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Why online daily fantasy sports are mostly a loser’s game

February 4, 2016 at 6:30 PM EDT
Congress will launch a fact-finding mission to see if fantasy sports games need to more regulation, the Associated Press reported Wednesday. Photo by Andrew Harrer/Bloomberg via Getty Images
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BY LORNA BALDWIN

Chances are if you were watching a sporting event on TV last summer and early fall, you saw one of their ads. Before the NFL’s opening kickoff in 2015, daily fantasy sports companies FanDuel and DraftKings blanketed the airwaves in an all-out ad blitz, airing a national commercial nearly every 90 seconds. The attention gained the companies new players but also new scrutiny from legislators and regulators across the country, questioning its legality.

Writer Jay Caspian Kang played the game for 17 weeks last year and wrote about his experiences for The New York Times Magazine. He sat down with Economics correspondent Paul Solman at Brooklyn’s “200 Fifth” sports bar and said, “This is sort of like normal fantasy sports sped up on steroids.”

FanDuel and DraftKings are the industry leaders, representing more than 90 percent of the market. Each has received huge infusions of venture capital funds and each is valued at more than $1 billion. Some of the comapanies’ investors include the National Basketball Association, Major League Baseball, NBC Comcast and Fox Sports. In 2006, Congress carved out a provision in the Unlawful Internet Gambling Enforcement Act to keep fantasy sports legal. It’s from that provision that daily fantasy sports companies grew.

Some states, including Iowa, Illinois, Nevada and Washington, have banned them outright calling them illegal, unregulated gambling, and there are ongoing challenges in many other states. New York Attorney General Eric Schneiderman charges that “daily fantasy sports rely on a steady stream of minnows to feed the sharks.” The companies counter that daily fantasy sports are a game of skill and thus are not gambling.

Kang says the two are not mutually exclusive, “It is clearly a game of skill, it is clearly gambling. The amount of skill that goes into putting together a daily fantasy lineup is quite considerable. It takes a lot of research, it takes a lot of study, it takes a lot of understanding breaking news.”


Read the full transcript of this segment below:

JUDY WOODRUFF: But, first, pro football is getting ready to wrap up its season with the Super Bowl on Sunday. One fan story that was a big part of this NFL season was the furious growth of daily fantasy sports for many games like football.

In its short lifespan, that industry has gained 57 million players. But now there’s rising scrutiny of fantasy sports’ legality from legislators and regulators across the country.

Our economics correspondent, Paul Solman, has the story, part of his series Making Sense, which airs every Thursday on the “NewsHour.”

PAUL SOLMAN: It was an ad blitz to attack even the most innocent bystander. Ahead of the 2015 NFL season, the two leading daily fantasy sports companies, FanDuel and DraftKings, aired a national ad every 90 seconds. Together, they outspent the entire beer industry in the month leading up to opening kickoff, $207 million.

Comedian John Oliver made it a subject of his weekly HBO show, including this spoof commercial.

MAN: I have been using FanDuel since I saw all those commercials on TV all the (EXPLETIVE DELETED) time.

MAN: Daily fantasy is the best. I get to play every day.

WOMAN: You mean you get to gamble.

MAN: It’s not gambling.

WOMAN: Oh, it’s definitely gambling. You have a massive gambling problem.

MAN: It’s actually a skills-based game that is going to make us rich one day.

WOMAN: You’re an idiot.

(LAUGHTER)

PAUL SOLMAN: Journalist Jay Caspian Kang is no idiot. I met up with him at Brooklyn’s 200 Fifth Avenue Sports Bar, where the sports junkie, who played the sites for 17 weeks and wrote about it for “The New York Times” magazine, explained that, for him, too, the blitz worked.

And the ads actually convinced you, you could make a million dollars?

JAY CASPIAN KANG, Contributor, The New York Times Magazine: No, no, no, no, no. I’m not — I don’t think I was that much of a mark, but it also sort of showed me that this was like an actual thing. It wasn’t sort of a shady underground gambling sort of operation. And I think the ads made it seem very legitimate.

NARRATOR: At DraftKings, we play for glory.

PAUL SOLMAN: And the ads helped bring 15 million more players to the game in 2015. There are now 57 million players in North America who pay anywhere from a quarter to thousands of dollars to pick an imaginary team made up of real players and compete online against anonymous strangers.

That’s what I did, with Kang’s help.

I will add LeBron. I want LeBron James on my team. I can see already how I could lose money easily in this.

JAY CASPIAN KANG: Yes. Yes. People really enjoy playing these games. I mean, I enjoyed playing them.

PAUL SOLMAN: Because it gives you a reason to root in every single game.

JAY CASPIAN KANG: Sure. But this is sort of like normal fantasy sports sped up on steroids.

PAUL SOLMAN: Which is why FanDuel and DraftKings have each achieved billion-dollar valuations. The potential market is huge. The companies have been venture capital sponges:, $363 million for FanDuel and $426 million for DraftKings, including legal investments from the National Basketball Association, NBC/Comcast, Major League Baseball and FOX Sports.

Now, when Congress proclaimed that fantasy sports were not gambling back in 2006, the field was dominated by office pools and friendly contests, like in the longtime sitcom “The League.”

ACTOR: He’s a fantasy football genius, OK? No wife, no job, just pure football knowledge.

PAUL SOLMAN: But a host of states are now challenging daily fantasy sports. Some have outright banned it, including Nevada, which has a gambling industry of its own to protect.

DraftKings didn’t respond to our requests for an interview, and FanDuel wouldn’t speak to us on camera. But this isn’t gambling, FanDuel’s Matt King told PBS’ “Frontline.”

QUESTION: So you don’t view what you do here at FanDuel as gambling?

MATT KING, FanDuel: No.

QUESTION: That’s a word that isn’t used very much around here, I take it.

MATT KING: No.

PAUL SOLMAN: Jason Robins, CEO of DraftKings, says it’s skill.

JASON ROBINS, CEO, DraftKings: I just think, under the current law right now, it’s very obvious that this fits within skill gaming.

PAUL SOLMAN: Hey, says Jay Caspian Kang, of course, it’s gambling, but the industry’s defense, the role of skill, is legit. Only problem is that, besides addictiveness, fantasy sports skill is why it’s a loser’s game.

JAY CASPIAN KANG: It takes a lot of research, it takes a lot of study, it takes a lot of understanding breaking news things. So, if you hear it from a beat reporter, let’s say, for the New England Patriots that Julian Edelman, one of the wide receivers, is injured, you have to know instinctively what that means for the other wide receivers in terms of how many times Tom Brady, the quarterback, is going to throw to them.

PAUL SOLMAN: And who does this kind of work? Math jocks, several dozen of whom Kang met with for his story.

JAY CASPIAN KANG: Some of them are guys who worked on Wall Street and were investment analysts, and a lot of them, I think, are just guys who are of sort of good at sports statistics and that they found a way to turn this into a living.

PAUL SOLMAN: Such researchers are essentially gambling pros, much like professional stock investors, using high-frequency trading software called scripting that analyzes vast amounts of data instantly, creates teams automatically, and can thus play multiple entries.

JAY CASPIAN KANG: Those $2 competitions and $5 competitions, $10, $20 competitions are blanketed with thousands of entries from one person, or two people who are very, very — who have put in a lot of time and effort into building these lineups, who use software that you don’t even know exists to optimize those lineups.

And their goal is to just take your $2. And if there’s 1,000 of you, then they have got $2,000.

PAUL SOLMAN: When it came time to enter my $5 basketball lineup, I sifted through hundreds of players and their stats, defaulted mostly to my home team Boston Celtics.

DraftKings says it’s banned scripting and limited entries, but pros already seemed to be there six hours before tipoff.

JAY CASPIAN KANG: This guy is one of the most famous users, Youdacao.

PAUL SOLMAN: Youdacao. He’s got 100 entries.

(CROSSTALK)

JAY CASPIAN KANG: … entries in there, right.

Schmeckl is another relatively famous player. He has 100 entries.

PAUL SOLMAN: One hundred entries, yes, 100 entries at $5.

JAY CASPIAN KANG: At five bucks. Again, this is for $5, right?

PAUL SOLMAN: And who knows how many other names Youdacao or Schmeckl may be using?

Small wonder a report from the consulting firm McKinsey found that, for Major League Baseball, 91 percent of profits were won by just 1.3 percent of players.

But, hey, I just needed to finish in the top 7,000 to double my five bucks. The clock was ticking. I placed my bet, as a journalist.

So, as things stand now, if I wanted to play, you would discourage me from doing it?

JAY CASPIAN KANG: Not morally.

PAUL SOLMAN: No, not morally.

JAY CASPIAN KANG: No, but…

PAUL SOLMAN: Prudently, in terms of prudence.

JAY CASPIAN KANG: Yes. If you just want to spend $200 or $50 and have fun, you know, then I think it’s fine.

But if you feel like you want to enter a fair betting economy, and you want to have as good a shot as they are telling you that you have, then I would say that this is a very bad bet.

PAUL SOLMAN: Or, as New York Attorney General Eric Schneiderman put it: “Daily fantasy sports rely on a steady stream of minnows to feed the sharks.”

So, with states stacking up against them and the minnows increasingly aware of the bigger fish, Kang says online poker’s fate should give fair warning to fantasy sports.

JAY CASPIAN KANG: All that was left were great players with a lot of money playing against one another and taking each other’s bankrolls and passing them back and forth.

Daily fantasy sports, I think, is at a risk of having that happen within like a season or so.

PAUL SOLMAN: And thus a recent pledge from FanDuel may be a bid for self-preservation — quote — “We do believe that new commonsense regulations to protect consumers are needed.”

So, what else? Well, I’m sure you’re dying to know whether my NBA lineup made the top 7,000. Turns out I finished 15,550th.

For the “PBS NewsHour” in Brooklyn, this is so-called economics correspondent Paul Solman, with once-high hopes and $25, now down to $20.

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