There is a long tradition of gameplay among financial professionals, and fantasy football is no exception. Bond manager Bill Gross spent his formative years at the blackjack table. Warren Buffett is known to play bridge several hours a week, and poker remains a popular pastime in the financial world.
As in finance, these games are characterized by imperfect information: players must assess the likelihood of the outcome given the uncertainty. This allows them to improve skills that are transferrable to the financial markets. A recent academic paper showed that hedge fund managers who do well in poker tournaments have significantly better fund performance.
But what about fantasy football?
Unlike these other games, Fantasy Football spans a longer period of time – a full season, from mid-August to late May. Fantasy managers select a roster of 15 players with a £100m ($126m) fantasy budget from which to choose their top 11, and make one transfer per week in a market where player prices have ever vary according to demand.
In fact, the task is portfolio construction. In the course of a season, an active manager makes around 500 individual decisions in order to optimize the portfolio. In addition to the initial selection and weekly trades, they must also decide when to play various “chips” that grant special powers – for example, a complete team overhaul. These are fewer decisions than most investment managers would typically make, but enough to add a fair amount of judgment to the game.
As with portfolio construction, there are a variety of strategies that managers can employ. Momentum-based strategies follow players’ recent form. The ‘hot hand’ in sport has been dismissed as a fallacy by academics at various times, but recent research lends it some credibility. Some managers seek value and select players who appear mis-rated relative to their performance. Others take a “moneyball” approach, using quantitative tools to identify players whose underlying stats signal an imminent surge in performance.
According to a 2021 study by mathematicians at the University of Limerick, the best managers use all three approaches and tune out market noise. They concluded that “given the noisy competitions on which this game is based, long-term planning and consistently good decision-making are the key factors in a manager’s success.”
Whatever the strategy, a common trait with financial markets is the erosion of advantage, and the speed at which fantasy football has grown shows how that can play out. Ten years ago the Fantasy Premier League was played by fewer than 2.8 million managers. Since then, attendance has increased by 12.7% annually. At the same time, the amount of available content has increased significantly. Dedicated websites and podcasts have sprung up, and specialized Twitter accounts are attracting hundreds of thousands of followers. Such resources have made access to information more widespread. A manager can no longer gain an advantage knowing player absences through injury or a starting line-up; now this information is widely disseminated. Everyone competes with the same information in hand.
One consequence of this is that the Median Fantasy Manager is getting better and better. In any activity that combines a combination of luck and skill, as the variance in skill decreases, proportionally more of the outcome is attributed to luck. Investment strategist Michael Mauboussin calls this “The Paradox of Skill”. He identifies it in the field of active investment management, and it’s also present in fantasy football.
That year, the Fantasy Premier League game was won by American Jamie Pigott, who scored more points than any winner in 20 years. I came up with a whopping 39.319. In the past few seasons I’ve almost made it into the top 1,000, but I’m afraid the likelihood of that happening again is diminishing. With more competing managers, all with the same information, the game becomes more difficult. The effects of more active competition can be seen in the performance of the managers chasing Jamie: the gap between his score and that of 100,000. Managers was smaller than ever and is getting smaller.
Jamie is not a professional money manager, but this season he has experienced many of the challenges that investment professionals face. However, there is one difference: in the investment business, the season never ends.
More from the Bloomberg Opinion:
• $1 billion in Super Bowl betting transforms fanbase: Timothy O’Brien
• What sports betting analysis is teaching the markets: John Authers
• Hedge funds and the art of “fake luck”: Marc Rubinstein
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Marc Rubinstein is a former hedge fund manager. He is the author of the weekly financial newsletter Net Interest.
For more stories like this, visit bloomberg.com/opinion