Welcome to daily fantasy sports econ 101. We are going to try and peel away some of the basic, strategic elements of daily fantasy sports from an economically-minded analysis. It shocks me how few players truly understand the economic philosophy of daily fantasy gaming. I believe that there are certain foundational truths that, if understood, can have a direct, positive impact on your playing ability.
For the sake of this discussion, inflation is the rise of player pricing by the website host, and deflation is the decline. Prices of goods, players in this case, are fixed for the entirety of the DFS competition; therefor, no matter what the demand on that player, the market price stays constant.
This is important to note as a deflated player’s price can drive many consumers (competitors) into that particular player’s market. The opposite is true if a player sees inflation in his pre-determined value. More competitors will exit that player’s market. Without a rise or fall in the price for that player, the value will hinge on speculation.
Dealing with speculation can be quite tricky. Common sense would be to secure the player with the deflated price as, in the very definition of value, the cheapening player should reason to give the most value. That isn’t always the case in daily fantasy sports. Remember, we are dealing with fixed prices. One has to assume there are reasons or market factors that have deflated the price of the player.
Since we are not privied to any of these websites’ algorithms for determining player price, we have to again speculate. Some market factors that I analyze when evaluating player price are playing time, injuries, splits, and production. I’m sure there are few more, but you get the idea. Basically, a player’s price had to deflate for some reason and since we, as the consumers, don’t drive that price, you need to be aware of the market factors.
It all goes back to that fixed price. As Americans who play fantasy sports we are inundated with the capitalistic, free market philosophy of “Buy low; sell high”. In markets where money /value flow freely across the supply and demand curve, this strategy is the only viable way to succeed. In most yearly fantasy leagues where trading and free agency are done with relative ease the “Buy low; sell high” mindset should be the premier, if not only, focus for maximizing value and profit. Generating value stems directly from the accurate management of your competitors’ demand in yearly leagues.
Importance of Value
However, the daily fantasy gaming marketplace is not a capitalistic, free-market system. The fixed player pricing and salary caps resemble that of a command market system found in socialistic, planned economies. Finding value in command systems can be harder because all consumers have access to all goods (players) within the market. You, as the competitor, have no affect on supply and demand or price. That is important to note as it runs in direct contradiction to the capitalistic system from which we are all accustomed.
Value doesn’t fluctuate based on these factors. Value must be attained by a combination of speculation of those market factors addressed earlier and reducing opportunity cost. No good economics article can be written without the mention of opportunity cost. Opportunity cost is the value or sacrifice of not choosing the alternative player. That is really over-simplifying the concept, but for the sake of our discussion, it will do. The Daily fantasy system of salary management is built on a competitor’s ability to minimize the opportunity cost.
Here’s the prevalent example of opportunity cost as it pertains to deflated player price. Using a player with a deflated price, can be quite useful if demand is relatively small. I dream of days when my quiver is full of deflated arrows that I love, but nobody else has. If demand is high for a player with a deflated price, there will be nothing to stop most or all your competitors from entering that player’s market. I’m a big fan of using what the industry has coined “fading”. It is the strategy of avoiding a player with a deflated price but high demand on the assumption that the reward of not taking that player is worth more than the risk. I suggest relegating this strategy to guaranteed prize pools and large field tournaments as it has far more risk associated than the safe method of following your competitors into that player’s market and praying for success in the other roster slots.
Since the only way to guarantee attaining value in a command system is to be the entity controlling the planned economy within the market, you, as the DFS competitor, can never be assured of finding value. Your job, which is the fun part, is to find the mistakes in pricing by the entity in command. Doing this better that your other competitors, will determine your success rate and grow that money in your account.