A Sign of the Apocalypse? Maybe Not

tom_brady_injury_on_knee_against_kansas_city_chiefsFor as long as I can remember reading Sports Illustrated, I’ve always looked forward to the “Sign of the Apocalypse” section. This week’s sign is “A Long Island company is offering insurance to fantasy football owners that allows them to recoup their league fees if a player on their team gets hurt.” Sports Illustrated isn’t the only one not showering the new insurance scheme with praise. Deadspin isn’t a fan either.

The Wall Street Journal offers a solid description of Fantasy Sports Insurance’s (FSI) scheme:

FSI offers three options for the nervous fantasy owner to protect his investment:
1. A player misses 10 of the first 15 games due to injury
2. A player misses eight of the first 12 games due to injury
3. Three players miss a combined 18 of the first 15 games due to injury.

Before the first weekend of the NFL season, the fantasy owner selects the player he wishes to insure — let’s say it’s his top pick, Peyton Manning of Indianapolis. He then enters his league entry fee ($250 for this scenario, though FSI offers claims up to $1,000), transaction fees ($0), and money spent on additional expenses, like magazines and online subscriptions ($15).

FSI then determines the cost of the policy based on those numbers, with every top-50 player — from the chronically-injured Steven Jackson of the St. Louis Rams to the Atlanta Falcons’ relatively sturdy Michael Turner. In this case, insuring Mr. Manning for a 15-game fantasy season would cost $29.87. For just under $30, an owner who loses Mr. Manning to injury for 10 of his 15 fantasy games would recoup the entire $265 he spent on his fantasy team from FSI.

First, I think this is a simple and intelligent business plan. Fantasy sports—rightly or wrongly—cause participants a lot of angst and frustration. In other more serious realms that cause such angst and frustration (e.g. travel, health), there are insurance markets so market participants can hedge. But, no such insurance market existed in fantasy football until now. It wasn’t so much a market failure, just the absence of a market. Fantasy football is an investment and, like other investments, it can now be hedged. And, what’s so awesome about this insurance market compared to others is that it is virtually guaranteed to be without adverse selection, since the purchasers of the insurance have the access to the same information about the NFL players as the sellers do.

Second, for the first time of my adult life I am proud of Long Island because it feels like hope is finally making a comeback.

Third, this is a positive development despite the implicit and explicit spin of Sports Illustrated and Deadspin. Fantasy Football causes significant—if momentary—changes in happiness for people, especially when decent sums of money are at stake in a league. Losing your first or second round draft pick for the entire season could easily do a fantasy football participant in. Most individuals are risk-averse. So, wouldn’t it be ideal if fantasy football participants could be made a little less happy during good times and a bit happier during bad times? By paying a premium for insurance, the team owner takes a hit before his team suffers injuries, but gets the financial and happiness benefit of a refund with a significant injury.

Is this catering to risk-averse people so ridiculous? I don’t think so. In fact, insurance for seemingly mundane activities may be as important to the risk-averse individual as insurance for larger-scale activities like travel. The mundane is what affects our happiness on a day-to-day basis. Because of the problems of adverse selection, not all activities are conducive to the introduction of insurance market (e.g. An insurance payout for missing your morning train certainly wouldn’t be a wise business venture). But, for the markets where insurance makes sense, I just don’t see the harm. Does reducing the risk take the fun out of fantasy football? Not really: There’s a ton of pride involved in winning a league and being able to strategically draft a team with enough depth that one injury does not lead to a team’s downfall.

Now, anyone know of any insurance plans for the legal job market?

One response to this post.

  1. Posted by Alex on August 27, 2009 at 5:17 PM

    Do you have any idea how much legal job market insurance would cost? Damn, girl.


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