The English football season ended Sunday, and for 9.2 million players of the Fantasy Premier League, that means finding something else to mull over on a Saturday morning.
In the past few years, the fantasy version of the beautiful game has taken off.
Each week, fantasy managers field a team of 11 players whose performances on the pitch convert to points in their game.
There is a long tradition of gameplaying among finance professionals, and fantasy football is no exception. Bond manager Bill Gross spent his formative years at the blackjack table. Warren Buffett famously plays bridge several hours a week, and poker remains a popular pursuit in the finance community.
As in finance, these games are characterised by incomplete information: Players have to assess the probability of outcomes in the face of uncertainty. As a result, they can hone skills that are transferable to financial markets. A recent academic paper showed that hedge fund managers who do well in poker tournaments post significantly better fund performance.
But what about fantasy football?
Unlike these other games, fantasy football takes place over a longer period of time – an entire season, from mid-August to late May. Fantasy managers pick a squad of 15 players with a fantasy budget of £100 million ($126 million), from which they choose their starting 11, and make one transfer a week in a market where player prices fluctuate based on demand.
Effectively, the task is one of portfolio construction. Over the course of a season, an active manager will make about 500 individual decisions in an effort to optimize the portfolio. As well as the initial selection and the weekly trade, they also need to decide when to play various "chips" that confer special powers — for example, a complete team overhaul. That's fewer decisions than most investment managers would normally make but enough to inject a sufficient dose of judgment into the game.
As in portfolio construction, there are a variety of strategies managers can employ. Momentum-based strategies follow players' recent form. The "hot hand" in sports has been variously dismissed by academics as a fallacy, but the latest research gives it some credence. Some managers seek out value, picking players who look mispriced relative to their performance. Others adopt a "Moneyball" approach, using quantitative tools to identify players whose underlying stats signal an impending upturn in performance.
The best managers use all three approaches and block out market noise, according to a 2021 study by mathematicians at the University of Limerick. They concluded that, "the prime factors in determining a manager's success are found to be long-term planning and consistently good decision-making in the face of the noisy contests upon which this game is based."
Whatever the strategy, a feature in common with financial markets is the erosion of edge, and the speed with which fantasy football has grown shows how that can play out. Ten years ago, Fantasy Premier League was played by fewer than 2.8 million managers. Since then, participation has grown at a rate of 12.7% a year. In parallel, the amount of content available has increased markedly. Dedicated websites and podcasts have sprung up and specialist Twitter accounts attract hundreds of thousands of followers. Such resources have made access to information more widespread. No longer can a manager gain an edge with the knowledge of player injury absences or of a starting line-up; now, that information is broadly disseminated. Everybody competes with the same information in hand.
A consequence is that the median fantasy manager is getting better. In any activity that combines a combination of luck and skill, when the variance of skill goes down, proportionately more of the outcome becomes attributable 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 present in fantasy football, too.
This year, the Fantasy Premier League game was won by American Jamie Pigott, who achieved a higher points score than any winner in the past 20 years. I came a measly 39,319th. In past seasons, I've almost broken into the top 1,000, but I fear the likelihood of that happening again is receding. With more managers competing, all with the same information, the game is getting harder. The impact of more active competition is evident in the performance of managers chasing Jamie: the gap between his score and that of the 100,000th ranked manager was narrower than it has ever been, and it keeps narrowing.
Jamie is not a professional money manager, but this season he has encountered many of the challenges faced by investment professionals. There is one difference though: in the investment business, the season never ends.