Net Present Value — Immediate Fantasy Production vs. Future (Rookie)

The financial concept of net present value can help us better understand the balance between immediate and potential value in fantasy…

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Net Present Value — Immediate Fantasy Production vs. Future (Rookie) Productivity

The financial concept of net present value can help us better understand the balance between immediate and potential value in fantasy football. It’s a balance of weighing the value of this season’s superstar against the budding potential of a rookie for future seasons. Additional complexity arises from the fact that each player comes with a cost, set within a salary cap, establishing the challenge of building an effective long-term team within budget. To cut to the chase, in seasonal (redraft, non dynasty) formats, you should avoid the hyped rookies, however in dynasty leagues it’s a risk that you must take to have sustained success.

Fantasy Football Net Present Value 101. The discount rate is a measure of risk — how much should you discount an investment’s value into the future, with the rate directly correlating with the risk (ie higher risk higher rate). Football has no formal discount rate — while in the real world there are proxies like the LIBOR or T-bill rates. VC’s use discount rates up to 40% to gauge investments, while AAA bond investors use the Fed rate which is something like 5% right now.

Consider the question — what is the value of the veteran WR2 who costs $40 and will generate 100 fantasy points not productive) who generates 40fantasy points this year, 80points next year, and then potentially exceeds 100 points the third season. The cost per point is significantly higher with the rookie, however you’re making an investment that they will be higher by year 2 or certainly by year 3. The veteran is productive and valuable today; the rookie requires nurture and time to be fruitful.

To maximize success in a non-dynasty format, you should generally avoid rookies as their contribution to cost is high (high cost to point productivity).

In dynasty formats, the path to sustained success is to invest in young players that exceed their value through nurture and growth, which gives you incremental value (actual cost vs. actual value) to apply to additional future investments (to maintain the value differential) or immediate productivity (buying more immediate point production to outproduce existing teams & rosters). In short sustained success is only through shrewd investment in players.

Fantasy football leagues are not unlike the wild world of financial investment, where risk, reward, and the ability to accurately assess future potential can make or break your strategy. Current performance vs. future potential experience vs. raw talent, all underlined by varying degrees of risk , are the components of the exhilarating game of dynasty fantasy football.

You can read the original content published in 2016 here in greater detail.