The Quinton: Perceived Inflation and Nominating With Intention

In a recent podcast, I was asked, among many other questions on strategy and decision-making, if I had any nomination strategies or suggestions for auctions. Being a rookie podcast guest I probably stumbled over my words, but I was trying to give the following answer:

“I usually nominate players that I am not interested in and sprinkle in players that I am interested in. The idea is to make sure your league-mates do not know which players you are in or out on based on the fact that you nominated the player. This helps a lot at the end of auctions, when you are more likely to wind up with a player you nominated. It is along the same lines of being an aggressive bettor in poker in that your indiscriminate bets make it tough to ever put you on a hand.”

This advice is good in that it is probably correct, but it is not good in that is not very helpful. Instead, I would have preferred to give advice that fantasy owners had not already heard before, advice that just might allow fantasy baseball participants to capture value that they were not capturing before. This brought me to inflation and perceived inflation in keeper leagues (we also see these phenomena in re-auctions, but they are more likely to occur in keeper leagues). What we find is that if we can identify gaps in inflation and perceived inflation, we can then potentially nominate and/or bid accordingly in order to capture values before those gaps close. That said, we will take a look at how we should respond when real inflation is less than perceived inflation and when real inflation is more than perceived inflation. Before we go on, however, real inflation and perceived inflation should be defined.

Real Inflation: the inflation that should be demonstrated based on the values of players available and the discounts/premiums of players that have been kept or previously selected.

Perceived Inflation: the real inflation anticipated by the league. (Note: Perceived inflation, therefore, dictates the actual prices paid in an auction, especially in the beginning of an auction.)

Real Inflation < Perceived Inflation
Example no. 1: The players in the first group of players being nominated are going for more than they should be going for. If we place an inflation-adjusted value of $43 on Giancarlo Stanton and he goes for $50, then real inflation is most likely less than perceived inflation.

How to react: Nominate players that are going to go for the most beyond their inflation-adjusted value. Usually this is just the best players as owners like to grab a certain player almost regardless of cost to ensure they are following their pre-draft strategy and to ensure they are “getting a top player.” A couple points for executing this strategy:

1. The key here is not to be afraid to nominate the player that we were targeting if that is the player that is going to induce the most excess spending. We occasionally avoid nominating such a player because it keeps alive the pipe dream that they will be the player that gets miraculously undervalued by the other nine plus owners in our league (in other words, we are holding out hope that we are the only team targeting that player, which is unlikely). Consequently, if you are not going to overspend for such a player anyway, get nominating.

2. Nominate the last guy available in a tier. We know that fantasy owners often use tiers as decision making crutches; therefore, nominating the last player in a tier (assuming there is multi-team demand) often create bidding wars, drawing out the most money.

3. Know your league. More specifically, try to figure out where the premiums get spent compared to actual value in your league; some usual suspects include top power hitters, closers, “ace” starting pitches, but this will obviously vary from league to league and even year to year. It is important to dig into both (i) past auctions and (ii) this year’s specific situation in order to be able to best anticipate where these overpays will occur.

At some point, however, this trend will reverse and values will start occur. Sometimes, our auctions start like this, that being when real inflation is greater than perceived inflation. Transition!

Real Inflation > Perceived Inflation
Example no. 2: The players in the first group of players being nominated are going for less than they should be going for. If we place an inflation-adjusted value of $43 on Giancarlo Stanton and he goes for $39, then real inflation is most likely greater than perceived inflation.

How to react: Nominate players that we would most like to get at the recently demonstrated perceived inflation price. In this specific example, when it is the top players going cheap, we are most likely to profit from this real versus perceived inflation gap by nominating a top player we are targeting. Why will nominating a top player be more likely to return a player we want at discount than nominating non-top player we are targeting? This is the case because the reason that the top players are going for a discount is most likely because owners are saving their auction money for the non-top players; they might even be doing so because they came into the auction thinking that these players would be the best values (corollary moral of the sentence: check your assumptions). Consequently, real inflation on non-top players will probably not be greater than perceived inflation relative to their values.

Downstream Effects of Real Inflation-Perceived Inflation Gaps
When real inflation differs from perceived inflation in either direction, strategy for the rest of the auction will need to be adjusted as teams will now have either a surplus or shortage of auction dollars available relative to initial real inflation-adjusted values.

Example no. 3: After the first group of players being nominated went for more than they should be going for (example no. 1), the auction breaks and discounts become available.

How to react: While the temptation is to try to be strategically secretive and allow others to nominate players that we are targeting, we should go ahead and nominate the players we want. The fear here is that if other owners know we are targeting a specific player that they will drive up the price on our player. This fear is overstated, mainly for the following reasons: (i) we are forced to show our interest in any player we want to buy because of the nature of auctions, in that we need to place the highest bid on that player in order to obtain the player. (ii) If another owner is truly going out of their way to make a player more expensive that only means that other discounts will likely be available elsewhere. This nice and all, but what are the advantages of nominating players that we are targeting in this situation? The reason to do so is to try to capture value from this valuation gap before it closes. In other words, if players that we are disinterested in are the ones that get bought at a discount, then the market can potentially fully correct itself before getting to a player that we are targeting.

Example no. 4: After the first group of players being nominated went for less than they should be going for (example no. 2), players are now going above real inflation-adjusted prices as teams have a bunch of auction money that should have been spent earlier.

How to react: There are no nomination strategies here, but make sure to adjust your prices up accordingly. Put differently, do not stay anchored to the initial real inflation values (hopefully we were one of the teams that grabbed one of the first bunch of players at a discount) because those initial values are sunk costs and “could-have-beens” come this point in the auction. Not adjusting accordingly will leave us with a bunch of money at the end of the auction; leaving us wishing that we had “overspent” on a mid-tier outfielder or starting pitcher rather than a platoon outfielder or swingman.

It can be argued that this involves a lot of effort for something that has no guarantees of paying off. While this is true, if we can get a discount on a player that is going to make up a tenth of our spending or, depending on the keeper league’s structure, one of the eight to twelve players we are acquiring during the auction, then getting just a single discount (which can lead to better buys throughout the rest of the auction) can be a difference maker. More likely, however, is that by collecting as many little advantages as we can, the better odds we give ourselves of producing a winning team, which is really all we can do and all we should be doing.