Growth and Value investing are joined at the hip” – Warren Buffett
Today is AFL National Draft Day. Over 100 young kids will be sitting with their fingers and toes crossed, waiting for their name to be called out, hopefully fulfilling their dream of making it onto an AFL list.
Having had the opportunity to interview over half a dozen AFL recruiters and list managers for Premiership Portfolio, I was blown away by the amount of due diligence undertaken by football departments to identify what is hopefully a 10-year player/investment. Believe me when I say retail share investors could learn a thing or two.
What does the due diligence consist of?
Each month, the football department committee (like an investment committee) get together, as early as May, to discuss the current list, potential changes to the list ahead and their draft order preference if the draft was to be conducted the next day. The order is adjusted each month based on player form and the clubs own list deficiencies.
As outlined in Premiership Portfolio: 6 Step Guide to Succeeding in the Stock Market, most clubs establish a ranking system, awarding points to draft hopefuls for positive player characteristics (i.e. disposal efficiency, tackling pressure) and penalising them for actions such as clangers or lack or endurance. The points are totalled and a ranking system is formulated to rank draft hopefuls.
The due diligence begins a lot earlier than the actual year the player nominates for the draft, however let’s take it from there. Tapes of the player’s TAC performances are scrutinized to an inch of their life. Recruiters will watch the player live and then follow that up with watching the tape, sometimes from different angles (behind the goals footage), if they’re considering recruiting a forward. They want to ascertain whether their leading patterns translates to a ‘good reading’ of the game.
They will then interview the draft hopeful’s football coach, receiving regular updates, as well as their school teachers. From what I was told, most recruiters don’t bother with the PE teacher, they know the player is good at sports. They aim for the math and English teachers, wanting to know how the student reacts to not being able to solve a math problem or work as part of a team. If the draft hopeful has a part-time job, you can rest assured their boss or supervisor is interviewed. The recruiter wants to know how the player reacts to criticism and instructions or whether they are late to work on a regular basis.
“We value a player’s attitude highly. Their attitude towards training, preparation and towards their teammates” – Brad Lloyd, Fremantle chief recruiter.
The player’s parents are then interviewed (the old ‘apple doesn’t fall far from the tree’ theory) and medical records are requested from the parents if any of them were athletes and had reoccurring injuries. Then the player gets put through the AFL Draft Combine. They get tested and ranked with all the other hopefuls based on skin folds, time trials, vertical leaps, disposal efficiency etc. They are interviewed and asked some odd questions. Mark ‘Chocco’ Williams, ex-Port Adelaide Premiership coach, was famous for making draft hopefuls scream out for the ball, as they would on game day, as if he was ready to handball it to them.
Then comes a cheat sheet (shown below) that is put together and then draft. Inspired by the recruiters, I recommended in Premiership Portfolio that you formulate your own cheat sheet for individual stocks.
“We can see what they’ve done, but I like to see what rate of improvement there could be. Also, their level of maturity or whether they’re balanced in their life or not. The hardships they’ve had to get there….I might ask them the most famous person they’d invite out for donner…Who’s your favourite actor? Or what is your favourite book”
– Ex-Essendon & Greater Western Sydney coach Kevin Sheedy
Then comes Draft Day!
All selections from the National Draft possess growth potential, they’re mostly 18/19 year-olds with hopefully their best footy ahead of them. However, it’s the role of the recruiter to identify (which is extremely difficult) which of them have exponential sustainable growth/improvement in them and which are likely to peak after a year or two in the AFL system. They need to be growth and value investors in the one hit. For example, Fremantle’s chief recruiter Brad Lloyd received media criticism after selecting a skinny silky Stephen Hill, instead of an essentially readymade Daniel Rich, who went on to win the NAB rising star award in his first season at Brisbane Lions. Fast forward 5 years and most journalists/recruiters would have selected Hill if they had the choice.
Value can no doubt be obtained in the opening round of the national draft. Consider Patrick Dangerfield, Chris Judd, Lance Frankin, Dustin Martin or Joel Selwood, who were not taken at number one but were arguably considered the best players in the competition at one stage or another. But most value is extracted towards the end of the draft round were the picks are arguably considered more speculative but possess significant upside. For example: James Hird (pick 79, 1990 National Draft), Brent Harvey (pick 87, 1992), Dane Swan (pick 58, 2001) or even Chris Grant (pick 105, 1998). Towards that end of the draft, it is a bit of lottery, small outlay for hopefully significant payoff.
The value lies in selecting future potential growth at a reasonable pick (price).
As you can see, it's an exhaustive process that will hopefully yield a couple of 10 year investments. Good luck to all recruiters, especially Carlton’s.