Don’t bother with Draft Kings
Marek Mazurek | Wednesday, November 18, 2015
Every weekend, along with millions of Americans, I participate in fantasy sports. It’s easy, it’s fun and I like to think I’m pretty good at it.
However, unlike many, I have stayed and will continue to stay, far away from Daily Fantasy Sports (DFS) that involve betting.
DFS have been in the news quite a bit this year, even if you haven’t seen one of the millions of commercials they’ve put out. According to Forbes, DFS will generate $2.6 billion in entry fees this season and they are projected to grow that total to $14.4 billion in 2020. The main reason for DFS’s growth has been a huge increase in investment from big name companies like Fox Sports, NBC Sports, Time Warner Cable and Comcast.
This all seems good, right? Capitalism and sports coming together. Everyone wins.
Unfortunately for DFS and its investors, many states have recently placed the label of gambling on the industry and are demanding regulation. DFS is fighting back, however, and both DraftKings and FanDuel (the two leading DFS companies) have filed lawsuits against the state of New York, claiming DFS involves skill and therefore is not gambling.
So which is it? Is DFS a skill-based way for sports buffs to earn a few extra dollars, or should it be regulated as gambling?
I am inclined to side with New York. DFS does require an entry fee and offers the chance to win lots of money just like poker, horse racing or any other kind of gambling that comes to mind. Yes, there is some skill involved in DFS. You do have to successfully predict which players will play well in order to win and to do this, one must take into account matchups, injuries and a variety of other factors.
But even poker and horse racing require a certain level of skill. Knowing how to bluff and counting cards play a big factor in winning at poker, but it is still considered gambling.
Also consider who actually wins money in DFS. Commercials for DraftKings or FanDuel would like you to believe that regular Joes like you or me can win the millions of dollars up for grabs. However, that is simply not the case.
Just like in poker, there are players known as “sharks” who prey on less skilled players and take the majority of the profits. Joshua Brustein, writing for Bloomberg Businessweek, details how these “sharks” spend 15 or more hours a day creating hundreds of different entries and used advanced analytical software to gain an edge over the average user who creates only one or two entries with little or no thought. According to a study conducted by the Sports Business Journal, only the top 1.3 percent of DFS players made money during the three-month period studied.
In other words, if it walks like gambling and sounds like gambling, it probably is.
But the “gambling” tag does not signify the end of the line for DFS. For whatever reason, the word “gambling” has a stigma attached to it. When we hear gambling, we think of back alley pai gow games in James Bond movies. But millions of dollars are spent on sports gambling by average Americans every year. Gambling is not inherently bad.
What actually happens if DFS is declared to be gambling is that companies like DraftKings and FanDuel will submit themselves to governmental regulation and their profit margin will surely narrow slightly. More importantly for average players, “sharks” will have a tougher time of it, as multiple entries and software advantages will be cut down on in order to protect the consumer.
And, if the two DFS companies, each valued at over $1 billion, have to give up some of their profits in order to create a more fair playing field, I am all for it.