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A Market for Absolutely… repeat… Absolutely Everything

2013 August 26
by Victor Matheson

Companies have long been able to insure their most valuable assets against loss. In sports this means that teams can take out insurance policies that protect them against injuries to their marquee players.

But apparently, player injury insurance is no longer available solely to real team owners but also to fantasy team owners as well. Fantasyplayerprotect.com now allows fantasy football owners to salvage their season in case of injuries to their key players. For example, for a mere $16.50, you can insure a $100 league entry fee against a season-ending injury to Adrian Peterson.

Kudos to the company for providing a market where none existed before, but from an economic standpoint, it is not at all clear that purchasing this type of insurance makes sense. Because insurance companies need to make a profit, the expected value of an insurance contract is always lower than the actual price of the insurance  policy itself. In other words, insurance buyers typically take a loss in expected income by purchasing insurance.

Insurance may make sense from an expected utility standpoint, however, since it protects individuals from large, unaffordable losses. We buy homeowners insurance, not because we plan on coming out ahead on premiums vs. payouts, but because most of us don’t have $300,000 sitting around in the rare chance we have to rebuild a house that burns down. However, if one can afford to take the hit when things go bad, it is almost always best practice to self-insure.

While Peterson going down almost certainly destroys the Vikings’ chance of making the playoffs, it is hard to imagine an Adrian Peterson injury causing “unaffordable” financial hardship for most fantasy owners, and therefore the $16.50 that insurance would cost is probably better spent on beer and guacamole for your draft party.

(Thanks to Ron Gecan for pointing out that there is, in fact, and market for absolutely everything, and to Arnie Quinn for a bit of research assistance.)

One Response
  1. August 27, 2013

    Another way of obtaining capital for repurchase agreements?

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