Daily Fantasy Sports and the Hidden Cost of America’s Weird Gambling Laws
Sports leagues in the United States, and the networks that broadcast their games, prefer to pretend that everyone watching their games does so for the pure love of competition, the occasional nonchalant reference to the gambling point spread by a football announcer notwithstanding.
But as anyone who has turned on a television during sports programming in the last few months knows, there is a boom in “daily fantasy sports”sites. They offer the prospect of six- and seven-figure prizes in contests based on the statistical performance of a roster of athletes the entrant chooses in a wide range of sports, with the N.F.L. the most popular.
DraftKings and FanDuel have quickly become among the biggestadvertisers on TV and the Internet, with scenes of fantasy players celebrating their winnings. The companies have entered partnerships with teams and attained billion-dollar-plus valuations from prominent investors that include pro football franchise owners.
An entire industry has emerged out of a legal loophole for something that looks a whole lot like sports gambling, which is illegal outside of Nevada and a few other states. To explore this world, I immersed myself for a week in the message boards and tip sheets serving daily fantasy sports obsessives, and put $100 in a newly opened DraftKings account to play last weekend’s N.F.L. action.
What I found is the strange hypocrisy and inconsistency around gambling that is embedded in United States law. The rules actively work against the interests of casual sports fans and low-stakes gamblers like me who just want to make the games more interesting.
The very complexity and opacity that make daily fantasy sports legal also make it more likely that the casual fan will lose money. There is a truism in investing that complexity favors the big guy and disadvantages the little guy, and it applies here as well. If securities laws were like gambling laws, it would be illegal for people to buy shares of Google or a United States Treasury bond, because that would be gambling, but legal for them to invest in currency swaps that pay a return if the Swiss franc, Argentine peso and Vietnamese dong together outperform the Swedish krona, Mexican peso and South Korean won.
The fantasy sports industry argues that its service is not gambling at all, but rather a game of skill. It’s the sort of game specifically allowed by most state laws and by a 2006 federal law restricting online gambling that carved out protections for fantasy sports leagues. The industry is right about that much. It is a skill, and it unquestionably rewards those who apply dogged analytics to assembling their fantasy lineups.
Although daily fantasy sports advertisements target casual fans, a disproportionate share of the contest entries — and even more disproportionate share of the winnings — go to people who play the game on a scale most armchair sports fans couldn’t imagine. An analysis of Major League Baseball contests by Ed Miller and Daniel Singer published in the Sports Business Journal found that 1.3 percent of fantasy players paid $9,100 in entry fees on average, accounting for 23 percent of all entry fees and 77 percent of all profits.
While they earned a 27 percent return on their “investments,” the 80 percent of bettors who counted as small fish, spending $49 each, lost about half their money.
How do the serious players do it?
In the DraftKings fantasy football contests I entered, I assembled a “team,” including a quarterback, running backs and receivers. I scored points based on how many touchdowns and yards of rushing, receiving and so on they achieved in that week’s games. Each player has a “price” set by the service ($8,000 for the star Green Bay Packers quarterback Aaron Rodgers, for example, or $5,000 for any of numerous journeyman quarterbacks), and my job was to assemble the team of players while coming in under a fixed salary cap ($50,000) that would score the most total points.
Analyzing past statistical performance, I predicted which players offered the best value for their price, that is, which ones were likely to score the most points relative to what it cost to put them on the team.
The prices don’t change based on the latest news, which means entrants have to figure out on their own when there is a wild mispricing. As I was preparing my entries for last weekend, I had the option of spending $8,500 on Dallas Cowboys receiver Dez Bryant, for example, even though he was out with an injury.
The next set of advantages for skilled fantasy players is even harder to exploit for the average fan. The most popular contests in daily fantasy are structured as tournaments, in which only the top-scoring 10 or 20 percent of entrants win anything at all, with a disproportionate piece of the rewards going to the top overall winner out of hundreds of thousands of entries. For example, one contest I played had a $100,000 grand prize on a $3 entry fee, but 383,000 people entered.
“Pretty good” doesn’t cut it; you’ll win only if your players manage extraordinary performances. The way skilled players compete is by putting together teams with high variance. They emphasize players who are boom-or-bust, who might rush for 200 yards once in a blue moon, as opposed to a player who consistently rushes for 100 yards every week. They exploit “covariance,” or the tendency for certain players’ performance to coincide, for example, multiple hitters on the same baseball lineup (if the first gets a hit, the next is more likely to get an R.B.I.).
“In horse racing, when the favorite wins, the professional handicappers often lose money, and the same applies in fantasy sports,” said Mr. Singer, a senior partner at the consulting firm McKinsey & Company. “When Clayton Kershaw throws a no-hitter or Tom Brady has a huge game, it’s not as good for the pros,” who instead make their money when a less vaunted — and thus less popular — athlete has a surprise outstanding performance.
If you walk into a Las Vegas sports book and put money on a game in some sport you know nothing whatsoever about, you may not win, but you will almost certainly get fair odds relative to the risk you are taking. Playing daily fantasy sports, you will probably get your hat handed to you unless you deploy lots of computing power and analytical techniques that most of us don’t have the time, inclination or skill to use.
As for me, I had fun with my week of daily fantasy sports, and even ended up $13 ahead (very much because of luck, not skill). But I suspect I would have enjoyed it as much or more if I could have made a straightforward bet on who would win the games — if the laws of the United States had let me.
Sports leagues in the United States, and the networks that broadcast their games, prefer to pretend that everyone watching their games does so for the pure love of competition, the occasional nonchalant reference to the gambling point spread by a football announcer notwithstanding.
But as anyone who has turned on a television during sports programming in the last few months knows, there is a boom in “daily fantasy sports”sites. They offer the prospect of six- and seven-figure prizes in contests based on the statistical performance of a roster of athletes the entrant chooses in a wide range of sports, with the N.F.L. the most popular.
DraftKings and FanDuel have quickly become among the biggestadvertisers on TV and the Internet, with scenes of fantasy players celebrating their winnings. The companies have entered partnerships with teams and attained billion-dollar-plus valuations from prominent investors that include pro football franchise owners.
An entire industry has emerged out of a legal loophole for something that looks a whole lot like sports gambling, which is illegal outside of Nevada and a few other states. To explore this world, I immersed myself for a week in the message boards and tip sheets serving daily fantasy sports obsessives, and put $100 in a newly opened DraftKings account to play last weekend’s N.F.L. action.
What I found is the strange hypocrisy and inconsistency around gambling that is embedded in United States law. The rules actively work against the interests of casual sports fans and low-stakes gamblers like me who just want to make the games more interesting.
The very complexity and opacity that make daily fantasy sports legal also make it more likely that the casual fan will lose money. There is a truism in investing that complexity favors the big guy and disadvantages the little guy, and it applies here as well. If securities laws were like gambling laws, it would be illegal for people to buy shares of Google or a United States Treasury bond, because that would be gambling, but legal for them to invest in currency swaps that pay a return if the Swiss franc, Argentine peso and Vietnamese dong together outperform the Swedish krona, Mexican peso and South Korean won.
The fantasy sports industry argues that its service is not gambling at all, but rather a game of skill. It’s the sort of game specifically allowed by most state laws and by a 2006 federal law restricting online gambling that carved out protections for fantasy sports leagues. The industry is right about that much. It is a skill, and it unquestionably rewards those who apply dogged analytics to assembling their fantasy lineups.
Although daily fantasy sports advertisements target casual fans, a disproportionate share of the contest entries — and even more disproportionate share of the winnings — go to people who play the game on a scale most armchair sports fans couldn’t imagine. An analysis of Major League Baseball contests by Ed Miller and Daniel Singer published in the Sports Business Journal found that 1.3 percent of fantasy players paid $9,100 in entry fees on average, accounting for 23 percent of all entry fees and 77 percent of all profits.
While they earned a 27 percent return on their “investments,” the 80 percent of bettors who counted as small fish, spending $49 each, lost about half their money.
How do the serious players do it?
In the DraftKings fantasy football contests I entered, I assembled a “team,” including a quarterback, running backs and receivers. I scored points based on how many touchdowns and yards of rushing, receiving and so on they achieved in that week’s games. Each player has a “price” set by the service ($8,000 for the star Green Bay Packers quarterback Aaron Rodgers, for example, or $5,000 for any of numerous journeyman quarterbacks), and my job was to assemble the team of players while coming in under a fixed salary cap ($50,000) that would score the most total points.
Analyzing past statistical performance, I predicted which players offered the best value for their price, that is, which ones were likely to score the most points relative to what it cost to put them on the team.
The prices don’t change based on the latest news, which means entrants have to figure out on their own when there is a wild mispricing. As I was preparing my entries for last weekend, I had the option of spending $8,500 on Dallas Cowboys receiver Dez Bryant, for example, even though he was out with an injury.
The next set of advantages for skilled fantasy players is even harder to exploit for the average fan. The most popular contests in daily fantasy are structured as tournaments, in which only the top-scoring 10 or 20 percent of entrants win anything at all, with a disproportionate piece of the rewards going to the top overall winner out of hundreds of thousands of entries. For example, one contest I played had a $100,000 grand prize on a $3 entry fee, but 383,000 people entered.
“Pretty good” doesn’t cut it; you’ll win only if your players manage extraordinary performances. The way skilled players compete is by putting together teams with high variance. They emphasize players who are boom-or-bust, who might rush for 200 yards once in a blue moon, as opposed to a player who consistently rushes for 100 yards every week. They exploit “covariance,” or the tendency for certain players’ performance to coincide, for example, multiple hitters on the same baseball lineup (if the first gets a hit, the next is more likely to get an R.B.I.).
“In horse racing, when the favorite wins, the professional handicappers often lose money, and the same applies in fantasy sports,” said Mr. Singer, a senior partner at the consulting firm McKinsey & Company. “When Clayton Kershaw throws a no-hitter or Tom Brady has a huge game, it’s not as good for the pros,” who instead make their money when a less vaunted — and thus less popular — athlete has a surprise outstanding performance.
If you walk into a Las Vegas sports book and put money on a game in some sport you know nothing whatsoever about, you may not win, but you will almost certainly get fair odds relative to the risk you are taking. Playing daily fantasy sports, you will probably get your hat handed to you unless you deploy lots of computing power and analytical techniques that most of us don’t have the time, inclination or skill to use.
As for me, I had fun with my week of daily fantasy sports, and even ended up $13 ahead (very much because of luck, not skill). But I suspect I would have enjoyed it as much or more if I could have made a straightforward bet on who would win the games — if the laws of the United States had let me.
