Although it is played by about 15 million Americans and amounting to a $1.5 billion a year industry, and even though it is a growing business and worth talking about, this post is not about the real-world economics of fantasy sports.

Instead, this post is about the typical structures of fantasy leagues, particularly football (the most popular), and what these leagues can tell us about the participants’ most basic economic assumptions or impulses. I will argue that the default model in fantasy sports is one of an authoritarian and interventionist governing body, which severely restricts fantasy commerce.

But just who are we talking about? As Marketplace reports, the typical fantasy sports players are “male, they’re about 36, and they own their homes.”

So what are the basic structures of fantasy leagues?
A league consists of a number of owners who each field a team. These teams are typically chosen in the form of a draft, which can be held live and in-person, live over the Internet, or completed offline by computer automation. In this latter case, owners often set personalized rankings of players that the computer uses to fill out the draft.

The goal is for each owner to construct a team that will score the most points according to the rules of the league. There is a great variety of scoring systems, ranging in football to TD-only leagues (where points are awarded only for touchdowns) to leagues that compute scores based on complex calculations of yardage, fumbles, touchdowns, and many other statistics. The advent of computers and the Internet has been a key force in the popularization of fantasy sports, since many of these complex calculations can now be done flawlessly and automatically by computer.

Since all of these leagues are founded on statistics, this has led in some cases to a dispute over ownership of sports stats. A recent case with implications for fantasy baseball found that MLB stats are in the public domain.

So, each owner is oriented toward fielding the best-scoring team possible each week, and following the draft roster changes can be made by the addition of free agents or through trades between owners. It is with respect to trades between teams that the clearest indications of the authoritarian and interventionist nature of fantasy leagues comes out.

I have played in a number of leagues, and the traditional way that trades work is that two teams agree to swap players, and then the trade goes to the league for review. This review can be done in a number of ways, but one of the most common mirrors the real-life practice in sports trading: the league office (aka “commissioner”) reviews the trade.

The Sports Guy Bill Simmons, in an article addressing perennial problems in fantasy football, gets at the almost-universal impetus to have trade review:

We all know that the wrong trade can divide a fantasy league faster than the Spelling family fell apart. In my West Coast league a few years ago, the first-place team had Brett Favre and Peyton Manning. It needed a receiver and traded Manning straight up for Amani Toomer. You read the correctly. Nearly 700 angry e-mails and five near-fistfights later, the trade was somehow approved. If that wasn’t bad enough, the first-place team won the title — Toomer filled a gaping hole at receiver — and Manning’s new team finished second. From then on, we called it Toomergate. And, honestly, I never want to go through anything like that again. It was more traumatic than the last 20 minutes of “American History X.”

The point is that trade review is supposed to 1) prevent collusion among team owners and 2) prevent unfair trades from upsetting a league balance. There is a compelling and dominant instinct among fantasy players to put in place structures that will accomplish these two things.

So why do I characterize fantasy leagues as “authoritarian”? Because, as I noted, one of the most common ways that trades are reviewed is by a single individual, the commissioner, typically the person who took the trouble to form the league, send out emails notifying people about league information, and generally run the day-to-day operations. As one friend of mine put it when I complained about league matters this year, “You want everything to be perfect? I’ll be the first one to nominate you to set up and run the league next year.”

Once a trade is agreed upon, the commissioner’s job is to determine whether the trade violates either or both of the above-mentioned concerns (collusion and parity). This is often done by a sort of subjective weighting of evidence, and there are typically no clear standards with which to apply judgments for the two concerns. Often team owners can register their feelings, in the form of making an argument for or against a particular trade.

This leaves the league commissioner in the role of Solomon the Wise, to render judgment from on high. All this, I think, is well-characterized as “authoritarian”.

But the second characteristic of fantasy leagues I intend to show is that they tend toward intervention. That is, the assumption is that a particular trade must positively show that it meets both conditions…the trade has the burden of proof to show that it is fair. The merest hint of unbalance is often enough to get a trade “vetoed,” which has a chilling effect on league commerce. As Bill Simmons also notes, one of the key problem with fantasy sports is that “there are never enough trades.” The propensity for league veto is a major factor in this.

Let me give you an example from one of my leagues this year. So far, there have been four trades agreed upon. Of those four, three have been vetoed. In fact, I traded for the same player on two different occasions, only to have both trades overturned. The other vetoed trade involved the commissioner and another player, and I must say at least the commish had the integrity to veto his own trade. The only other trade to go through is the same exact trade involving the commissioner, which was passed without argument after a long and heated leaguewide debate about the radical intervention and chilling effect of trade review.

The issue of the commissioner having to review trades in which he or she is involved gets at Bill Simmons’ proposed solution for trade review: the formation of a trading committee consisting of “three unbiased outsiders who aren’t in the league but are friends with a few of the owners.” This may address the problem of corruption (which isn’t a problem in my league so far), but it doesn’t address the authoritarian interventionism.

There is, I think, a relevant Hayekian argument to be made against commissioner-review and/or trading committee review, and that is the argument concerning diffuse information. Each owner presumably knows his or her team better than anyone else, and is therefore in a unique position to judge the defects and strengths of the team. Even with a forum for each owner to put an argument forward, the commissioner or trade committee cannot hope to have a better perspective than the two involved owners.

Moreover, since each owner is primarily and predominantly motivated by self-interest, they have the motives most likely to see to their own benefit. These two observations have addressed the questions of knowledge and will that are most relevant to the discussion.

I think that the presumption should be in favor of trades, and that the burden of proof should lie on the side of those trying to veto a particular transaction. The default perspective should work to promote commerce and trade, rather than authoritarianism and interventionism.

Does this mean that we need to completely do away with trade review? Not necessarily. But the structure and system of review would need to radically change from the typical current construction if it is to favor liberty and freedom of exchange over tyranny and intervention.