One idea that has been batted around in fantasy baseball to combat the ever-worsening problem of teams dropping out in July is to pay every position. Each team pays a little extra off the top, and the money is distributed to every spot, even last place. In one of my leagues the leadership pushed through this plan, over my objection.
My view is that while it might work in a few instances, overall it does not provide enough incentive.
Let us assume you play in a $100 entry fee league, with 12 teams.Â A typical payout structure for the league might be 60% to the winner, 30% to second and 10% to third. But, whatever the numbers may actually be, we will use these numbers as a benchmark for analytical purposes. So, first place gets $720, second gets $360 and third gets $120.
How will this change if we go with paying every place? Well, it should be clear that unless you want to completely gut the incentive to win, you will not be able to offer more than a token payout to the bottom teams. If we go with 40% to first, 20% to second and 10% to third, we are left with 30% for the final nine spots, or just over 3% per place.
Do we distribute it equally? That would be around $40 per spot that comes entirely from the first and second place teams.
Economics is generally not about money per se, it is about behavior and incentives. So, what are the incentives that exist for fantasy players?
Winning is the prime incentive. Often this is enough incentive by itself. We have the chance to prove your knowledge and show that you know more than others. But to be honest, most fantasy players who are not newbies need more incentive than victory.
There is the fun aspect, in that playing fantasy sports is generally enjoyable and gives one purpose in following sports.
And then there is the money.
The problem that exists with the â€œpay all placesâ€ plan is that the economic value of winning and proving your knowledge is essentially zero. So, when you choose to incentivize an owner by paying out the bottom spots, the monetary incentive has to be sufficiently high to overcome these zeros. There is no reasonable payout structure to pay every position that can accomplish this.
Another problem with this idea is the fact that the lower payouts will be ignored in most cases by any sophisticated player. Why? Because we do not play gambling games for the gross money earned but the net.
If it costs $100 to enter the league, and it now costs me an extra $10 to pay out every place, then that extra $10 will be built in to the analysis. That is to say, everyone pays it and it will be roughly equally distributed across all spots, so that the marginal gain from the extra money is so small as to be insufficient to alter oneâ€™s behavior.
The only way this will work is if the payouts at the bottom are more than just token or nominal. But if they are then there is insufficient monetary incentive to reward the winners.
Can we agree with the following proposition: if two ideas are up for consideration and one is clearly preferable than the other, then we should ignore the less preferable one? In my mind there are clearly better alternatives.
One such alternative, though possibly not the best one, is to reward the teams that are just out of the money with the highest draft picks. The fourth place team, in the example we are using, gets the first overall pick next year, the fifth place team gets the second pick and so on.
Here you incentivize all aspects of the value equation.
–You have a better chance of winning in the next year. If a fourth place finish allows you to grab the best player next year that should be enough of a carrot. Research has shown that there is a distinct, non-zero correlation between draft position and overall finish in re-draft leagues. The earlier you pick the better you will do, and the reason is that only at the very top of the baseball food chain are we dealing with the outlier players that are not replaceable.
–Winning will enhance your ability to prove your knowledge. This incentive needs no argument here; a better chance to win, even if small, will at least be a non-zero incentive.
–Monetarily it makes sense. If you have the prize structure above, and finish in fourth, you get the number one overall pick. Letâ€™s assume that the value of the number one pick increases your chances of winning by 3%. This seems reasonable as a ballpark estimate. At 3% the increased monetary value of that pick is 3% of the first place money, or $22. And that is just for first place. If it increases your chances of cashing by 3% then the value is 3% of the prize pool, or $36.
So, if we compare this to the â€œpay all placesâ€ example above, the incentive to fourth place is roughly equal, but here we preserve the higher rewards for first and second place.
In a league with a $100 entry fee that is a huge return and one well worth pursuing if you are the sixth place team.Â Of course, this superficial analysis is not nearly rigorous to meet a standard of proof, nor is it intended to be. It is merely meant to shed some light on the issues. There is simply no way in a $100 league that it would be preferable to pay out all spots as compared to the large economic and non-economic incentive of the first overall pick.