LAS VEGAS -- The head honchos at FanDuel want to make something very clear.
The product they sell is not sports betting, they say. It's something different. In exchange for an entry fee, FanDuel allows sports fans the chance to win cash prizes every day based on the performance of players in professional or college sports.
Want to turn $5 into $500,000 in a single weekend of NFL football? Or how about $10 into $10 million? Those are the types of payouts promised to winners in daily fantasy sports (DFS), the online game that has rapidly become one of the largest pieces of the multi-billion dollar fantasy sports industry.
Daily Fantasy Sports And Gambling Games
'We look at it and say, 'It's not gambling,' said Matt King, FanDuel's chief financial officer. 'It's an entertainment product.'
But not everybody sees it that way. And that's why the topic was up for debate Sunday at a meeting of legislators and gambling industry officials at the Paris Las Vegas hotel and casino.
Led by FanDuel, the daily fantasy sports industry has soared in popularity recently, with promises of payouts ranging from hundreds to millions of dollars.
The question on Sunday was whether it crossed the line into sports gambling and should be regulated as such.
'Of course it's gambling,' said Joe Asher, CEO of the sports gambling company William Hill US. 'Of course it's sports betting. It doesn't mean that it's subject necessarily to the same laws. You're risking money on something of an uncertain outcome, and to me that sounds like gambling.'
Asher, King and other experts discussed the subject at a panel for the National Council of Legislators from Gaming States, an organization of state lawmakers that meets to discuss gaming issues.
The topic was ripe. Though American pro sports leagues historically have opposed the spread of sports betting, they all have embraced daily fantasy games in the last two years, largely because it leads to more television viewership and revenue. If fans have money at stake in daily fantasy sports, they are more likely to watch more games than they otherwise would.
'You're going to see continued integration between fantasy and the team and the league experience,' King said.
In November, the NBA even announced it had become an equity investor in FanDuel, making itself part owner of a company that says it pays out more than $10 million in prize money every week.
A day after that announcement, NBA Commissioner Adam Silver declared in the New York Times that sports betting should be legalized and regulated.
Many observers didn't believe the timing of those two announcement was by accident.
Daily fantasy sports is 'a bridge to legalized sports gambling because that's where the big money is,' said Les Bernal, national director of Stop Predatory Gambling, a nonprofit in Washington, D.C.
King said the NBA's timing was coincidental.
'We view sports betting to be a totally separate question relative to where our business is going,' King said. 'We called our counterparts at the NBA when (Silver's editorial) came out and said, `Hey guys, it would have been nice to have a head's up on this.'
King and his industry colleagues have reason to object to any association with gambling. U.S. law forbids state-sponsored sports betting except in a few states, including Nevada. Another federal law cracks down on online gambling while specifically stating that paid fantasy sports games are games are legal, provided they meet certain conditions, including having winning outcomes that reflect the skill of participants, as opposed to mere chance.
But that law was passed in 2006, before the rise of FanDuel and other daily fantasy sports companies. New technology has led to new and faster ways to make money for fans who play fantasy sports, raising questions about whether it has entered an area that should be regulated.
With sports betting, 'the question is do you regulate it or ignore the fact that it is happening?' Asher said. 'Should fantasy be subject to some form of regulation? I think most people would say yes, right? You want to make sure the advertising is legitimate. You want to have age restrictions on people who are playing.'
In traditional fantasy sports, participants generally would draft a team of real-life players before the season and then wait until season's end to see won the top prize based on their players' statistics.
The rise of the internet changed all that, allowing fantasy fans the chance to win money every day and not just once a year. To play, they generally just need to set up an online account, pay an entry fee and select a team of real-life players. If their players put up the best statistics that day, they win cash prizes.
Bernal called it a 'complex parlay wager' and said daily fantasy sports share similar traits with online poker because the entry fees of many low- or middle-income 'fish' are pooled to feed the sharks who use in fantasy.
American pro sports leagues historically opposed traditional sports gambling because they worried it would lead to point-shaving scandals and bribery to fix outcomes for bettors. With fantasy sports, this risk doesn't appear to exist because fixing an outcome likely would require too large of conspiracy involving multiple players on multiple real-life teams.
Bernal said his bigger concern is the effect it has on society.
'The question about daily fantasy sports isn't about shaving points,' he said. 'It's about shaving money from the wallets of low-income and middle-income people.'
Some states still have issues with it. FanDuel doesn't offer paid entry games in Arizona, Iowa, Louisiana, Montana or Washington because the laws there are against or unclear about paid fantasy sports.
'Sometimes the name you call it is important,' said I. Nelson Rose, a gambling law expert. 'Calling it video lottery terminals is more acceptable than slot machines. If fantasy sports is gambling, calling it fantasy sports makes it more acceptable than sports betting.'
Follow sports writer Brent Schrotenboer on Twitter @Schrotenboer. E-mail: bschrotenb@usatoday.com
Want to turn $5 into $500,000 in a single weekend of NFL football? Or how about $10 into $10 million? Those are the types of payouts promised to winners in daily fantasy sports (DFS), the online game that has rapidly become one of the largest pieces of the multi-billion dollar fantasy sports industry.
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But are those winnings possible, or are DFS players getting lured in with false promises? According to some reports, a small handful of DFS players take over 90% of the prizes. This has led some (including several legal authorities) to liken DFS to a lottery or game of chance.
What is Daily Fantasy Sports?
If you’ve ever participated in a fantasy sports league with coworkers or friends, than the basic mechanics of DFS will sound familiar. You put together a roster of professional athletes, filling different positions as you would if you were building an actual team. The athletes on your roster then earn points based on their statistical performance. A touchdown is six points, 10 rushing yards are one point and so on.
Where DFS is different than traditional fantasy sports is in the structure of the competition. Rather than face off against one team at a time, the roster you put together competes against thousands or even millions of others, all in a single weekend or day.
Because of the volume (and frequency) of play, there is not a draft in which each athlete gets assigned to a single team. Instead, everyone has access to the same pool of athletes and must build a roster while staying under a “salary cap.”
If you face a cap of $10,000 for example, you can add ten athletes with a salary of $1,000 each or eight athletes with a salary of $750 and two with a salary of $2,000. The “salary cap” price assigned to athletes is based on their expected performance (similar to their actual salaries). For example, Tom Brady is likely to score a lot of fantasy points, so he is priced accordingly. On the other hand, the backup QB for the Cleveland Browns can be added to your roster for next to nothing.
In this setting, a team does not simply win or lose. Prizes are instead awarded based on a roster’s overall rank relative to all the other teams in the league. A top-ranked team earns the big bucks, but in a league with thousands of competitors a tenth-ranked team may still pay out nicely.
How Much Does Daily Fantasy Sports Cost?
There are two main DFS leagues in terms of users (not to mention advertising): FanDuel and DraftKings. Entry fees for leagues in both vary from as low as $3 to more than $1,000. Payouts vary depending on the size of a league and the entry fee.
Daily Fantasy Sports Advice
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For example, DraftKings has a league with a $1,060 entry fee but just 10 players. Prizes in that league total just $10,000. On the other hand, a league with a $3 entry but 500,000 contestants might pay out more than $1 million in prizes. (Note: these entry fees are totally unrelated to the athlete “salary cap” price described above.)
Is Daily Fantasy Sports Gambling? Is it legal?
That depends on how you define gambling and who you ask. The companies themselves maintain that DFS is a game of skill, not chance. Therefore: not gambling.
A number of legal authorities have disagreed. The Attorney General of the gambling capital of the world (Nevada), recently banned operation of DFS leagues without a gambling license, calling them “gambling games” and saying that they “may also constitute lotteries.” Since neither DraftKings nor FanDuel has a gambling license or is likely to get one, that move essentially outlawed DFS across the state.
Other states that have banned or otherwise restricted daily fantasy sports include Arizona, Iowa, Louisiana, Montana and Washington. The feds have gotten involved too. Both the FBI and the Justice Department opened investigations into the major DFS companies in October.
Daily Fantasy Sports and the Stock Market
Since athletes in DFS are priced according to their expected performance, the key to winning is to find the diamonds in the rough, the athletes who have been undervalued and who could differentiate your roster from all the rest.
In this way DFS can be compared to trading on the stock market. While it’s possible to win big with a few good guesses, in the long run, the only way to consistently earn a profit is to identify which stocks (or athletes) are worth more than their price tag.
Very few DFS players are capable of pursuing this strategy. According to sportsbusinessdaily.com, 1.3% of DFS players earn 91% of the profits. Like sophisticated day traders in the stock market, these top DFS players use complex statistical models to hone their picks. Yet, even these models only work when given a very large number of tries. That means spending thousands or even millions of dollars on entry fees.
For the typical DFS player, building a team based on his or her own intuitions, daily fantasy sports is therefore less a game of skill than it may appear. The variance of athlete performance means that even DFS players who make good picks won’t necessarily win frequently enough to cover their entry fees.
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