posted on December 16th 2015 in Austin CFP Team Posts & Your Financial Advisor with 0 Comments /

Fantasy sports & financial planning: Capitalizing on skill over luck

 

As of late, kick-off probably isn’t exactly the same for quite a few people around the US.

Why? Because six states (and counting) have deemed daily fantasy sports illegal. Most recently, New York joined the mix after an onslaught of advertising popped up in the fall for sites like DraftKings and FanDuel, followed by a report of a DraftKings employee using information not yet available to the public to win $350,000 on its competitor’s site.

On November 11th, NY’s Attorney General issued a cease and desist to daily fantasy sports companies, and after a recent final ruling from higher courts, the industry is no doubt forever changed as more and more states look into regulation.

What’s New York’s (and other states’) strongest argument behind pulling daily fantasy sports out of the mix and crushing the ambitions of a plethora of sports fans? That daily fantasy sports constitute gambling because participants are relying on luck (that which is not under their control or influence) over skill to gain something.

Let’s say that, again: It’s illegal because it’s ruled as luck over skill.

 

What it actually requires to accurately forecast winners

Now, let’s look at the flipside. When a user is building their daily fantasy team, they’re allotted a salary cap, and have to choose players based on their budget — it keeps them from “stacking” their team.

So, how do they choose which players to invest more (or less) in? Here are just a few of the things they might look at:

  • That player’s season stats
  • The team that player is facing that week, and the strength of its offense/defense
  • That player’s teammates (a wide receiver is only as good as his quarterback, who relies on his offensive line)

And if you know anyone infinitely dedicated to their fantasy sports teams, this is ongoing research, each and every day throughout the season (and in the off months). It doesn’t matter which team they’re loyal to as a fan — when it comes to fantasy sports, they know every athlete on every playing field in the NFL.

Research. Identifying patterns. Proactively taking action to build strength. All of these are indicative of skills that have to be put to good use if you want to see success in fantasy sports.

 

How it’s similar to accurately forecasting your financial future

This is not unlike financial planning, or forecasting your financial future. (You did know we were going there, right?) Building a sound portfolio that provides optimal returns and a safety net for your future means having to research, identify patterns, and proactively take action.

In order to build not just a viable, but a rewarding portfolio, you have to know the climate, you need to diversify your assets, and you need to evaluate risk in the context of your goals.

But, then luck steps in — those situations where you don’t have full control — that can render even the “soundest” of investments risky, and even the most well-researched athlete powerless. A few situations cited that rely on luck in sports:  

  • Injuries. Players endure a hard hit, take a wrong step, or catch the ball in just the wrong way, and they could be out for minutes, games, or the season.
  • Referee calls that don’t go in a player or team’s favor (or do). The men in stripes have the power to change yardage and points at the toss of a flag.
  • Coaching oversights. Coaches are inundated with information on the sidelines, and despite prior experience and that plethora of information, they are often making snap decisions — and one wrong play call can change the trajectory of a player or team’s game.

Even the most thorough research and the best speculation can’t predict injuries, biased calls, or oversights on the field. Likewise, knowing the climate, diversifying assets, and evaluating risk won’t guarantee your success against the unexpected (and impossible to predict) factors that play a large hand in determining overall success in your investment portfolio. Even when working off of strong historical data and equally sound models, unknown events will occur.

But while your wealth portfolio is free from a cease and desist order at the moment, there are a few different things you can do to exercise your skill over your luck on a regular basis.

 

Increasing skill in financial decisions

Take a few steps to increase the odds (wait, that’s luck) — increase your skill in building a reliable financial portfolio.

  1. Know your goals. As you move through life, your goals will change. At each stage — from a single bachelor on a brand new career path to the married businessperson about to be an empty-nester — you need to know your goals in order to safely evaluate and judge risk versus gain in different financial investments.
  1. Keep the big picture in mind. Your goals will change as time goes on, but just like a fantasy trade might not pay off today, it has to be kept in mind for the larger scope of a season. Each financial decision you make should be made in the context of your big picture. Using a financial dashboard, such our WorthPointe 360, that aggregates your data and relates them to your goals gets this out of your head and onto the screen, where you can monitor it without taking up mental space to store it.
  1. Build a team. Like the fantasy sports team manager who has at least five tabs open while choosing mid-week trades and is consistently refreshing mobile devices on game day, you need someone on your side who has the entire industry top of mind, all the time. A financial planner who makes research, identifying patterns, and proactively taking action their full-time job is best suited to give you the knowledge you need to exercise that skill. They’ll keep your big picture in mind so you can focus on your day-to-day. Recruit a solid financial planner for your team much like you’d choose a strategic coach to guide your athletes.

 

Leverage skill to mitigate luck on the road to success

Yes, those unforeseen events will pop up. Chance is involved. But unlike the world of fantasy sports, where that changes whether or not the game can be played, in the financial industry, it’s a fact of life. That’s why it’s up to you to take what you can control, and make it work for you. Click here to download 4 Tips to Set You on a Path to Wealth That’s in Your Control.

Contact the Worthpointe CFP Team to Start Your Financial Plan Today

 

about the author: Christopher P. Van Slyke CFP®

Christopher Van Slyke CFPChristopher P. Van Slyke CFP® is a past member of the board of directors of The Financial Planning Association (FPA) of Austin, San Diego and Los Angeles, as well as the western region board of directors for the National Association of Personal Financial Advisors. Christopher, a Certified Financial Planner Professional, has been quoted or published in The Wall Street Journal, San Diego Union Tribune, Financial Planning, Smart Money, Financial Advisor, Boomer Market Advisor, MSN Money. Learn More and Contact Christopher for Speaking / Writing Engagements

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