t fit under the salary cap due to player A’s large salary. The opportunity cost of losing players B and C, reduce the value of player A.

For the 2015 season, the salary cap (before team-specific adjustments) is $143.3 million per team. For the 53 player slots on an NFL roster, that averages out to $2.7 million per player slot. Thus, if a team signs a player (“player A”) for $8.1 million, or $5.4 million above the value of his player slot, that reduces the amount that the team can spend on the other 52 players of the team, and in effect, this costs the team the opportunity to sign two other players valuable enough to earn an “average” NFL salary.

Player A’s value can be summarized as:

Value of player A = contributions of player A – opportunity cost of player B – opportunity cost of player C.

In contrast, if a team signs a player (“player D”) for an average salary slot of $2.7 million, his value can be measured by simply calculating his contributions.

Value of player D = contributions of player D

As a member of the Eagles for the 2015 season, LeSean McCoy was scheduled to have a cap hit of $10.3 million. By trading him to the Bills, they reduced his cap charge to $3.4 million (the remaining $3.4 M charge is “dead cap” related to his signing bonus proration) resulting in a savings of $6.9 million. In return they obtained Kiko Alonso and his salary of $796,000 for a net savings of $6.1 million in salary cap room. The Eagles used that additional cap space to sign Byron Maxwell to a six year contract for $63 million, and a cap hit of $8.7 million in 2015. This is what Chip Kelly meant when calling it a 2 for 1 deal regarding the salary cap.

The McCoy trade is fascinating because it is the first time a megastar in his prime was traded for the purposes of a “salary cap dump”. Kelly didn’t actually say that Alonso was a lesser talent, but he clearly stated that the advantage of the trade was that the Eagles would be able to maintain two players – Bryon Maxwell and Kiko Alonso, for the salary cap space that one LeSean McCoy would have required.

Even more fascinating, is that Byron Maxwell was not acquired through a trade, but rather as a free agent signing. By lumping them together, and calling it a 2 for 1 trade, Kelly equated obtaining a player from another team with the signing of an available free agent, revealing that he understands the marketplace for NFL players in a broad sense. Kelly looks at players who belong to other teams and free agents are part of one large pool of NFL players as opposed to two separate markets.

The reason for such a philosophy is that highly skilled players are available on the free agent market. For a high salary, but available nonetheless. Thus, a team which has a star player signed to an expensive contract is not in possession of a scarce commodity. In fact, Kelly himself, proved this point, as he was able to go to the free agent market and replace LeSean McCoy with the NFL’s leading rusher in 2014, DeMarco Murray, who is also 27.

Conversely, a young, high-performing player making less than $1 million like Kiko Alonso, is typically not available on the free agent market, increasing that player’s value in a salary cap world.

To capture the intersection of the inherent value of a player with his effect on the team salary cap, I would like to introduce, a metric called Value/Cap Ratio, “VCR”.

Statistics like WAR (Wins Above Replacement) in baseball and efficiency ratings (offensive/defensive rating) in basketball are instructive because they allow you to compare players at different positions using one metric. Understandably, the nuances of football make it challenging to quantify the contributions of an offensive tackle and compare him to a wide receiver.  Pro-Football-Reference.com’s Approximate Value  (AV) is the best metric to date that calculates player contributions and rolls them into one figure. AV is calculated for every NFL player, allowing you to compare players regardless of their positions. A players AV will be his “Value” for the VCR statistic.

In 2014, the base salary cap for teams was $133 million. Each player’s cap hit as a percentage of his team’s salary cap, multiplied by 100 is his “Cap Factor”. A player’s “Value” divided by his “Cap Factor” is his Value/Cap Ratio (“VCR”).

As the salary cap changes every year, the “Cap Factor” based on the player’s percentage of the salary cap as opposed to simply his cap hit (Value/Cap Hit). This enables the comparison of VCR across seasons.

The Value/Cap Ratio metric will allow teams to quantify the return on investment they are obtaining for each individual contract they sign with a player.

I calculated the VCR for all 1,827 NFL players who occupied at least $420,000 (the minimum salary for a NFL player with no experience) of salary cap space in 2014. Almost all of the players that made less than the minimum salary did not have any Approximate Value and only constituted about 4% of league-wide salaries. As such they were not included in the study.

I will have more to say in future posts about the league-wide trends that can be seen through analyzing VCR. See the chart below for the 10 players who had the best VCR in the NFL in 2014:

Top-10-VCR-edited3

The complete list of NFL players and their VCR for the 2014 season can be seen in “2014 VCR by Player

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