Barbarians in the end zone

(Fortune Magazine) -- A 23-year-old leveraged-finance analyst, Excel spreadsheet in hand, is fighting to be heard over a raucous crowd. For three hours, 60 people have been bidding ferociously, occasionally peppering the air with insults.

"That's bulls***! You didn't get your bid in on time!" yells one blond trader. The fevered auction isn't for a hot IPO: It's the draft for the World's Most Competitive Fantasy Football League at a prestigious Wall Street bank.

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According to the Fantasy Sports Trade Association, almost 13 million people play fantasy football, but few take it as seriously as the big-swinging bonus boys from Morgan Stanley (Charts), Bear Stearns (Charts) and Merrill Lynch (Charts), who adapt their quant and dealmaking skills to measure downside risk, estimate pro forma earnings, and broker trades of players. "It's like stock-picking," says one league commissioner. "People win when they pick up good players on the cheap and the players outperform the market."

The season begins in August with draft night and runs through the 17-week football season. Teams select a roster of players whose statistical performance determines scoring for their virtual team throughout the season.

Leagues vary in size and composition: Some are tight groups within a single firm and include everyone from associates to managing directors, while others span multiple firms and are bound together by college affiliation. Teams like the Kosher Pigskins, Hedge Fund Whore, Milk Money and the Banana Hammocks compete for a small purse and big bragging rights.

In the Black Knights league, which is run by commissioner Chip Krotee, a West Point grad and head trader at hedge fund Stonebrook, general managers gathered on draft night for pizza and wings courtesy of Domino's, a Stone-brook holding at the time. "Trying to help earnings," jokes Krotee. Five days prior to draft night, the picking order is assigned according to who makes the best guess about where the Dow closes.

At the end of the season the winner is awarded a Jostens championship ring complete with team, name and cubic zirconia, but players say it's the glory, not the ring, that matters.

Krotee has a shot at winning this year - his record is currently 5-1. He attributes his success to "a lot of relative value" in Eagles' running back Brian Westbrook, not a favorite in the fantasy draft because of past injuries but a pick who has outperformed because of extra time on the field this season.

Krotee also credits his textbook-thick Excel model. "It is as proprietary as any model I would run in my fund," he says. But like most investors, he also heeds superstition-particularly the Madden Curse: When a player appears on the cover of video game "Madden NFL Football," it's time to short that player.

"It's like a company that has performed for the past five years, and earnings look really good; all of a sudden David Faber gets on the television and says there's going to be an SEC investigation," says Krotee. This year's casualty was the Seattle Seahawks' running back Shaun Alexander. The video game was released in late August. A month later he was on the bench with a broken foot.

Every league has different scoring systems, but for a Bear Stearns group, a depreciation in the value of running backs because of an increase in injuries and shared carries resulted in "a secular shift" toward quarterbacks, making the Colts' Peyton Manning, Eagles' Donovan McNabb, and Rams' Marc Bulger the blue-chip picks of the season. Washington Redskins running back Clinton Portis, not a favorite during draft picks because of an uncertain prognosis on a shoulder injury, has recovered and produced an unexpected upside.

Trading during the season is used to rebalance an out-of-whack roster. Krotee, due to a heavy weighting of wide receivers in his portfolio, traded Deion Branch for Ahman Green, a running back he expects will produce better returns.

Is this a waste of manpower that clients should be incensed about? Not according to the commissioner of the World's Most Competitive Fantasy Football League, who declined to speak on the record, as per firm policy. To him it's "team-building with a twist," a way to draw newcomers into the close-knit capital-markets group he manages.

Winners get their names on mahogany plaques in his office, and one lucky team is inducted into the league Hall of Fame, commemorated with a crystal football trophy. For the losers - well, there is the shame of the Toilet Bowl, a consolation tournament for those who don't make the playoffs - and a not-so-subtle reminder to crunch the numbers harder next time.

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