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One can draw a countless number of parallels between playing fantasy football and investing in the stock market.
We can start with the banal and obvious:
* You want to load up on blue chip assets – tried and true producers like Apple, Microsoft, and Julio Jones.
* You want a diversified portfolio. You shouldn’t be too overloaded at one position, or too weak at another.
Or, we can get a little more creative:
* The coronavirus pandemic has made for a turbulent global economy and has impacted different stocks and different industries in a myriad of (mostly negative) ways. So too, will it impact fantasy football. With less group practice time, perhaps it’s worth downgrading certain players, as quarterback-to-receiver rapport and understanding of one’s playbook are so important to playing time and fantasy success. Just as the airline industry has been devalued by investors, perhaps so should (to a much smaller degree) rookies, teams implementing a new playbook, and receivers catching passes from a new quarterback.
Fundamentally, by investing in the stock market or by playing fantasy football, you’re making a prediction based on how a given asset – a company or a football player – is going to perform in the future. In both cases you can accomplish this by analyzing trends, poring over spreadsheets, and building projections. In both cases, the outcome is largely out of your control. And, actually, according to MIT’s Sports Lab, the outcome is more out of your control (more luck-driven, less skill-driven) in stock market investing than in daily fantasy football (essentially the day-trading equivalent of fantasy football).
I can go on and on. As countless the number of comparisons to be made is, there are likely even more blog posts already highlighting them.
However, in today’s article, I wanted to highlight the one way in which these two things were diametrically opposed.
The Major Difference
For years – far too long – I thought there wasn’t any difference between selecting stocks for my portfolio and drafting players for fantasy.
I learned from Warren Buffett that the best investors look for companies with a high margin of safety – what he often referred to as “the three most important words in investing.” Basically, the greater a company’s intrinsic value relative to its cost (market price), the higher the margin of safety, and the better the investment.
I assumed this strategy translated perfectly to fantasy football as: “If you draft the best values you’re going to profit.” This is sort of true, only I was wrong in my assessment of value. The best values aren’t necessarily the players most likely to beat their ADP, or even the players with the greatest disconnect between their fantasy projections and their ADP-based expectation.
With investing, you’re not actually competing against anyone. You’re just trying to maximize the return on your investment. Your upside is limitless. But your downside is horrific – financial ruin. With fantasy football, you’re competing against (typically) nine or 11 other teams. Your upside is a first-place finish. Your downside is (typically) the same as all the other teams – finishing outside of first place.. Your chance at turning a profit is probably around one in 12, and your profit margin is capped at something close to 12 times your buy-in. In contrast, the S&P500 has finished in the green in 32 of the past 37 years, and some investors have made billions of dollars in profits. It’s a little more nuanced than this, but clearly downside and risk don’t mean the same thing in investing as they do in fantasy football.
Buffett has been quoted as saying:
“The first rule of investing is ‘Don’t lose money,’ and the second rule is ‘Never forget the first rule.’”
At the heart of investing lies the miracle of compound interest – what Albert Einstein referred to as the eighth wonder of the world. This is what your entire investment strategy should be centered around – maximizing the rate at which you compound capital over time. Once that is understood, it’s easy to see why the best investors are more fearful of loss than they are enticed by gains. Investor and author of The Dao of Capital Mark Spitznagel explains:
“That’s because, you see, it is the big losses that really matter to compounding— more than the small losses, and more than even the big gains for that matter. If you don’t believe me, consider this: Lose 50% one year and it will take almost two +50% years to get you back to even. Steep losses just matter more than anything else… But investors get this wrong, all the time, as they chase the average moment or path.”
With investments, there’s probably a threshold where the downside is significant enough to never outweigh the potential rewards of a given investment. However, in fantasy football, something closer to the opposite is true. Fundamentally, a player’s upside is typically far more valuable than their downside is detrimental, and, at a certain point (later in the draft), downside becomes wholly irrelevant.
The 10-Year Treasury Note is an extremely valuable commodity in the world of investing, but in fantasy, similarly low-risk / low-reward investments are rarely worth your time. And a high-risk / high-reward fantasy investment in the 12th round is far more worthwhile than a zero-risk / low-return or even a low-risk / medium-return investment in the same round.
In any case, my initial strategy – something along the lines of “draft the players most-likely to beat their ADP” – was flawed, because my assessment of value was wrong. Merely beating your ADP isn’t enough. This is an extremely common mistake.
We can steal from Spitznagel and repurpose his quote for fantasy as, “Elite scorers just matter more than anything else… But fantasy players get this wrong, all the time, as they chase the average projection or the most-likely outcome.”
By ADP, James White was typically the 25th running back drafted last year. He finished the season 19th at the position in PPR scoring. You’d think he netted you a small profit, but that wasn’t the case at all.
In ESPN leagues, only 7.7% of White owners won their Championship, which ranked well below the league average rate (10%). In other words, teams who did not draft White were more likely to win their championships than teams who did. In best-ball leagues, we see something similar, White yielded a win rate of 8.6%, which ranked just barely above the league average win rate (8.3%).
Ultimately, White was a bad draft pick (pre- and post-hindsight) because steady mid-range RB2 production isn't very valuable, even with an RB3 price-tag. In a game where only one team walks away with a trophy, White’s +2.2 fantasy points per game over a replacement (waiver wire) player is nothing compared to, let’s say, Austin Ekeler’s +6.0 fantasy points per game over White. This is also a player who, barring injury (pretty much every running back has injury upside), has never shown any semblance of an upside. He flashed at times in 2018, but only when both Rex Burkhead and Sony Michel were hurt. And by drafting White, you missed out on an actual league-winner like Austin Ekeler (rostered on 35% of ESPN’s Championship teams), who was routinely drafted just a few spots after White.
On the opposite end of the spectrum, consider the obscene dominance of Christian McCaffrey and Lamar Jackson. Just drafting one of those two players (in a game where you typically start nine) made you four or five(!) times more likely to make it to your league’s Championship Round.
Like the pareto principle, the vast majority of fantasy championships are won on the backs of only a few players. Actually, there might only be a handful of true league-winners in any given year. But that was never going to be within White’s range of outcomes. And it was obvious. Just like it was obvious 2019 drafters were sleeping on Jackson’s potential of being one of those players.
In August, I called Jackson the “single-greatest value in current drafts at any position.” That prediction proved correct: he averaged the most fantasy points per game of any quarterback in any season ever, paying massive dividends on a 12th round ADP. Just by correctly identifying that one breakout player – ignoring whatever you might have done in the first 11 rounds – you had a 41% chance of making it to your league’s Championship Round.
Then again, Jackson was a sharp pick. If you were sharp enough to draft him, you probably made several other sharp selections elsewhere in your draft. We can’t say the same thing for Christian McCaffrey, however, who was sort of just the default No. 2 pick in fantasy drafts.
However, the edge that that No. 2 draft spot and McCaffrey gave you was massive, maybe the biggest of any one player this past decade. Even though McCaffrey drafters probably weren’t as sharp as Jackson drafters. Even though McCaffrey was 11 rounds more expensive (Jackson’s margin of safety was higher).
McCaffrey was still easily the MVP of the 2019 fantasy season. If you owned McCaffrey last year, you were essentially a coinflip (48%) to make it to your league’s championship round.
According to Mike Beers of Rotoviz, in best-ball leagues last year, teams who owned both Christian McCaffrey and Lamar Jackson won their leagues an insane 64% of their time. Compare that to teams who had Dak Prescott, Dalvin Cook, and A.J. Brown (three of the best value picks you could have made at each position) but no McCaffrey or Jackson… they won their leagues just 28% of the time.
Of the 2018 league-winners – Christian McCaffrey, Patrick Mahomes, James Conner, Nick Chubb – at least one or two of these was pre-hindsight obvious as well. But who are the players with league-winning upside (or at least underrated upside) in 2020? And what do you look for? I’ll lay this out in a series of follow-up articles. Check back here later in the week:
Quarterbacks - Posted Tues May 19
Running Backs - Posted Wed May 20
Wide Receivers - Posted Thurs May 21
Tight Ends - Posted Fri May 22
Too long, didn’t read?
Upside wins championships.
In fantasy football drafts, aim to be a power hitter. It’s more valuable to hit a home run (by drafting a league-winner like McCaffrey or Jackson) than a bunch of singles.
At the very least, this is extremely true in the later rounds.
Let’s consider, as an example, Antonio Brown. He is currently unemployed, will likely face a multi-game suspension even if he returns, and very realistically might never play football again. He’s currently being drafted in the 18th round as the 79th wide receiver off the board. As I see it, he’s currently the best value pick in drafts and it’s not very close.
What is his risk? Brown’s downside is the same as all other players, zero points in a worst-case scenario. Of course, Brown’s chances of scoring zero points are much higher than for many of the players being drafted around him. Even so, his current ADP is absolutely stupid. That’s because Antonio Brown’s upside is Antonio Brown. Prior to last season, Brown had finished fifth, first, first, first, and first at the position in total fantasy points. His upside is almost unrivaled, and, with an 18th-round price-tag, it’s easy league-winning potential.
Sure, his odds of scoring zero fantasy points is higher than most, but, in terms of value to your roster, zero fantasy points also isn’t far off the base case scenario of many of the wide receivers being drafted around him. Consider the wide receivers all going immediately behind Brown (Devin Funchess, Russell Gage, Steven Sims, Bryan Edwards, Chase Claypool, Miles Boykin, and Chris Conley). None of these players have WR1 or WR2 upside. And, even if one of them exceeds their ADP-based expectation (let’s say 8.5 fantasy points per game, or 67th at the position last year), that’s still well below starter-worthy production.
In most leagues, zero fantasy points per game for a wide receiver is worth about as much as 8.5 fantasy points per game. Or, fewer fantasy points per game than what Taylor Gabriel, Chris Conley, Duke Williams, Greg Ward, Nelson Agholor, Zach Pascal, and Auden Tate averaged last year. Were those players winning you any games last year? In fact, were they ever cracking your starting lineup? Or, were they even rostered? And that’s sort of the point. We’ll always have the Waiver Wire to fall back on. If Brown isn’t on an NFL team by Week 1, you can quickly drop him and pick up any player from your free agency pool. And, I’d bet you can easily find a number of players who will average 8.5 fantasy points per game. But, again, why would you want that? Points scored on the bench don’t count, and 8.5 fantasy points per game is never cracking your starting lineup. Instead, swing for the fences again.
One last time: prioritize upside. A player’s best-case projection is more important than their base projection, which is more important than their worst-case projection. With ADP being more a reflection of a player’s most likely outcome, the optimal strategy also comes at a discount.
As we go farther along in the draft the more important upside becomes. Upside maybe isn’t our chief concern in the first round. Alvin Kamara and Ezekiel Elliott have about the same upside – it’s sky-high, hence why they’re drafted in the first round. In the fifth round, it matters a great deal more. In the double-digit rounds, upside is just about all that matters. It should be the driving force behind every pick you make.
Who will I start at quarterback if my QB1 gets hurt? Who will I start at wide receiver when Julio Jones is on bye? Who cares? You don’t need a reliable RB3 to fill your flex spot. You need a league-winner… and you maximize your chances of finding one by placing a premium on upside.
P.S. Be careful not to conflate risk with upside, as many often do. It does not necessarily follow that a higher risk asset offers more upside, though they may often be inversely correlated.