Bloomberg: You Aren't Good Enough to Win Money Playing Daily Fantasy Football
Is that a problem for DraftKings and FanDuel?
I thought this was worth posting given that FanDuel and DraftKings are now bombarding every sporting event with their commercials...
More info on DraftKings and FanDuel:
DraftKings raises $300m in frenzied fantasy sports land-grab
New Money: DraftKings Cements Unicorn Status with FOX
Is that a problem for DraftKings and FanDuel?
I thought this was worth posting given that FanDuel and DraftKings are now bombarding every sporting event with their commercials...
Daily fantasy is getting ready to generate more losers in 2015 than ever before. Each year in the history of daily fantasy sports has been bigger than the last, and September has become the biggest month for new fans trying the game, which combines the stats-jockeying of traditional fantasy contests with the thrills of old-fashioned sports betting. (Fantasy sports are exempted from the federal ban on sports gambling.) FanDuel and DraftKings, the two main services, will bring in a combined $60 million in entry fees in the first week of the NFL season, according to Adam Krejcik, a partner at Eilers Research. Sports books in Las Vegas, by contrast, are expected to handle about $30 million.
The rival startups prospered in football's offseason. Both companies raised huge new rounds of investment, bringing DraftKingss total haul to $426 million and FanDuels to $363 million, and both are now valued at more than $1 billion.
Saahil Sud is a fake-sports apex predator. He enters hundreds of daily contests in baseball and football under the name "maxdalury," and he almost always trounces the field. He claims to risk an average of $140,000 per day with a return of about 8 percent. Sud studied math and economics at Amherst College and took a job in data science at a digital marketing firm before shifting to full-time fantasy. He's now the top-ranked daily fantasy sports player, according to Rotogrinders, a stats site for daily fantasy players. He says he's made more than $2 million so far this year.
What Sud does each day doesnt seem much like sports fandomor even like much fun. He spends between eight and 15 hours working from his two-bedroom apartment in downtown Boston; the range reflects his uncertainly over whether to count the time watching games as work. During baseball season he puts about 200 entries into tournaments each night, and he can play more than 1,000 times in the weekly contests during NFL season.
The first step is scraping data from various public resources online and plugging the numbers into his custom-built predictive models, which generate hundreds of lineups based on his forecasts. There are publicly available tools that do some of this work for daily fantasy players, but Sud created bespoke software to make sure no one else can access his data. He also has a technique for identifying athletes who arent going to end up on a lot of other teams rosters, which is important, because theres a particular advantage in choosing players no one else has noticed.
DraftKings and FanDuel are testing new ways to make less successful players feel comfortable and enhance the impression that games are fair and winnable. For the massive tournaments whose prizes regularly top $1 million, both websites now limit the number of entries from a single player. FanDuel put a cap of about 1,000 entries on big football tournaments this year. For DraftKings's "Millionaire Maker" tournament, players are limited to 500 entries at the $10 level.
These limits seem almost laughably nonrestrictive until you understand how top players operate. Analysis from Rotogrinders conducted for Bloomberg shows that the top 100 ranked players enter 330 winning lineups per day, and the top 10 players combine to win an average of 873 times daily. The remaining field of approximately 20,000 players tracked by Rotogrinders wins just 13 times per day, on average.
And there's evidence that Suds victims arent all clueless rookiesmany are free-spending whales who hope to evolve into sharks in their own right. (Marine metaphors are common when describing the industry but don't always track precisely to actual science.) According to data published in July in Sports Business Journal, 36 percent of lost entry fees on one daily site during the first half of the current baseball season came from just 5 percent of the players. That 5 percent is a critical number, says Daniel Singer, a senior adviser at McKinsey & Co.s Global Sports & Gaming Practice and co-author of the study. These big spenders invested an average of $3,600 on entry fees and lost an average of $1,100, a negative 31 percent return.
The money-losing players tend to get lucky, win a few times, reinvest the prize money, and eventually lose. The losses are split evenly between daily fantasy sports websites such as DraftKings and FanDuel and the sharks like Sud. Only the top 1.3 percent of players finished in the green during the three months measured by the Sport Business Journal. An unrelated survey of more than 1,400 fantasy sports players conducted by Krejcik of Eilers Research this summer found that 70 percent of participants have lost money.
Its not even clear that it matters that most players lose. Nobody thinks lotteries and slot machines are wise investments, yet we keep pressing our luck. And, of course, no one has ever turned a profit from hanging around a sports bar and drinking for an entire Sunday afternoon. Whether they win or lose, the feedback is that they love the experience, says Eccles. By definition, the average player is going to lose money.
The daily fantasy industry spent the summer engaged in a debate over automation. Critics took issue with how some players, including Sud, used software to change hundreds of lineups in response to last-minute injuries and other developments. DraftKings and FanDuel issued clearer policies and now require players to get permission before running scripts. They also forbid online tools such as FanDuel Fish Finder, which help players find weak opponents for head-to-head matchups. "That kind of stuff is cancerous to the long-term longevity of the sport, says Robins.
Allowing some automation gave explicit blessing to activities that previously existed in a gray area and disappointed those players who had been calling for an outright ban. Now the number of players who do use automated tools is almost certainly going to grow. Following the policy announcements, Rotogrinders released browser extensions that allow players to enter contests automatically on both sites. Sud, the biggest of the sharks, says none of the rule changes have cause him to adjust his software-heavy methods.
Making money from fantasy sports is perfectly legal. A federal law restricting sports gambling has an exemption for games of skill, which fantasy games fit into. The early rise of daily fantasy sites was fueled largely by former online poker players fleeing a crackdown on that industry. Almost half of daily fantasy players in Krejcik's survey said they used to play poker for money online.
FanDuel and DraftKings have to keep the sharks happy. The top players, after all, will always be their biggest customers. There are also legal risks to enforcing any limits. As part of their exemption from gambling laws, daily fantasy sites are required to set their prizes in advance, without knowing how many people will sign up. If a site says it is going to offer a $1 million prize for a tournament with a $20 entry fee, it has to pay out whether it attracts 60,000 players or 30,000. Falling short can be very expensive.
In the short term, there's always advertising. DraftKings was the largest buyer of television ads in the first week of September, dropping $23.6 million over that period, according to ispot.tv. But the easiest way to ensure that tournaments are full could be to let the sharks enter as many times as they want.
More info on DraftKings and FanDuel:
DraftKings raises $300m in frenzied fantasy sports land-grab
DraftKings was able to reach an exclusive advertising agreement with ESPN. A person familiar with the deal said DraftKings agreed to spend about $250 million on ESPN. The Fox advertising deal is not exclusive, meaning it can still accept ads from FanDuel and Yahoo, Shanks noted.
Legal questions have not kept the biggest names in sports and media from diving into the business. DraftKings investors include Major League Baseball, the NHL, and Major League Soccer, while FanDuels backers include NBC Sports, Comcast Ventures, and the NBA.
New Money: DraftKings Cements Unicorn Status with FOX
Confirmed: DraftKings Raises $300M Led by Fox Networks
Deal: $300M
Investors: Fox Networks Group, Atlas Ventures, the Raine Group, Major League Baseball, the National Hockey League, Major League Soccer and the Kraft Group.
What they do: Daily fantasy sports
Valuation: $1.2B+, post-money
Total funds raised to date by DraftKings: $375M
DraftKings put up $30 million in revenue last year; its chief rival, FanDuel, posted $57 million. Yahoo Sports entered the fray a few weeks ago, ending speculation that it might invest in one of the two leaders. Daily fantasy is expected to generate $2.6 billion in entry fees this year, and grow to $14.4 billion by 2020, according to Eilers Research.
