Market Principles of Dynasty (Part II): Two Economies and Three Currencies
This Post will Forever Change how you think about Risk in Dynasty
Hello! It’s Jakob here, back in your inbox with another edition of Thinking About Thinking!
After my impromptu free post on Anthony Richardson and his dynasty value, we’re back to the theoretical this week. My hope is to alternate these evergreen, “market principles” pieces with more tangible, 2023-focused advice over the course of the off-season. For those who have not read the first instalment, check it out below, as we’ll just keep building off that from here forward.
NEW: THE JARGON BIN
a constant dilemma in my writing is balancing avoiding the over-explanation of already long, theory-heavy articles, with ensuring each reader can understand and engage with each element discussed. To help solve that, I’m going to keep a “Jargon Bin” at the end of each evergreen article. As new terms - either ones I’ve created or borrowed - are introduced, I will add them to form a cumulative log. This way, if you ever don’t understand a term you can ‘command F’ to the bottom of the page and refer to the Jargon Bin. If something is ever still unclear after finishing an article, please let me know in the comments!
On to the Article! For those familiar with my writing from PlayerProfiler, you know I’m a sucker for a good metaphor. Let’s start with one here.
Points to Ploughshares
Let’s situate ourselves in an imaginary agricultural community in which the primary crop is wheat. After a drought, the government comes to your community and offers three options to help compensate you.
You can accept 12 units of wheat.
You can be given one lot of farmland, which will produce an average of 8 units of wheat per year after a year of development, if you are successful and the weather is favourable.
You can accept 100 gold which can be used only to purchase wheat or farmland. However, purchasing wheat comes with a catch to stimulate the farming economy:
Each unit of wheat you purchase today costs 10 gold
Each unit of wheat purchased in one year costs 8 gold
Each unit of wheat purchased in two years costs 6 gold
The availability and price of farmland is variable, but no farmland can be purchased for at least two years.
What would you choose?
I hope you’d say you need more information! For instance, what is the standard deviation in farm output? What is the historical rate of farmland purchase price? What is the anticipated effect of increased land cultivation on the price of farmland and wheat in the market? (Surely, you could come up with dozens more if you tried)
Like a manager in the dynasty market, a person in this situation is forced to make decisions based on incomplete information and historical base rates which may or may not still apply. However, we can draw general, descriptive classifications of each branch in the decision tree, and infer from that under which circumstance a choice may be more or less advantageous.
If you don’t know where this is going yet, there is at least one subscriber who has grown more (spookily) familiar with my metaphor pattern. Shoutout Ronnie!
The Three Currencies of the Dynasty Market
The metaphor described above broadly matches the three forms of dynasty currency I.E. the tangible use case of each asset to yourself or to another manager in trade.
Those three forms are:
Picks
Current Year projected Production
Projectable production in years beyond the current year
While important to note there can be no such thing as a guarantee of production at any rate, the second category is the closest thing. Therefore we will label that, “productive value.”
The great Adam Harstad has long modelled category three through a blend of current production and historical ageing patterns of the position, used to project “Expected Years Remaining” (EYR). Borrowing from that terminology, we will call the third category: “EYR Value”
So to recap, each dynasty roster possesses three forms of currency:
Picks
Productive Value
EYR Value
While picks are their own category, almost every player offers some level of both productive and EYR value. The total value from all categories on your team is your rosters’s “Buying Power.”
Buying Power vs. Roster Value
You’ll often hear this concept referred to as “roster value,” but I prefer the precision of “Buying Power.” After all, “value” is a subjective term. Value is defined as something’s “importance, worth or usefulness.” Therefore, value is dependent on the manager’s team needs and asset preferences.
Further, “value” - when describing the aggregate market value of all your assets - becomes abstracted from the expected monetary value* of your lineup. The value of your team really ought to mean how much money you should project it to win over a given period of time.
*[For a deeper diver on what “expected value” means and how it’s calculated; I wrote about that here]
The “buying power” of your assets is a helpful guide to that answer, but is a separate consideration. In fact, the goal ought not be solely to increase your total buying power, but to allocate what you’ve assembled in the most efficient way.
In my opinion, roster efficiency - the extent to which the buying power of a roster is maximized toward its best possible expected value - is a wildly under-discussed aspect of dynasty content.
I see two common mistakes in this regard. The first is going unnecessarily “all in” to the point of diminishing returns on your current team, while shortening your window of contention. The second is foregoing too much expected value in the short-term in favour of increased long-term buying power.
I will address examples of each of these scenarios in greater detail in the newsletter often. What links them however, is too singular a focus on one aspect of your dynasty team’s “value” at the expense of others, resulting in an inefficient allocation of resources.
The Buying Power of Draft Picks
One day I will write an entry exclusively about factors affecting the liquidity of the market for draft picks in dynasty leagues. For now, I will limit this discussion to the universal factors which effect the free exchange between picks and players; which I call, “The Hold Tax” and “The Base Value Thesis”
What is the Hold Tax? it’s a term I created to describe the decreased value of a draft pick related to its delayed production.
To illustrate, let’s walk through the life of a draft pick.
First, your league renews and a new set of draft picks are available for trade: typically 3 years out from the current season. On average, a draft pick steadily gains value over time as each successive rookie draft and fantasy season comes and goes. But this value gain isn’t necessarily tied to anything the manager is doing, or even an alteration in the pick’s draft class. This gradual value increase is not a real increase at all. Instead, it’s just the pick inching closer to its “Conveyance Value” the value of a pick at the time of its draft.
What is happening throughout this process is you are paying the “Hold Tax.” In exchange for a guaranteed buying power increase to your roster, you have to continue to sit on this pick; an asset with no productive value. Put the other way, the opportunity cost of exchanging a future draft pick for a player, is foregoing the expected buying power increase from paying off the hold tax.
The hold tax works similar to a mortgage. If you keep your house until the mortgage is fully paid off, you pocket the entire value of the home. If you have paid off a portion of your mortgage, or held the draft pick for 2 of 3 years, you get to pocket a portion of the value.
The Base Value Thesis
The gradual payment of the hold tax is the only certain effect on a draft pick’s value, but not the only one. The two other most significant changes to a draft pick’s value are changes in perception of the draft class, and changes in perception of the manager’s team.
I use the term “base pick” to describe a draft pick in a vacuum. A base pick is one which is equally likely to convey in any slot in the draft order.
It is important to distinguish a “base 1st” from a “mid 1st.” While a “mid 1st” is disproportionately likely to finish toward the middle of the order, a “base pick” is both equally likely to be late, middle, or early. Think of it like rolling a 12-sided die vs. rolling two six-sided die. They have a similar mean and median, but very different distributions.
Because of that, a base pick is much more valuable. Fantasy football follows a power-law distribution; one in which the most valuable assets account for a disproportionate share of the total value of all assets compared to a linear distribution.
Therefore, the value delta between the first pick and the sixth pick is greater than the value delta between the seventh pick and the 12th pick.
There is no such thing as a “base pick” in an actual fantasy league. However, a pick becomes further and further removed from its “base value” over time as its projection solidifies. In a vacuum, it is equally likely a pick projects higher or lower than its base value over time. But because a “base pick” is more valuable than a “middle pick,” the effect on buying power will be more positive when it projects earlier, than it is negative when it projects later. This is the base value thesis.
It should also be noted that we do not play in a vacuum. It is infrequent that a manager who projects to not contend trades their first round draft pick in that year. There is always a chance of a team vastly underperforming or being beset by poor fortune, but it is rare. It is more common to purchase a projected high draft pick in its year of conveyance if it has already been traded to someone else, but in this case you are likely paying based on its high projection. The only time you can buy high draft picks at a cost at or below the pick’s base value is when it is multiple years out from conveyance, and is not projected with any certainty as to its placement.
Why you Want to Buy Draft Picks
Back in the introduction to this series, I discussed the ways in which dynasty fantasy football presents both conservative and aggressive incentives.
The two concepts discussed above - the base value thesis and the hold tax - are why draft picks are uniquely valuable. The hold tax is the ultimate conservative investment. If you hold a pick until it conveys you are assured of a projected value increase. Meanwhile, the base value thesis outlines the upside of draft picks. Buying picks multiple years from conveyance is not only a conservative value play, but an upside one; on the chance it conveys as a very high pick. Draft pick investment is your best chance to exponentially increase the buying power of your asset at near-zero risk.
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