First, from the Wikipedia article on arbitrage:
In economics and finance, arbitrage (pron.: /ˈɑrbɨtrɑːʒ/) is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost.
I often throw around the term arbitrage when talking about drafting fantasy teams even though it’s not actually possible to sell an asset in fantasy football, so I’m not using the term with its exact intended use. However, the WR Arbitrage app will show you three similar players to any WR you choose and you can then look for guys who are available at a discount. For instance, Cecil Shorts is being drafted at a significant discount to some receivers that he is similar to. The idea behind using an arbitrage approach in your fantasy drafting is that you’re looking to keep the same upside, while reducing your risk. I’m going to come off like a scoreboard pointing blowhard when I say this, but I basically did this successfully last year when I deliberately avoided Larry Fitzgerald in drafts so that I could take Marques Colston instead. I didn’t know that Fitz was going to suck. I only knew that I could get some reasonable approximation of Fitz by taking Colston at a reduced price. They had produced very similarly in 2011 and Colston was going off draft boards a full 10 WR spots after Fitz. That’s the point of making that kind of move. You want to reduce your risk and maintain the possible upside. The same thing was also probably possible if you drafted Matt Ryan instead of Matt Stafford last year, although you had to dig a little more to figure out you were essentially getting the same thing (Ryan had scored fantasy points in 2011 at a clip equal to Stafford if you looked at the quarters where Ryan had targeted Julio Jones heavily).
In an email exchange that I was having with Shawn Siegele over the weekend we started discussing current Eagles practice squad player Marvin McNutt when I decided that I wanted to write an article detailing how NFL teams could employ the same strategy that we use to construct our fantasy teams when they construct their rosters. Here’s how this could be done:
Here are two tables, one which contains some numbers on McNutt and the other which contains numbers on Deandre Hopkins, a guy that we like quite a bit here at RotoViz.
*SOS is a standardized measure of schedule strength, msYDS is market share of team yards, msTD is market share of team TDs.
The interesting thing about these receivers though is that Hopkins will probably require a 2nd round pick in this April’s draft, while McNutt is just wasting away on the Eagles’ practice squad. Critics of McNutt will say that he’s not fast enough, or sudden enough, or whatever you want to say (basically he must be slow because he played at Iowa). But he ran a faster 40 than Hopkins did. McNutt also has a slightly better vertical. For whatever importance athleticism has, McNutt is on equal footing with Hopkins.
If an NFL team were interested in reducing risk and trying to get the same upside in the same way that we do in fantasy football, they would sign Marvin McNutt instead of drafting Hopkins in the 2nd round. This is not because Hopkins isn’t going to be a good WR, or can’t be a good WR. It’s because they both have essentially the same risk – they both might be too slow – and one guy costs a lot less than the other guy does. One guy requires a 2nd round pick before you find out if his athleticism is going to be a problem and the other guy costs nothing and can be picked up with a contract (i.e. no draft picks). Maybe Hopkins’ relative level of athleticism won’t be an issue, but maybe McNutt’s won’t be either. I think a reasonable objection here would be that maybe it’s the case that because McNutt couldn’t get on the field last year, that we already know that he’s too slow. But I would argue that this information would impact Hopkins’ odds of becoming a good receiver too. McNutt’s challenges should at least in part inform our outlook on Hopkins. It’s a piece of data that should be considered.
This is going to sound like I’m beating a dead horse, but the key thing here is the difference in cost between the two guys. I often end up making arguments like this and people often come back with “hey, Player X isn’t as good as Player Y!” and I have to come back and remind people that we’re talking about things that have wildly different prices and the price difference is where the opportunity enters the picture.
Da’Rick Rogers – Another Potential Arbitrage Play
If an NFL team were interested in reducing risk and maintaining upside, I think Da’Rick Rogers is another guy that they should look at. Below you’ll find a table that contains Rogers’ 2011 season at Tennessee, along with his Combine numbers for weight and 40 time. You’ll also see the names of some guys that Rogers is similar to. Like the similar players, Rogers played a very difficult schedule, produced both in terms of yards and touchdowns despite that difficult schedule, and he’s also about the same size/speed as the similar players.
|Name||SEAS||WT||40 Time||SOS||G||msYDS||msTD||YPG||TDPG||YPR||Draft Cost|
|Sidney Rice-South Carolina||2006||200||4.51||0.74||13||0.34||0.43||83.85||0.77||15.14||44th Overall|
|Dwayne Bowe-Louisiana State||2006||221||4.51||0.74||13||0.3||0.43||76.15||0.92||15.23||23rd Overall|
|Michael Floyd-Notre Dame||2011||220||4.47||0.65||13||0.35||0.43||88.23||0.69||11.47||13th Overall|
|Alshon Jeffery-South Carolina||2011||216||4.48||0.3||13||0.34||0.42||58.62||0.62||15.55||45th Overall|
This isn’t to say that Rogers is as good as these prospects, although he produced similarly on some important metrics like the market share numbers. This is an argument that Rogers could be acquired for so little that all a team has is upside. If they spend a 3rd round pick on Rogers, they’re getting a guy who looks like four guys who all went in the 1st and 2nd round. If NFL teams practiced this kind of “arbitrage” they would never burn an early first round pick on Michael Floyd even if they liked him. They would wait for a player that was similar and use a later pick on him.
I’ve proposed two personnel moves that an NFL team could make which would cost a total of probably a 3rd or 4th round pick along with a free agent contract for McNutt, but which would allow a team to lock in the upside of guys whose comparables have cost a lot more than that. This is the proverbial free lunch. These moves have little or no cost and the upside could be significant.