This is the Way Daily Fantasy Ends — Not With a Bang, but With a Whimper
This is the Way Daily Fantasy Ends — Not With a Bang, but With a Whimper
Last night, I was at a fantasy draft party (12-team auction, for those who care). The television was on in the background as people were preparing their spreadsheets and whatnot, when an ad for a daily fantasy sight came on. I’m not being coy be neglecting to mention which one, I honestly don’t remember. Those ads are so ubiquitous, that they rarely seem to grab anyone’s attention, but when it came on the TV at the party, a guest looked up and said “do people still do that?” He was being a bit facetious, of course, as people certainly still do, but we might be honestly getting to the point where scandal and legal hassles the constant state of flux of the industry might be enough to lay daily fantasy — or at least the behemoth it has shown to be not terribly long ago — to rest.
The most recent cut-down of daily fantasy comes in the form of an announcement that DraftKings and FanDuel will cease offering contests that include NCAA games. Reading between the lines, it appears as if the NCAA was giving DraftKings and FanDuel the business, and since college sports were a minor part of the business and the two companies already have enough legal stuff to deal with, they threw in the towel.
It’s those legal troubles that would most likely spell doom for the two companies, should that come to pass. The bottom line is that many states are now looking into whether daily fantasy should be considered gambling. If it is, then it can’t be allowed to occur on the Internet thanks to the Federal Wire Act that, although its reach has been questioned, states that bets cannot be placed over communication channels like phone or Internet lines. As of this writing the commonwealth of Virginia has allowed daily fantasy to take place on its soil, so long as certain restrictions and regulations are in place. New York State originally filed an injunction to stop daily fantasy operations, then was overruled, but in the end FanDuel and Draftkings stood down on the issue, hoping that legislation will be passed allowing their sites to continue operating in the state. Yahoo! Daily Fantasy volunteered to do so as well, seemingly to remind the general public that they exist.
The legal back and forth will be a very interesting one to watch, with many ramifications involved. The things is, if litigation and appeals and everything else involved in the process goes on as long as it looks like they will, none of this might even matter. If daily fantasy doesn’t burn out, it might just fade away.
FanDuel and DraftKings will always have their loyal customers — those who spend lots of time and money on these sites and who will be watching in earnest as the rulings and laws come down state by state. These people aren’t who daily fantasy sites should worry about. They need to worry about the casual player, the person who gets the wild idea to drop $10 or $20 or $50 on a random contest one Sunday to try their luck. The common person. The square. This is who these sites need.
Remember, none of these sites actually care about how any one player does. They don’t lose money if Andrew McCutchen has a better night than Mike Trout. They just let the players duke it out while they take their 10% off the top. The model is pretty much the same for sports betting at casinos. The casinos want an even amount of bets on either side. The losers pay the winners and the house gets the juice. DraftKings and FanDuel acutally have a better model. The casino can still get hosed on a one-in-million bet cashing in. Daily fantasy doesn’t give a crap. It just needs players. It needs bodies that are willing to pay a fee (and forget that the odds are stacked against them) so that it can take its share. But without Joe Sixpack kicking in his money, there is less of a pot to skim from.
The big hitters and the sharps will still have their high-stakes games. If they live in a state where the contests are banned, they’ll find shady workarounds to keep playing. But your coworker or next-door neighbor won’t. If they can’t play, they’ll … just stop playing. And even if the laws are changed or massaged enough where they could theoretically start again, most won’t, or at least not as much. The thrill will be gone. Daily fantasy’s biggest enemy isn’t the law, it’s attrition.
FanDuel and DraftKings aren’t just interested in a positive decision, they need a fast positive decision. Time is of the essence here, as they need to both counter rulings and legislation against them in some states while regaining the right to do business in other states all in a timely enough fashion that the public doesn’t forget about them. So far, it’s not looking good. Layoffs are happening. Funding and partnerships are being pulled. All this effort may end up being just some rearranging of deck chairs.
This is not to say that these companies can’t make a comeback. If they laws fall in their favor, and cloud of doubt is blown away from the industry, the investment money and partnership deals will come rolling in right quick — no hard feelings, right? And maybe they can gain a second wind and intice people into coming back (now 100% legal!) And we may once again be carpet bombed with ad after ad regaling us with stories of average people becoming millionaires overnight. But some serious legal kung fu has to happen first. Luckily for these companies, they have the scratch to spend on top-notch lawyers.
David G. Temple is the Managing Editor of TechGraphs and a contributor to FanGraphs, NotGraphs and The Hardball Times. He hosts the award-eligible podcast Stealing Home. Dayn Perry once called him a "Bible Made of Lasers." Follow him on Twitter @davidgtemple.
I think your assumptions are a bit off. The best comparison for DFS is online poker – ironic considering their shared history – and there was still a lot of money in online poker once the casual player fad dropped off. There were enough serious gamblers putting enough money into it to make it enticing to serious gamblers. You don’t cite any numbers about where the DFS money comes from – and I’d be really surprised if they were out there – but I wouldn’t be surprised if s majority of the money was from a minority of the participants. So without the casual dollars, DFS may not have the same free-spending advertising blitz or sponsorships, but it could still be rather large.
Now to contradict myself: last I had heard, the DFS sites hadn’t turned a profit yet. They were being built up by some very large investors (e.g., MLB, ESPN) and predicted they would turn a corner big-time at some point. But without those investments turning into profit, the advertising and sponsorships were probably coming to an end anyway.
I think I agree – DFS is gambling with a small degree of skill, much like any other sports gambling. I can certainly see why people would find it more fun than traditional sports gambling, so why wouldn’t they stick with it? Just like with online poker, losing money eventually convinces the stupidest players that they suck and once the stupid players are gone, it gets harder for average players to make money – they are now the stupidest players.
Considering that 2% of the bettors win the majority of the money, the pool is going to be really small if/when people get sick of losing, and those who preyed on them will have to fight against other sharks … which doesn’t sound great for them, either.
That’s all conjecture, of course, and you’ll still have the people who are fine seeing it as what it really is, a lottery ticket (for the most part, as you need to pick and hit on something no one expects – and for good reason – to really cash in), but I could see significant attrition if people change their behavior according to a rational response to once again losing money.