The Economist: Three observations about money and fantasy sports

In many ways, our identities are really nothing more than complex narratives we create about ourselves. Often those narratives are based on imperfect recollections. See, our memories don’t exactly work like the metaphorical file cabinet most believe them to be. In fact, there’s a lot more creativity and subjectivity to the memories that inform our everyday vision of self. When George Costanza uttered the jewel, “it’s not a lie if you believe it,” we all laughed it away as the apotheosis self-delusion and the very essence of his character, but many neuroscientists would concede that he was on to something. Oh, this is a fantasy baseball column, isn’t it? Well, I’ll get there in a second.

Some of the visions we have about ourselves are more empirically verifiable than others. I could create a self-convincing story that I am quite wealthy, but this can be verified by checking my bank account, and of course I’d be confronted with my own dishonesty every time I did so. Part of my personal narrative is that I’m a fantasy baseball expert, whatever that means. Now, this is not going to be another column waxing philosophic about what it actually means to be an “expert.” I think that ground has been covered, and for today at least, I’m unconcerned with semantics. Today, I’m concerned with the empirical.

Earlier this week, I spent better part of an hour performing an exercise that should have taken me five minutes were I a good record keeper. I went back through all my fantasy sports leagues since 2004 (this date marks the beginning of my current account) and dug around to find entry fees and profits. Playing fantasy sports is often likened to playing the market; to being a good investor. So, I wanted to measure my success the way an investor does, by return on investment.

I didn’t know exactly how profitable I thought the uncompromising ledger would reveal me to be, but knowing what I know about how people tend to build their personal narratives, I figured the reality would be that I’d be a little less successful than whatever I’d settle on believing I was. I fashion myself to be pretty good at fantasy basketball and fantasy football too, to the extent one can be good at something as random as fantasy football. When I ran the numbers, I was a bit surprised.

Across all fantasy sports, I profited a total 11.8 percent over the past seven seasons. This is a tad lower than I would have guessed. In baseball alone, however, I profited 36 percent over the same time period, which strikes me as rather impressive. Now, I’m not certain how to look at these numbers as analogous to an investment in a mutual fund or something because I didn’t invest a lump sum back in 2004. So, I wouldn’t consider this an ROI in that sense, but rather the aggregated performance of a series of investment decisions made over seven years. To add another baseline for comparison, professional sports gamblers are considered very successful if they can pick winners at a rate above 54 percent or so.

I didn’t perform that exercise or chose to write this column simply to tell my readers about my fantasy performance or to try to establish my credentials. I did it to see if I would learn anything worthwhile about money and fantasy sports, or about how we construct perceptions of our success at this hobby we share. I’d like to share three thoughts resulting from this exercise.

The first thing that I found unsurprising, but worthy of mentioning, is that when you play multiple leagues for stakes, your successes, just as the performances of your players, are prone to random variation as well. I assume that many of my readers are like me in the sense that they play multiple leagues for various stakes. Personally, I have leagues that I play every season with relatively fixed stakes and then ad hoc leagues that I participate in for whatever reason as opportunities are presented to me. Among friends, the stakes may or may not be commensurate with the level of competition. In football leagues, for example, I’ve had the unfortunate luck of having more of my better seasons in leagues that happened to have been for lower stakes. These circumstances can work for or against you, and may not be particularly telling about your fantasy sports skill, but still extremely influential on your bottom line.

My second thought was brought when I tried to look at my performance to see if there were any patterns about my behavior that I wasn’t particularly aware of as well. I’m a self-professed conservative player. My highest stakes league mates will tell you that I’m the owner you have to worry about running down the title in the last weeks of the season every year, and not the owner who is prone to having explosive, break away from the pack, teams some years and cellar-dwelling gaggles of busts in others. I was curious as to whether I may have approached different stakes league with different appetites for risk. It was relieving to see that it didn’t appear that I did.

Giving this issue a bit more thought, I confirmed my gut feeling that there’s not a viable justification for approaching different stakes leagues with different risk tolerances. The value propositions of each league remain largely similar on a proportionate basis, so I think that adjusting your strategy based on the absolute dollar amounts is logically flawed. Eight to one odds are the same as 80 to 10 odds. Adjusting your risk appetite based on payout structure, however, can certainly be justifiable. On a related note, whenever I’m given the opportunity to weigh in on payout structures I try to influence more balanced payouts; this is in line with both my beliefs and my self-interest. Don’t ask me which is the cart and which is horse though, for I can’t totally be sure.

My third observation became clear when looking across my three sport performance begged the question of why I thought I performed better than I actually did. I think there are two unique factors at play here. First, my conservative always-be-competitive style leads to feel more accomplished than economically compensated, given that payouts are often quite top heavy. For example, if my basketball leagues were to end today, I’d have finished second in four out of my last five leagues without winning once. Economically, I’d have done better to win twice and bottom out three times.

Perhaps, my style of play isn’t suited to maximum payout, but maximum enjoyment and stability. It’s important to note that fantasy sports is a hobby first, as opposed to actual investing, and so the opportunity cost of the low entertainment value that comes with those bad teams you get when you take too many risks that don’t pan out is a non-trivial part of one’s value proposition when playing fantasy sports. Even the seamheads among us are not actually machines.

The other factor in the perception versus reality dynamic relates to how money comes and goes in fantasy sports. In fantasy sports you make a single bet over a long period of time and when you win, you win several times your bet. The social properties relating to the economics of a fantasy sports win are great; they’re the opposite of the practical economic impotency of quitting smoking. Let me explain.

When somebody decides to quit smoking, it’s a given that somebody else will mention to that person how much money they are poised to save. Of course, realistically, that person is most likely not going to save any money at all. When you quit smoking the economic impact happens over many, small, short term gains. The quitter will most likely just find a different way to spend those five dollars every day, or 30 or so bucks a week. Practically speaking, that money gets redistributed, not saved. (Of course, if you live in New York and are just quitting now, we’re talking real money.)

In fantasy sports, you make a substantial but not overly burdensome bet at the beginning of a season. That bet is singular and it plays out over months. By the time the payout comes you are so far removed from that bet that if you lose you’re not affected. But, if you win, you win a huge ROI out of nowhere. You’re not collecting a theoretical windfall a couple of bucks per day; you get that “I won the lottery” feeling. In terms of the economic structure of fantasy sports, I think that dynamic can’t be overstated.

Economic advisors will tell you that you shouldn’t aim to get a tax refund because theoretically you could be investing that money and making a return on it as opposed to letting the government hold it while inflation creeps up. But, so may of us set ourselves up for a return anyway because we’d rather the lump sum than have to exercise the discipline of withholding from ourselves and doing the homework required to invest wisely. Playing fantasy sports over the long haul offers a similar dynamic. Even if you come a bit short of breaking even, a slightly negative ROI can actually feel like a win if it’s distributed in a certain manner that encourages you to handle it better. And, if you’re profiting modestly, it legitimately feels like you’re deriving significant economic benefit from the endeavor.

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  1. Kevin said...

    Great article…

    Any chance we’ll get some new articles this year on alternative payment structures for fantasy?  Always a good read.

  2. Brad Johnson said...

    Tracking my finances is fairly simple since I’ve only recently been able to squirrel away cash for money leagues. Just looking at baseball, I’ve realized a 16.6% return on my money. Throw in football and it’s an ugly -41.6%. Perhaps it’s time to stop paying for football.

    This is all small sample size stuff. Strong placements in my pay leagues this year or failure to money in either will significantly change those numbers. I tend to rationalize the payment as the cost of ensuring a competitive league. The leagues I play are generally $20 so if you break that down, it’s less than $1 per week of entertainment (or in my case, probably about $.33/hr).

  3. Brad Johnson said...

    Not to hijack the comments, but we had some problems with our keeper league last year and the payout structure. It’s a 12 team league, $20 per team, and we had a simple 70/30 split for 1st/2nd. This resulted in an 8 team race for 12th by June. So we’ve changed up the payout structure this season by introducing half seasons. What are your thoughts on:

    Full Season
    1st: $100
    2nd: $50
    3rd: $20
    Half Season
    1st half winner: $20
    2nd half winner: $50

    The goal is to disincentivize an early rush on keepers at the expense of typical league payouts.

  4. bartaksu said...

    I only have easily obtained numbers from ‘08 through Football ‘10.

    Invested $410, returned $1210 total (or $800).

    Now, is that a return percentage of 295% or 195%?

    Funny thing is, the last seasons of Football and Baseball, I finished 4th in each, and those leagues had the highest payouts (and entry fees).

  5. Blinders said...

    The whole discussion becomes more interesting when you move over to daily fantasy sports where 10s of leagues can be entered everyday, and you can actually get to the long term (1000s of fantasy leagues).  Your ROI in season long is too dependent on variance to be reliable.  Are you a winning player because you made one big score in a high $ league, or because you have proven yourself over and over again in thousands of trial like in poker.  Check out FantasySportsLive dot com.  The payouts are in the 91-94% range and you can beat it long-term.

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