DraftKings, FanDuel and Gambling on the World of Fantasy Sports – U.S. News & World Report
It’s Sunday morning, and 26-year-old Ethan Sturm logs on to his computer at home in Boston and begins his search. Scrolling through the thousands of potential competitions he can enter via the daily fantasy sports site FanDuel, Sturm picks out a few contests and starts crafting his lineups.
He doesn’t want to get into any of the larger tournaments, preferring to face off against 100 or so competitors or less. He uses what’s called a lineup optimizer – a tool available for free on other fantasy sports sites that projects player output – to help him make his decisions, and figures out how much money he wants to wager.
[DEBATE CLUB: Are Daily Fantasy Sports Gambling?]
This is Sturm’s first year playing daily fantasy football – a variation on the more popularly known and season-long fantasy sports leagues – but he trusts his instincts and knowledge of the game, gleaned from years of playing in normal fantasy leagues and countless hours listening to podcasts on his commute to work.
Some liken it to the high-risk, high-reward atmosphere of day trading, in which small fortunes can be made and lost on the whims of volatile financial markets. Others take a less forgiving view, saying such activities amount to legalized online gambling and that they need to be stopped – or, at the very least, monitored much more closely.
Daily fantasy allows a player to join any number of leagues on a given day, pay a small entry fee, construct a lineup and win – or lose out on – cash prizes that depend on the contest. The only constraints on the fantasy roster are fictitious salary caps: The site assigns dollar values to specific players based on their projected performance, and contestants are required to submit lineups with players whose arbitrary values don’t exceed the cap.
At first, Sturm started with free competitions on FanDuel that reward winners with small sums of cash, but he quickly graduated to wagering money.
“Early this year, I won a $20 (tournament),” Sturm says. “I’ve just kind of been using that as my bankroll for playing in small tournaments.”
Meanwhile, 750 miles and a half-dozen states away in North Carolina, 42-year-old Paul Guerrero is doing nearly the same thing.
Between Thursday and Sunday, Guerrero typically looks for either head-to-head games or 10-person, one-week leagues on FanDuel.
“You have to search through a bunch of games. When you go on there, there are anywhere between 1,500 and 2,000 games you can play,” Guerrero says. “You have to be careful with the games you select, because there’s a lot of fine print regarding the prizes and the players you can select.”
Guerrero put $25 of his own money into playing FanDuel games last year, and lost only $2 over the course of the season.
Both Guerrero and Sturm were turned on to this newer breed of fantasy sports from friends who had been playing for a while. They are now among a booming population that uses sites like DraftKings and FanDuel to satisfy a craving for continual fantasy sports.
Creating a Monster
By now, anyone who spends any sort of time watching sports on television or surfing through sports-related websites knows all about the allegedly quick and easy cash a person can win by going to DraftKings and FanDuel. That hasn’t always been the case since the companies were respectively founded in 2012 and 2009.
But there’s a reason both sites have such a ubiquitous presence and have transformed the smaller market for fantasy sports into a burgeoning Goliath: Backed by investors that include Google Capital, 21st Century Fox, Time Warner Investments and Fox Sports, the sites now have the cash to funnel into a big-time advertising blitz.
According to recent estimates by Eilers Research gaming analyst Adam Krejcik, DraftKings alone had spent $224 million in marketing this year, while FanDuel had spent $97 million. By Krejcik’s calculations, that translated to respective customer acquisition costs of $190 per user for DraftKings and $110 for FanDuel.
“My friends have been playing for years,” Sturm says. “I wouldn’t say the advertising had a large effect on me, but it’s clearly having a large effect on the game itself.”
In a research report cited by the Las Vegas Review-Journal, Krejcik also said he expects daily fantasy entry fees will reach $3.7 billion this year. DraftKings and Fanduel each netted more than $9 million in revenue during the first two weeks of the current NFL season, and both companies have appeared poised for potential IPOs as soon as next year.
But it hasn’t all been smooth sailing.
Inside Information
DraftKings CEO Jason Robins has stressed that his site offers a game of skill, not one of pure luck. Far from gambling, he prefers comparing fantasy sports to strategic investing.
Players “do their homework,” Robins said at September’s Global Gaming Expo in Las Vegas. “It’s like the stock market. They enjoy looking at something and trying to figure out something that someone else doesn’t see.”
But not everyone sees it that way. This month, Nevada’s Gaming Control Board
banned fantasy sites like DraftKings and FanDuel from offering their products in the state without a gaming license, equating the contests with betting on sports.
The move coincided with a Wall Street Journal
report that both the Department of Justice and the FBI were investigating the sites, with the Justice Department specifically looking at whether they fall outside of a
federal prohibition on Internet gambling passed by Congress in 2006.
The probe is only in preliminary stages, according to the Journal, though investigators had been contacting DraftKings customers to ask them about their experiences.
Not helping matters is a DraftKings employee who accidentally leaked confidential information regarding a DraftKings contest
ahead of the NFL’s third week of games, and who won $350,000 playing in a similar fantasy game on FanDuel. To many, the incident smacked of insider trading: Because the two sites are structured so similarly, it appeared their respective employees could have access to lineup and owner information that could help them win contests run by their competitors.
Each company subsequently restricted employees from competing in daily fantasy games for money, though at least some damage was done.
“It definitely made me trust those tournaments less … a lot less,” Guerrero says. “If I hadn’t been playing daily fantasy, it would have turned me off from ever starting.”
Still, just two weeks later, the two sites saw a record 7.52 million entries into their NFL tournaments and $45.6 million in entry fees,
according to SuperLobby.com and ABC News.
The Winning Hand
The continued success of sites like DraftKings and FanDuel undoubtedly hinges on whether they can continue to toe the line between offering games of skill and a method of gambling – and whether federal officials think that line has become blurry to the point of nonexistence.
The topic even came up during Wednesday night’s
third Republican presidential debate, with former Florida Gov.
Jeb Bush responding to a moderator’s question by saying daily fantasy sports have “become something that needs to be looked at in terms of regulation.”
“Effectively it is day trading without any regulation at all,” Bush said. “And when you have insider information, which apparently has been the case, where people use that information and use big data to try to take advantage of it, there has to be some regulation.”
But regardless of an official finding, part of the equation may include how both online gambling games like poker and daily fantasy sports affect those that play them.
“Until recently, various kinds of sports betting tended to be much more limited,” says Dr. David Sack, chief medical officer of Promises Treatment Centers. “People were either doing it with their bookie or going to Las Vegas.”
Sack adds that with daily fantasy being highly advertised, more people will have trouble fighting gambling addictions.
“When gambling was highly restricted, you had to be highly motivated to find a card game or an opportunity to gamble,” he says. “When you make it more available, more people will be casual gamblers, and of those casual gamblers, there are going to be some by virtue of genetics or stress or underlying psychological issues, like anxiety or depression, who are going to become addicted.”
But according to DraftKings and FanDuel, this isn’t gambling. This is skill-based, right?
Sack says no.
“Every gambler thinks that they are more skilled than every other person gambling in that sport,” Sack says. “Poker is at least as skill-based as fantasy leagues. I think they’re looking for a reason why there shouldn’t be legal interdiction.”
“They’re not saying that because they believe it. They’re saying that because they don’t want it to be regulated.”
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