Pro leagues / teams are making deals with the Devil in daily fantasy sports
“The industry has cleverly slipped into the loopholes left in the gaming act and in doing so has essentially replaced online poker as the most popular form of internet gambling.”
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If you’re a sports fan you’ve been inundated of the past two years by advertisements offering the lure of instant millions through daily fantasy sports leagues where “every day is a brand new season”. Daily fantasy sports sites are trumpeted on TV, on the radio and on the internet and are bolstered by marketing budgets reaching into the tens of millions of dollars. Now the primary players in the daily fantasy arena, FanDuel and Draft Kings have begun not just to advertise heavily, but to partner with professional sports leagues and individual teams. The New England Patriots, Washington Redskins and Denver Broncos have all recently inked sponsorship deals with Draft Kings while the NBA announced a blockbuster four-year deal with FanDuel which awards the association an undisclosed equity stake in the company.
For those unfamiliar with daily fantasy sports here’s how it works: players open an account and are most often given a one-time deposit match through one or another “promo code” which allows the site to learn where and how the player discovered it. That player then deposits, via credit card or PayPal, an amount … say $100. Now that player has a balance of $200 with which to enter various “daily” fantasy sports contests. These contests span every professional sport imaginable – even PGA and NASCAR. Entry fees vary from $.25 to $1,000 and sometimes more. Some contests are head-to-head with other players, some involve many players, some involve tens of thousands ofplayers. A popular form of daily fantasy contest is what’s called a “50/50” where half the player who enter win and half lose – the idea being that if you’re in the upper 50% of fantasy players you will win money. But the lure to daily fantasy sports sites in the big hit – the million dollar takedown. In order for a player to score in the fashion the sites advertise he or she must overcome overwhelming odds and be both clever and incredibly lucky.
Daily fantasy sports sites earn their money by retaining a portion of the funds entered into every individual contest – usually 10%. So, if a player enters a “50/50” contest with a buy-in of $10, that player stands to win only $8. The site makes $2 on the entry, regardless of who wins or loses. This is known as the “rake” and it’s precisely how casinos make money on poker games and other forms of gambling where the player is not competing against the house but against other players. The revenue the daily sites generate through the rake is astronomical. Take, for example, the popular Draft Kings “Millionaire Maker” weekly tournament. This contest has an entry fee of $27 and allows up to 92,400 players to enter. The prize pool for Millionaire Maker is $2,200,000. Assuming the tournament fills, however, the take to Draft Kings is $2,494,800. So on that one contest the site is taking down $294,800 in revenue. And that’s only one line item among the thousands of available contests at the site each week. Tonight, for example, a player can enter the “$35,000 NBA layup” tournament for $2. That tournament allows for 20,100 entries and has a prize pool of $35,000. If the contest fills up it will generate $7,000 in profit for the site. Again, that’s only one of many individual NBA contests available just for tonight. It’s almost impossible to comprehend the revenue a large daily fantasy sports site generates on a given weekday night with NBA and NHL games on tap. Sundays are many times as big for the sites as daily fantasy NFL dwarfs the other pro games.
There are costs associated with running a daily fantasy sports site, of course. A staff is needed along with a data center filled with powerful servers. But the largest cost by far is marketing. The deals these sites have entered with the NBA, NHL and NFL cost them astounding amounts of money but they know that they’ll receive a return on their investment. But the players are another story. It is estimated that 5% or fewer of daily fantasy sports players will over time earn a profit over and above the 10% rake the sites take. Those players who are profitable mostly exist in a shadowy world of dedicated players who make thier livings playing these games. Many of these players emerged from the world of internet poker.
When the Internet Gaming Act of 2006 was enacted online poker became illegal in the United States. More importantly, it became illegal for players to deposit money into sites like Party Poker, Poker Stars and Paradise Poker. While these sites continue to operate overseas and are very popular in places like the UK, they instantly dried up in the USA only to be quickly replaced by … you guessed it … daily fantasy sports sites.
An exemption was made by the Federal Government to the Internet Gaming Act for fantasy sports. The reasoning? It was assumed at the time that fantasy sports were played in good fun by players with bona fide relationships with one another and that fantasy leagues were played out over full seasons. The Government saw little harm in friends competing over prize pools in their year-long fantasy football, basketball and hockey leagues. In most cases players buy-in for less than $100 and stand to win less than $1,000 many weeks later. The Feds didn’t see daily fantasy sports on the horizon. The industry has cleverly slipped into the loopholes left in the gaming act and in doing so has essentially replaced online poker as the most popular form of internet gambling.
Make no mistake, daily fantasy sports is gambling. Pure and simple. By entering a daily salary-cap style lineup into a daily fantasy sports contest a player is basically placing a complex parlay wager. While it remains illegal for a player to bet on a Vegas line or a points total for a given game it’s legal for the same player to wager on the performances of individual players in a given week. With daily fantasy sports there is no maintenance of a fantasy team throughout a season. There’s no waiver wire, there are no trades, there are no seasonal highs and lows. Instead, players are able to assemble new teams from day to day and week to week based on assumptions they make about the performance potential of point guards, power forwards, goal tenders, tight ends, quarterbacks and wide receivers.
Every major professional sports league in America pretends to abhor gambling. Why else is there not a professional team in Las Vegas? Yet the same leagues not only endorse daily fantasy sports, they’re now getting into bed with the sites that offer them. It is completely hypocritical. But there is money to be made and where there is money to be made the leagues will happily eschew what they claim to be their own values.
Have pro sports leagues made a deal with the devil? You “bet” they have. By embracing daily fantasy sports the NBA, NFL and various individual teams including the Denver Broncos have dipped their mitts into the largest and most profitable online gambling enterprise on earth and they have done so loudly.
It’s not a matter of “if” but rather “when” the Federal Government reevaluates the exemptions made in the internet gaming act for fantasy sports. There’s simply too much money changing hands too publicly for it to be ignored and inevitably people are going to make mistakes, lose large amounts of money, cause harm to their families and ultimately bring daily fantasy sports into the public spotlight as the form of wagering that it is. When that happens – when there are articles written and television news stories aired about this insipid new American obsession that is siphoning hundreds of millions of dollars from the economy the professional sports leagues are going to be outed for their hypocrisy. They have no business involving themselves in the business of daily fantasy sports unless they are willing to advocate for the legalization of sports wagering on the whole.
Now, if you’ll excuse me, I have research to do before setting my daily NBA lineups at Draft Kings.
