Are you ready for some valuation? Ahem…FOOTBALL?!?!
Fantasy football season is in full swing. As a valuation professional, this is the time of year where I’ve come to realize I enjoy mixing business along with the, well, the serious man cave-dwelling business of the fantasy football draft. There are many similarities in determining the value of NFL players for a fantasy football draft and determining the value of a business. Business owners and fantasy football players should constantly monitor value to take advantage of opportunities. Here are my top tips from the world of business valuation that just might help you crush your fantasy football league championship this season.
Tip #1: Maneuvering the Draft with Data on Your Side
Nearly all fantasy football leagues begin with a standard drafting format where a random selection process determines the draft order. Two draft formats are used: snake or auction drafts. Before we discuss player acquisition strategies for each draft format, let’s review the valuation methodology of the market approach.
When valuing businesses using the market approach, the price of comparable enterprises is used to help determine the price of a business. For acquisitive companies and private equity firms, buying businesses at or below the prices of comparable enterprises is an ideal means of creating value for the acquiring company. The same approach rings true when building a powerhouse fantasy football team with value for the acquiring league participant.
In the snake draft, each fantasy coach has one pick in each round in a predetermined order that then reverses at the end of each round. For example, in round one the player selection process moves from team 1 to 10, then round two will go from 10 to 1—in other words, the draft snakes back on itself. Snake drafts are commonly used in fantasy football leagues to allow for a fair and balanced draft.
In an auction draft, each team receives a predetermined budget, or a cap, with which to “purchase” their coveted team roster. Players are acquired by the team placing the highest bid. The auction draft concludes once every team’s roster is complete.
In a snake draft format, mock draft results and average draft position (ADP) based on the scoring rules in your fantasy football league offer helpful data points as to how fantasy football market participants view each NFL player. The ADP establishes comparable market data, a useful metric when selecting players to build your team in a snake draft. For example, if you have draft pick position five in round three (3.5) focus on drafting players with ADPs at or below 3.5. Drafting players with higher ADP values than your draft pick position could make for a long fantasy football season.
For acquisitive companies and private equity firms, buying businesses at or below the prices of comparable enterprises is an ideal means of creating value for the acquiring company. The same approach rings true when building a powerhouse fantasy football team with value for the acquiring league participant.
In an auction draft format, a useful comparable market data point is the average auction value (AAVs) for each NFL player based on fantasy football league scoring rules. AAV stats identify what other auction draft-based leagues have paid for each player, and can be leveraged to determine how much you are willing to bid per player in an auction draft.
Acquiring players at prices consistently at or below AAV effectively employs draft capital and allows enough cap space to fill a team’s roster with highly-ranked, highly-valued players. Acquiring a fantasy player consistently above AAV is not an effective deployment of draft capital – this approach will more than likely fill your roster with overpriced, lower-ranked players because you will risk blowing your budget and your season.
Tip #2: Projecting the Growth of Your Fantasy Football Franchise
Determining the value of a business enterprise using the income approach is based on expected future cash flow, future revenue growth expectations, operating profits (and more, but I’ll keep it short), as well as the perceived risk of those cash flows. The higher the expected cash flows and the lower the perceived cash flow risk, the higher the value of the company — and, vice versa for lower cash flow and higher risk = lower value.
Similar to valuing a business, the use of projected data is a useful tool when building and assessing your fantasy football team’s value. A fantasy football team roster with high projected fantasy points (FPTS) and low perceived risk, represents an NFL player roster with great present value.
However, expected future cash flows are also worth less today because of the time value of money and the risks associated with achieving projected cash flows in the future. As a valuation professional, it is critical that I have a deep understanding of a client’s industry, as well their competitive factors, historical performance, and economic factors. Foreseeing headwinds or tailwinds for a company allows assignment of a discount or a premium to a business, similar to fantasy player projections – and that leads to my next tip.
Similar to valuing a business, the use of projected data is a useful tool when building and assessing your fantasy football team's value.
Tip #3: Insulate Your Roster from Risk with Discounts or Premiums
Regardless of draft style, before you draft your fantasy football team roster consider the projections for each NFL player, specifically the projected FPTS for each player. When you are bidding on players, you are really bidding on a set of point values and the risk of achieving those points for your team.
Let’s suppose two running backs are projected to earn the same amount of FPTS for the season. One RB, let’s call him Cosgrove Shumway, is returning to the field after a season-ending injury; a contract dispute also kept him out of most of the pre-season. Another RB, Legume DuPrix, injury-free, participated in and performed well all pre-season, and he has little competition from other RBs on the team roster. The risk of Shumway achieving the projected FPTS is clearly higher than that of DuPrix.
If you perceive a higher risk for a player, in a snake draft you should discount where to select that player; in an auction draft, you will want to discount the price you are willing to pay for that player.
Work Hard, Play Hard
No matter the methods applied, a comprehensive valuation considers factors such as the history and market position of a business, strength of customer relationships, competitive threats, and market opportunities. Further, industry impacts, company forecasts, economic trends, and an evaluation of risk and return are also considered. In short, a careful valuation process should be part of standard operating procedure as a critical management exercise with an eye toward continued success and wins for the firm.
Likewise, valuation methods can present practical tools to determine the value of players to select for your fantasy football league roster and can result in a winning season. However, fantasy football drafts rarely go as planned. Gut feelings, sleeper potential, favorite team/player selection drama can all derail the best-laid draft plans – but no matter, if you’ve been patient enough with your league’s draft I am sure you are just as excited for kick off as I am!