Intro to Fantasy Sportonomics

FANTASY FOOTBALL
INVOLVES ECONOMICS

It is time for you to begin thinking, talking, and seeing your fantasy football roster as a stock portfolio. After you complete your draft, you will have stocks that are safe investments (think of franchise players), stocks that provide strong dividends (think of above-average talents), stocks that are substitutes (think of average talents), and penny stocks (think of flyers with unfulfilled potential).

This concept will help you more properly identify value. First of all, just as Warren Buffett owns stock in blue chip companies such as Coca-Cola and Geico, you have safe investments in your 1st and 2nd round draft picks. So when you receive a bad trade offer for one of your safe investments, you should immediately start talking about how you are not getting a safe investment in return. To take another example, you should no longer view the wide receiver that you drafted in the 8th round and believe is primed for his first 1,000 yard season as a sleeper. Instead you should begin seeing him as someone that will provide strong dividends even though you paid the substitute price for him. Finally, you must be less affected by names and team affiliations. Consequently, you can begin thinking more clearly about who is a true substitute so that you can manage your roster more effectively.

Your goal, just as in economics, is to maximize your value. Sometimes, that will be best accomplished by trading two strong dividends for one safe investment. Other times, it will be correctly waiving a substitute for a penny stock that has the potential to bring high returns for several weeks.

Fantasy Football
Involves Poker

This is less obvious, but while we all like to pretend differently, there is still an element of chance in fantasy football.

In Texas Hold 'Em, the most popular and commercial version of poker, you are dealt some initial cards and then are challenged to make a decision (bet, raise, or fold) based on limited information. You know neither your opponents' cards nor what additional cards you will receive. Similarly, in fantasy football, you draft a roster and then are challenged to make decisions (start or sit) based on limited information. You do not know how the real NFL games will play out, but you can still succeed if you make your decisions based upon the best information that you have at the time.

Start thinking in terms of a player’s probability to succeed on a scale of 1 to 100% over their probability to fail on a scale of 1 to 100%. Take earlier mentioned categories of safe investments, strong dividends, substitutes, and penny stocks. Assign safe investments as a 90%/10% play, since they come with the pedigree and likelihood of success, but there is always the slight possibility that they underperform. Assign strong dividends as a 70%/30% play, since above-average talents are likely to succeed, but there is still considerable downside risk. Assign substitutes as a 50%/50% play, since they are interchangeable by their very nature. Finally, assign penny stocks as a 30%/70% play, since they involve significant risk. Importantly, this 1 to 100 continuum is more accurate. Additionally, you can see how your decisions are independent from one another and you should not let a bad beat compromise your decision-making during a subsequent week. Obviously, it is human nature to remember how you lost when the odds were in your favor. But instead of cursing your luck, you merely want to keep making decisions at 70%/30%, because if you keep playing at 70%/30%, you should come out ahead over the course of the season.

Your goal, just like in poker, is to put yourself in the best possible position. Sometimes, that will mean starting several penny stocks over substitutes while facing a superior opponent. Other times, it will mean making a safe choice of one particular strong dividend.