Investment Concepts for Fantasy Football
By Andrew Dassori
As summer passes through its dog days, things slow down and signs of fall arrive. Halloween costumes creep into storefronts and TVs across America light up with football. In financial markets the volume of activity picks up, and this mirrors increased web traffic for fantasy sports.
Figure 1: Google Search Interest for Fantasy Sports
A Logical Connection
Fantasy football was born at the intersection between finance and sports. Many leagues feature market prices for players, and like investments, outcomes are driven by performance. The connection between investing and fantasy sports comes from a shared foundation in numbers, so it should be no surprise that for both disciplines math can provide an edge.
Consistent with this, many well-researched investment concepts also apply to fantasy sports. And in the dog days of summer, a backdrop of football adds relevance to the topic of investing.
Building Teams like Portfolios
The different roles within a team align naturally with investments, as stocks, bonds and other assets perform differently depending on conditions. To maximize your chance of winning, important relationships between players should be considered. In a lineup, just like an investment portfolio, you can reduce risk by avoiding concentrated bets.
Selecting players on the same offense is akin to investing in one industry. As regulatory headwinds affect companies with similar businesses, players facing the same tough defense risk a simultaneous drop in performance.
Additional risk exists within each offense, whereby quarterbacks and wide receivers behave like a supply chain. Problems at one end often lead to problems at the other, so avoiding these combinations can help reduce inherent risks.
Risk and Return
In both investments and fantasy football risk is critical to success, and a logical way to measure this is standard deviation. The amount a player’s performance moves up and down week-to-week is indicative of how much they can be trusted to deliver on any given Sunday.
As a result, it makes sense to compare players not only on performance, but also on consistency which accounts for their risk. This idea is used in investments when comparing risk-adjusted returns and often expressed as a performance metric using the Sharpe Ratio.
Another important factor when considering performance risk is whether a given player is prone to injury. This outcome can wipe out future returns and is analogous to a bond’s default.
Figure 2: Notable Default and Injury Risk
Source: SportsInjuryPredictor.com/FantasyPros.com, Wall Street Journal, Bloomberg
Drivers of Value
Beyond the similarities between building blocks of teams and investment portfolios, fantasy football also shares an important element in human behavior. For markets this tends to drive prices to inefficient levels, and the same is true for every league when it comes time to draft your team.
Human nature leads to irrational decisions when goods appear scarce, so when drafting for a given position the crowd often determines the process. An alternative approach can exploit inefficiencies by drafting with discipline based on fundamental value. This method has been used for decades in markets by legendary investors like Warren Buffet.
Despite the similarities between fantasy football and investing, there is a key difference to remember: one is a game with trivial risks while the other can be far more impactful. With that being said, we hope these concepts are thought-provoking and useful, and best of luck in the upcoming season.
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Andrew Dassori is the Chief Investment Officer of Longwave Advisor, a newly-launched automated investment advisor based in New York. You can follow him on Twitter @andrewdassori.
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