Tag Archives: fantasy football

Real insurance for fantasy sports

As of 2018, fantasy sports was considered to be a $13.9 billion market worldwide, forecasted to grow to $33.2 billion by 2025. In the United States, fantasy football alone is a $7 billion market.

About 70% of fantasy sports participants are competing in leagues that charge fees, with players spending an average of $653 on them. That’s not a huge figure, but there are leagues where the entry fees can be more than $100,000.

The increase in popularity of fantasy sports, along with the potential for a lost season due to a key injury, led to the creation of fantasy sports insurance in 2009. The first products were offered by Intermarket Insurance Agency with the backing of Lloyd’s of London. The latest information available showed that over $15,000 in losses was paid for the 2012 NFL season.

Milliman’s Jamie Shooks discusses how the risks in fantasy sports insurance align with the general traits of an insurable risk in the article “Fantasy sports insurance: Is it an insurable risk?

Insurance can protect your fantasy football league investment

An estimated 33 million people participate in fantasy football each year, contributing to what has become a $2 billion industry. With some leagues charging as much as $10,000 to join, football fans should be happy to know that they can protect their investments by purchasing an insurance policy for their most productive players.

In his article “Real insurance for fantasy football,” Milliman’s Leighton Hunley offers some perspective on the underwriting and product pricing aspects of fantasy football insurance. Here is an excerpt from the article:

When you look at the existing FPP insurance product, the cost differential of insuring the highest-risk versus the lowest-risk players is relatively small. For example, consider an owner who pays an entry fee of $100 plus $50 on subscriptions and decides to insure his or her star player for $150. If the star is a low-risk player, the 9 percent premium comes to $13.50 compared to a premium of $19.50 at the injury-prone 13 percent rate.

Do those rates accurately reflect the risk exposure? Fox News reported that another provider paid out more than $15,000 in claims for the 2012 NFL season. But the story doesn’t say whether or not the total collected premiums made this a profitable line of business.

Technology is making more data available all the time, and this is easily accessible to insurers and fantasy owners alike. From an actuarial perspective, the player risk assessment needs to begin with historical injury data on the player’s position: How often do tight ends touch the ball? What is a quarterback’s exposure to injury on a game-by-game basis or a season-by-season basis?

Next, you’d address the player’s specific condition: How old is he? How long has he been in the league? Are there indications that his body is wearing down? If he’s a quarterback, you’d look at how often he gets sacked. If he runs with the ball, does he know how to slide or run out of bounds to safety? Or does he take the big hits — to show everyone how tough he is?

Finally, you’d move to a consideration of rule changes and trends in the league affecting how injured players are treated. Clearly, the overall NFL environment is now more cognizant of injuries, specifically head injuries, and rules are in place to make sure that there’s sign-off from the team doctor before players are permitted to come back in the game. Presumably, that rule would cut down on season-ending injuries.

But, at the same time, teams with more proactive approaches to protecting players might keep them out of more games, which could end up triggering more claims for the insurer to pay (note that FPP provides an email to policyholders containing a certificate of insurance, which provides details on how a claim will be triggered).

To learn more about fantasy football insurance, read Leighton’s blog post “Fantasy football insurance: An actuarial perspective.”

This article was published in Risk & Insurance.




Fantasy football insurance: An actuarial perspective

Hunley-LeightonAs we near the most exciting Sunday on the National Football League (NFL) schedule, I can’t help but reminisce about the year that wasn’t for my fantasy football team. I had high hopes this year, after drafting Arian Foster, Doug Martin, and Randall Cobb; I thought I was in great shape to finally win the league after years of just sneaking into the playoffs. Anyone who followed football this year knows that injuries crippled my team and dashed my hopes. I couldn’t help but think that there had to be some way to protect my $100 investment against these unfortunate events. So after briefly searching online, I discovered that I actually could insure myself against losing my precious superstars to injury with a product called fantasy football insurance.

Fantasy football insurance is currently offered by just a few insurance companies (and note that, perhaps due to its new nature and initially small but growing market, some of this coverage is only available at certain times of the year). The premium a policyholder pays to the carrier varies based on the probability of a given player getting injured during the year and generally averages around 10% of the league buy-in for coverage for a single player. In my case it would have cost me approximately $30 to insure all three of my stud fantasy football players who landed on injured reserve.

Like any line of insurance, there is an underwriting process to determine the appropriate premium to charge for the claim exposure of a football player missing significant game time during the season. Clearly, some players like Percy Harvin or Rob Gronkowski have a lengthier injury history than other players, warranting a higher premium for these types of players. These insurance companies crunch the numbers to determine the likelihood that a given player will get hurt and determine the payout to the policyholder given that player’s expected value to the fantasy team. Depending on which insurer you decide is best for you, the amount of coverage can vary so it’s good to get a couple quotes. Even the well-known Lloyd’s of London is an active participant as underwriter in this line of business.

Pricing this exposure requires identifying the players who will have a key impact on generating fantasy points and then applying a distribution on the likelihood of injury. Because each position has a different distribution for the likelihood of injury, pricing this type of product has its challenges.

From an actuarial perspective, starting with historical injury information is a good start. Using historical data, an analyst could track injury rates by position to determine statistically significant variances between positions. Standard and advanced actuarial methods could then be incorporated to project expected injury occurrences in the upcoming season. Adjustments would also need to be made for any rule changes the NFL implements between seasons along with significant trends that could alter the path of the rate of injury for a specific position. As an example, if the NFL changed the rules to allow quarterbacks to ground the football under any circumstances, then the historical injury rate of quarterbacks could drop significantly. Carefully considering the risks of fantasy football insurance can help refine the premium rates to balance expected loss costs with profitability. Insurers can obtain a greater market share if their pricing hits the sweet spot and helps them remain profitable in this line of business.

As the next football season approaches, I’ll be keeping my eye on the policies available to me to ensure I protect my investment in case I should draw the short straw again and lose key players to injury. However, I won’t fork over too much cash if I feel the price isn’t right.




Risk, Twinkies, and fantasy football

Carbone-WilliamWith their inevitable return to shelves this July, Twinkies have staked a claim to a spot with death and taxes in the certainties of life. Their return brought smiles to the faces of many junk food aficionados and kept an American staple from extinction. But other than an overlapping fanbase, is there a connection between fantasy football and Twinkies?

First, let’s take a look at the highlight of the coming NFL season for many, as August is fantasy football drafting season. For the uninitiated, fantasy football is a game where players, or “owners,” attempt to build a team of real-life football players who will put up the best combined statistical performance. Each real-life player can only be selected by one “owner” during a fantasy football draft. One of the keys to winning this game is to select players that outperform their draft positions, akin to stocks outperforming their market expectations. Players returning from an injury are often available at a discounted price, creating an opportunity if the discounting is unwarranted.

The last two years have shown extreme examples of the results of targeting players with injury concerns. Last year, Adrian Peterson was attempting to return from anterior cruciate ligament (ACL) and medial collateral ligament (MCL) surgery just eight months after the injury occurred. After four years of being drafted as one of the top two fantasy football players, health questions caused Peterson to fall to an average draft position of 24th in 2012. For this discounted price, owners who selected Peterson were treated to the NFL Fantasy Player of the Year and, for many, a championship season.

On the other side of the coin, in 2011 Peyton Manning was attempting to recover from neck surgery and associated questions regarding his arm strength. Manning was being selected in the sixth round of fantasy drafts after years of being selected around the second round. This discount was too good to pass up for many, despite the questions around Manning’s health. For those who took the risk, they were soon informed that Manning would miss the season and provide the same return on their investment as they would have if they drafted a Twinkie. (Note that this is not the connection we are looking for.)

While we can see the risk and reward paradigm in play for fantasy sports, does the same hold true for real-world teams? One study from the Society of American Baseball Research Analytics Conference took a look at the costs of starting pitchers relative to the production they provided their team over the next season. The results indicated that during the 2011 season, starting pitchers on one-year contracts, typically at a salary discounted because of health questions, provided the best value among free agent signings. The higher value of these short-term deals is a recent phenomenon as the discounted prices for pitchers coming back from an injury is a recent development.

Now what does any of this have to do with Twinkies? After parent company Hostess filed for bankruptcy and officially shut down business operations, the snacks business of Hostess Brands was purchased by Apollo Global Management and Metropoulos & Co. Apollo, a private equity firm, specializes in purchasing distressed assets, while Metropoulos has focused on failing food brands. The team of Apollo and Metropoulos has brought Twinkies, along with other related snacks, back to supermarket shelves after some restructuring and marketing changes.

It’s unlikely these savvy investors kept the Hostess brand alive because of a feeling of nostalgia for the snack cakes, so they must have seen opportunities to improve the structure while capitalizing on the brand name and free publicity provided by the shutdown. According to management, a primary cause of the Hostess bankruptcy was the cost of using unionized workers, so the new business plan calls for the use of non-union workers who provide labor with lower pension and medical costs. The new structure also consolidates the production plants and utilizes a new distribution model which expands its market reach. They’ve also attempted to use the nostalgic feeling of its customers with the phrase “The Sweetest Comeback in the History of Ever,” while adjusting to more health-conscious consumers by cutting calories and looking into healthier options. The Apollo team saw the potential for great returns, so invested in the discounted opportunity Hostess presented.

Risk tolerance is clearly a personal (or organizational) trait. Higher risk can certainly beget higher rewards; it’s also possible to be risk-averse and still profitable. Both cases require some expertise in making effective use of the specific risk profile. While fantasy football owners don’t have the opportunity to restructure an injured player’s knee, they can still seek out the opportunity present in players with increased health risks. For the risk-averse, these players are not likely to be a part of your fantasy future. But for those looking for discounted prices (and increased uncertainty) in their upcoming fantasy football drafts, take a look at Robert Griffin III, Hakeem Nicks, and Rob Gronkowski. You may find yourself getting a high-quality product for half the price, or you may be wishing you spent your league’s entry fee on a new box of Twinkies.