With the NFL Scouting Combine officially starting, I want to use the event in Indianapolis as the occasion for reflecting on the process we DFS players use in evaluating professional athletes. The combine isn’t just a time for NFL scouts, general managers, and owners to look at hundreds of men in their underwear for the purposes of deciding what kind of investment they’re worth. It’s an opportunity for us to look at the near-naked truth of what it means for us to assess players for the purposes of DFS investments. A lot of people believe that DFS is similar to the stock market and that we can evaluate players like stocks. That’s true — but only to a degree.
This is the 14th installment of The Labyrinthian, a series dedicated to exploring random field of knowledge in order to give unordinary theoretical, philosophical, strategic, and/or often rambling guidance on daily fantasy sports. Consult the introductory piece to the series for further explanation.
The Paper Markets and the Real Markets
While most investors choose to put most of their money in the “paper markets” of stocks and bonds, many types of investable assets are readily available for acquisition. Some people prefer real estate. Others prefer luxury items, such as collectible baseball cards and rare paintings. And still others prefer commodities, such as gold or silver or even base metals. What all of these assets have in common is that they are “real.” They are tangible. They can be touched and evaluated on the qualities of their physical natures. Whereas a share certificate represents an ownership percentage of a company, a piece of land doesn’t represent anything. It stands for itself.
When people make the analogy between playing DFS and investing money, they almost always default to talking about the stock market, even though thousands of other trading markets exist. After all, who can forget the Dutch tulip market of the 1630s? Man, those were some wild times. Anybody? Is this mic on?
On the one hand, comparing DFS to investing in the stock market is a fair logical move, because many of the analytical techniques used to value companies and stocks can be applied to players and their DFS salaries. For instance, when one is looking at our Player Models and Trends tools or using our Bargain Rating and Plus/Minus metrics, one can easily forget that the basis of what you are analyzing is a physical person, not a set of numbers representing the productivity of a Delaware-incorporated entity. When we focus on the data in a spreadsheet, creating predictive algorithms for future production, we aren’t all that different from financial analysts who evaluate companies and their share prices for an occupation.
It’s reasonable for DFS players to analyze the industry through the perspective of the stock market.
Deconstructing the Stock Market Analogy
On the other hand, the analytical techniques that we use to value companies and stocks can be found in markets other than the stock market. For instance, the same concepts of “market value” and “core factors” are present whether one is evaluating a company and its share price or, for instance, land, baseball cards, corn, gemstones, metals, sand, or even manure.
In other words, what is important about the analogy to the stock market is not that players are highly comparable to companies but that the skills that good investors possess — whether they are investing in stocks or something else — can and should be applied to DFS.
Just to make sure that we’re all clear on this point: What’s important about the analogy between DFS and investing is not the specific objects into which investors put their money, but the particular logical and analytical processes that investors use when evaluating objects and making investment decisions.
People have gotten too attached to the DFS analogy of the stock market, and the analogy is too imprecise in certain ways. For one, the pricing in the stock market is often more erratic than it is in other markets. For instance, despite the devastating crash of home prices in 2007, the truth is that as long as stock markets have existed, they have been drastically more volatile than real estate valuations. DFS salaries do not fluctuate nearly as dramatically as stock prices, and given that volatility is a constitutive component of the stock market — if it weren’t volatile, it wouldn’t be the stock market — the comparison between stock prices and player salaries isn’t quite right.
It might seem like I’m making a big deal out of nothing, but the analogy isn’t perfect. In fact, hundreds if not thousands of better investing analogies exist. Even though one can employ the analytical mindset of a stock investor when playing DFS, the truth is that DFS platforms are not all that much like stock markets.
Rather, DFS platforms are much more like stock car markets.
It’s About to Get Real
I admit that it might seem weird for me to compare professional athletes to sports cars. But let me ask you this: Is it better to compare an athlete to something as unhuman and impersonal as a company? Or to something as awesome and elite as a car that is designed by human ingenuity and that can travel more than 200 miles per hour? (Also, let me just say that there are far worse things than cars to which I could realistically compare athletes. Just ask my editors. Better yet, don’t ask.)
The fact is that, unlike a company but very much like race cars, athletes are fine-tuned, well-oiled machines that just happen to be biological. Like race cars operated by drivers, athletes compete in time and space with each other, and the outcomes of those competitions are determined in part by their physical differences and their ability to use their unique blends of size, speed, and maneuvering ability to maximal benefit.
On top of this, it’s actually common for athletes to treat their bodies as mechanized machines. They speak of the food that they eat as fuel. Superstars are described as the engines of their teams. Fans call sports radio stations and question on air whether certain players actually have the drive to be champions.
And, in a manner that is more than simply metaphorical, we fantasy players often treat professional athletes as if they were our personal cars, as if they exist to benefit and serve us, as if their primary function is to get us (and our bankrolls) from Point A to Point B, as if the units of production they accumulate (be they miles on the odometer or fantasy points on a spreadsheet) are not for them but for us.
Bottom line: Unlike a business with shares traded on the New York Stock Exchange, athletes are “real assets.” They are physical.
When we ignore that these players are physical assets — when we treat them as if they are simply a collection of numbers representing a company — then we risk forgetting one of the most important aspects about the games on which DFS is based: They are physical contests with outcomes determined by the physical performances of physical people. We can use data and spreadsheets to gain an edge, but we should never overlook the importance of what actually happens in the real games.
The players competing in these athletic contests must be judged on the basis of their physical natures because the game they play is physical. You might not like it, but it’s the method of evaluation that actually makes the most sense.
DFS Platforms are Like Car Markets
DFS platforms are like car markets. Whereas the stock market is based on an economy of trade, the car market is based on an economy of production. It literally is all about what this vehicular machine — be it a Chevy, a Lamborghini, or Jerome Bettis in the late 1990s — will be able to do on the track.
In the car market, the rules of value investing — and of investing in general — still apply. The potential investor still wants to conduct due diligence on the asset in which an investment might be made. One still wants to get a bargain by attaining more production out of the vehicle than one would get from other vehicles with comparable price tags. All of the core principles of (value) investing are still applicable to DFS in the (race) car analogy.
In fact, the rules of investing are more applicable with this analogy because the core difference between stocks and cars — how one turns a profit or gets one’s money back — is incredibly significant. With stocks, one makes a profit by buying and then selling at a later date. Basically, one makes a profit by timing the market. With cars, one makes a profit when the vehicle acquired surpasses a certain production threshold within a certain time period. Sound familiar?
Look at it this way — when one is analyzing a company, one certainly looks at earnings, management, the sector that the company is in, and the company’s stock price as a way of trying to figure out the future stock price of the company’s shares. That process is applicable to DFS, but only marginally.
But when one looks at a car for the purposes of investing, one considers the following in order to gauge the future production the car is likely to provide: age, size, physical attributes, past production, the number of years the car has been used for work, and maybe even manufacturer, the area of the country in which the car has been most used, and the future work that one intends for the car. In fantasy sports, taken as a whole, that is almost precisely how we evaluate players. On the basis of age, size, physical profile, productivity, experience, draft and college pedigree, professional team, and the matchup under consideration, we evaluate professional athletes for the purposes of deciding whether they should be in our fantasy lineups.
When we look at athletes in any given slate, we are essentially deciding what kind of sweet ride we want to buy.
Applying the Analogy
At its best, an analogy highlights an overlooked aspect of the thing being compared to something else, and the more precise the analogy the better chance of that revelatory process happening.
The car analogy is unequivocally more precise than the stock analogy, and it has the benefit of highlighting what many DFS players know but often ignore. When it comes to analyzing players for our lineups, the factors of age, size, physical ability, long-term production, professional experience, and maybe even draft pedigree should not be discounted.
Salary, matchup, and recent production are not the only factors that matter. For certain players, they might matter more. For other players, less. But they are never the only factors one should consider when projecting potential production in a slate. Often, however, they are.
Again, when we look at the numbers in a spreadsheet, we risk forgetting that the physical attributes of the players matter — that not all $5,000-salaried players who play the same position are athletically similar.
The stock market analogy that dominates DFS today is a holdover from the seasonal and dynasty formats in which the idea of trading is actually applicable. When the DFS industry formed in the late 2000s, it brought the stock market analogy with it, essentially using it as the foundation for its pricing models, and as a result almost all predictive models now in the industry analyze salaries from a stock market perspective.
For instance, at FantasyLabs, in our current models we don’t explicitly give you numbers indicating how fast a wide receiver can run, how hard a pitcher can throw a baseball, or how tall, lengthy, and quick a perimeter defender is on the basketball court. We all know that these factors still matter, and many of our metrics are correlated with physical abilities, but we don’t have these factors in our models (yet).
We believe that our analytical tools are the best in the DFS industry and sufficient to put you on the path to victory, but we also strive to improve where we can. I predict that in the future this improvement will manifest itself as a more direct attention to physical profiles.
The future of DFS models will move away from the stock market analogy and toward an analogy grounded in a physical class of assets. The physical qualities of athletes will be quantified and incorporated into our knowledge base.
For instance, in the future more MLB DFS models will (or should) make use of PITCHf/x, a service that digitally tracks the trajectory of baseball pitches. More of them will be like a DFS version of Daren Willman‘s site BaseballSavant.com, which provides advanced next-generation baseball statistics that are updated daily.
In future NBA DFS models, the industry will almost certainly make more used of SportsVU data. We will be able to measure the game in terms of speed, distance, player spacing, ball possession, ball movement, for all 10 players on the court at the same time, and leveraging these physical components we will be able to make our models both descriptive and predictive.
And in future NFL DFS models, the industry will likely use not only combine data — height, weight, speed, agility, and explosiveness as measured by the various drills — but we eventually will also use the data generated by GPS technology. In the best way possible, all of us will be DFS versions of Chip Kelly.
In the future, the best DFS models will almost certainly be those that make use of the newest data and technology — those that quantify the physical nature of sports.
Trading in the Chevy for a Cadillac
The future is almost here. (It always is.) We must trade in the stock market analogy for one that takes into account the physical nature of sports and the athletes who play them, and, of all the investing analogies involving fantasy sports that people have made throughout the years, the car analogy is the most precise and, once people get used to it, probably the most useful.
For DFS, the primary virtue of this analogy is that it reconciles the investor-driven mode of analysis in DFS with the physical method of competition in professional sports. It is more useful to think of an athlete as an intricate and well-built, fast-moving machine than as a growth stock.
I also believe that the car analogy has exceptional application to seasonal and dynasty leagues — especially dynasty leagues — in which owners, like stock brokers and day traders, are more concerned with market value and selling high and less concerned with intrinsic value and maximizing the future production of their franchises with the assets in their garage.
But I’ll leave that for other writers.
It’s enough to point out that players are more like cars than companies and DFS platforms are more like car lots than stock markets. What other people choose to do with that knowledge is up to them.
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The Labyrinthian: 2016, 14
Previous installments of The Labyrinthian can be access via my author page. If you have suggestions on material I should know about or even write about in a future Labyrinthian, please contact me via email, [email protected], or Twitter @MattFtheOracle.
