Dan Snyder's Curse

Owner's should be wary of the winner's curse in NFL free agency. It seems that we routinely see highly-regarded players bust in free agency. See: Washington Redskins.

The reason could lie in economic theory. It's the "winner's curse," or Dan Snyder's Curse. Assume the common critique of free agency is correct and that the teams that "win" in free agency by signing the big name guy actually regularly overpay for the player on average. The reason this may be is that teams pay for a player based on their estimation of his value: some definite, but unknown dollar amount.

The problem is that even the best scouts could never precisely predict a player’s value. Some overestimate his worth, others underestimate. The team that ultimately signs a player will be the one that maintains the highest estimation of his value, which likely is a team that overestimated and, as a result, overpaid.

Of course, this doesn't universally hold true. But the greater a player's bargaining power, the less the gap between his estimated value and his actual value will be (expected profit), and the more costly an error in estimation of his value is.