Value Based Drafting (VBD) in fantasy football is essentially valuing a player to the extent he exceeds the baseline player* at his particular position. For example, if Peyton Manning is projected to score 425 fantasy points, and in your 12-team league, the No. 12 QB (the baseline player), Russell Wilson, is projected to score 351 points, then Manning's value is 74 points. Compare that to LeSean McCoy who we project for 257 points and who exceeds our No. 24 RB, Toby Gerhart (164 points), by 93 points. According to VBD*, McCoy is more valuable than Manning in that case - by 19 points.
*Not all VBD systems use the worst projected starter as their baseline player.
The advantage of VBD is it allows us to compare players across positions. But it has several problems:
(1) It's hard to determine the real baseline for a given position
It's easy to use Wilson as the baseline QB, but are you really going to stick him in your lineup every week no matter the opponent? If Wilson's facing the Cardinals or Panthers on the road, it's pretty likely you'll find a waiver-wire or backup QB with a better match-up. In fact, often the owner who drafts the last starting QB also drafts a quality backup, planning to mix and match them from the outset. Wilson's projected statline therefore is not an ideal estimate of the baseline at QB.
(2) It's unclear whether No. 12 QB/No. 24 RB is really the right level in any event
For the No. 12 QB to be the real baseline in a 12-team league, you'd have to have a rule that you draft your entire starting lineup before filling out your bench. That way, if you pass on Manning early, you'd know the No. 12 QB (Wilson) will be there for your last pick. If you pass on McCoy or some other RB for Manning, you know Gerhart will be there with your last pick. Of course, it doesn't work that way. People double up on QBs all the time, or take five RBs. By passing on a player at a given position, you're by no means guaranteed the No. 12 or No. 24 player there. While the last-ranked starter is a rough approximation of positional depth, it's far from perfect. For example, if RB really drops off terribly after pick No. 30, and people triple up on backs early in the draft, the price for taking Manning over McCoy early is certainly steeper than 17 points, so long as good QBs are around.
So what is replacement value, i.e., the baseline player, in a given league? That depends on bench size, roster requirements and owner management styles among other things. The most accurate way to get a sense of it would be to look over the league results the last five years and see what each owner got from each *slot*. The worst starting RB slot on average might be considered the baseline. Same with QB slot. Not individual players but what the owner got from his slot. This isn't easy to do because most commish services don't track individual RB slots, and most owners randomly move their players around between eligible slots. Finally, the FLEX spot(s) complicate this kind of calculation enormously, and so does the presence of owners who give up and stop trying to optimize their production later in the year.
(3) VBD doesn't take into account market perceptions
Even if we were able to figure out the proper baselines with some precision and therefore had a good idea of how players should be valued based on their projected production, we also have to account for the perception of players' value - no matter how erroneous - by the rest of our league. For example, if you're in a league where owners overvalue quarterbacks, there might be better running backs available in the later rounds than there should be. In that case, you pay a steeper price in QB quality for passing on Manning in Round 1 and a less severe one for passing on McCoy than you would in a normal league. If Zac Stacy is available in Round 6 and C.J Spiller in Round 8, waiting on running backs suddenly makes a lot more sense. While that might sound like an extreme case, leagues do vary widely in the way they value quarterbacks and running backs even with identical scoring systems.
(4) Projected stats don't take volatility into account
When you're making your VBD calculation, you're looking at a single projected stat line translated into fantasy points. But Manning's 425 points isn't the same thing as McCoy's 257. The quarterback projection is more reliable as Manning is less likely to miss time with injuries than a workhorse running back and less dependent on his team's play. In fact, the quarterback determines the team's play to such a large extent that an elite quarterback is almost assured of being in an elite offense, whereas an elite running back needs to get his red-zone looks based on the team. If Manning's 74 points above the baseline is more of a sure thing than McCoy's 93, shouldn't that carry extra weight? Especially early in the draft where you want to minimize volatility and maximize consistency?
In sum, VBD isn't a bad place to start when doing your overall fantasy football rankings, but it's far from precise, so it's important to take into account nuances of your league like bench size and owner tendencies and also adjust it for volatility.