The order seems to be by record. Looking at the standings in my league at the end of season 2, here is the draft order:
(pick, league position, record, PF/PA)
1. 8th pl Great 8, 6-16, 2192 / 2396
2. 7th pl Great 8, 8-14, 2399 / 2464
3. 8th plac Big 8, 9-13, 2344 / 2555
4. 7th plac Big 8, 9-13, 2249 / 2403
5. 6th plac Big 8, 9-13, 2346 / 2390
6. 6th pl Great 8, 9-13, 2244 / 2261
7. 5th pl Great 8, 10-12, 2164 / 2297
8. 4th pl Great 8, 10-12, 2326 / 2445
9. 5th plac Big 8, 10-12, 2491 / 2495
10. 4th plac Big 8, 11-11, 2266 / 2288
11. 3rd plac Big 8, 12-10, 2191 / 2182
12. 2nd plac Big 8, 13-9, 2293 / 2252
13. 3rd pl Great 8, 13-9, 2439 / 2303
14. 1st plac Big 8, 13-9, 2501 / 2253
15. 2nd pl Great 8, 16-6, 2439 / 2084
16. 1st pl Great 8, 18-4. 2434 / 2250
Note that a team that made the playoffs did, in fact, get to pick before a team that did not have any competitive games in the post-season. It is also interesting that a team that won its conference picked before the second place team in the other conference.
I suspect that the reasoning behind this is that the better a teams record, the stronger their players, and the less assistance they need from draft picks. But I really have no clue if this is or isn't true.