Fantasy sports has been around for a very long time. It’s nothing new for a group of friends to get together and have a make-believe sports league in which they draft real life athletes in hopes of putting together the best team possible. Back in the day it was newspapers that provided weekly statistics and a lot of writing and adding that led to the most immediate results possible. It may seem arduous now, but back then it was exciting to see who was winning and who was losing as the numbers were manually calculated.
Fast forward to the computer age. Nowadays everything is done via computers. Fantasy leagues have daily updates in which you know exactly who’s winning and when. But in a society where immediate results are not just a luxury, but rather something that is required, the advent of daily fantasy sports emerged as a powerful new model for fantasy sports in general. Now people could compete against many others and instead of that $250 prize you won amongst your friends and some extra bragging rights, all of the sudden you could win $1,000,000 in one day. The allure of daily fantasy sports has brought sports fans from all over, and more importantly, money from everywhere. Fantasy sports may have been a punchline in the past but make no mistake about it, it’s no joke. Millions upon millions of dollars are exchanged on a weekly basis and daily fantasy sports has become a massive money-making industry. These are 15 explosive facts you may not know about daily fantasy sports.
15. Game Of Skill?
Countless hours are spent on researching your fantasy sports team for you to draft them at the beginning of the season. But with daily fantasy sports it’s far different than a season-long commitment. With daily fantasy sports you: must be up to date with injuries, potential benchings, players who may be out, anyone who might be under the weather, and anything and everything under the sun. In daily fantasy sports, if you draft a player who isn’t playing that day, you have most likely killed your chances at even getting your money back. There is a contention by those who run these massive daily fantasy sports businesses that this is just a game of skill. However, the allure in commercials says you could become a millionaire in just one day. Game of skill? Gambling? There’s a convergence of the two in which daily fantasy sports is gambling- just like picking the NCAA tournament championship winner in an office pool. Sure, there’s quite a bit of skill involved but there also is money and chance involved. And when you can win money and risk money then you are gambling. Just as there is skill in being a great Texas Hold’em player and an elite poker player, there is skill in daily fantasy sports.
14. Loser’s Circle
If you’ve ever seen a commercial for DraftKings or FanDuel, two of the giants in the daily fantasy sports business, then you know there’s a possibility of you becoming rich with the click of a few buttons. They feed into the gambler’s desire for getting rich quick- just as the lottery does and, for that matter, Las Vegas. The difference with daily fantasy sports is there’s better odds of you winning a seven-figure payday than if you pull the handle on a slot machine. However, make no mistake about it, there’s an estimation that as many as 85% of people who participate in Daily fantasy sports lose money. Considering there are prizes that are given out for the top third during the course of an event, it goes to show you how difficult it is, not just to place and win a few bucks, but to finish in the top 20 and win a much larger sum of money. To put it frankly, there are enough variables to guarantee that unless you hit a larger jackpot, you most likely will lose money during the process. Seeing someone on TV holding a large giant seven figure check or a person with cash falling out around their head it isn’t exactly the image of most daily fantasy sports players. No, the frustrated, alone in the dark participants, refreshing their cell phones as the team they pick loses them another few bucks, is the captured image of most entrants.
13. Big Brother Is Watching
Well, we all know when money is being made, Uncle Sam is never far behind. There’s a massive crackdown by the United States government, and in particular, specific states, that are trying to get their hands on some of the money being exchanged in daily fantasy sports. The first wave of government influence has come via restrictions in certain states where you can no longer compete in daily fantasy sports. These government agencies have sought to collect money via gambling provisions in the statutes of each state. Depending on where you live depends on if you can actually play daily fantasy sports. What both the federal and state governments are attempting to do is to isolate these companies and limit their ability to make money in hopes of breaking their backs and forcing them to deal with the US government and taxes. They not only want daily fantasy sports companies to pay taxes but they want them labeled as a gambling entity so that the state agencies can control them better. With the states involved it means they make more money. But DraftKings and FanDuel in particular have gone toe-to-toe with the government and thus far it has been a loss for them as numerous states have shut down their operation. Only time will tell what will happen but undoubtedly both these large companies will most likely merge at some point once they are officially named gambling entities.
12. Insider Trading
In the stock market it’s pretty easy to find insider trading. It’s something that pretty much happens every day on Wall Street in which people share tips and use information to benefit themselves. The rich always seem to get richer and this process is an age-old way that the banking industry benefits. So it was interesting when FanDuel and DraftKings had to answer questions about their employees playing on each other’s sites. There’s a clear conflict of interest as employees are able to fish through information and see the percentages of contestants and who they were choosing each and every day. By waiting up to the last minute they could find value in players who are underpaid but may overachieve, thus increasing their odds ever so slightly that they could win. But every percentile increase in your odds is a percentile that could mean increased dollars. That’s why DraftKings and FanDuel had to explicitly tell their employees they’re not allowed to compete in any daily fantasy sites if they work at their companies. This happened when information leaked that one employee hit a $300,000 win at their competitor’s company. This embarrassing incident went public and was a clear sign that insider-trading had been going on and employees were getting the jump on outside consumers. We’re not sure how exactly FanDuel and DraftKings can prevent their employees from using fake names or friends in order to compete in daily fantasy sports, but where there’s a will, there’s a way. And you can guarantee insider trading can never be killed- no matter what industry you’re talking about.
11. Rise Of The Nerds
Many people have long made fun of fantasy sports. I think a group of guys getting together in a room and drafting players is comical, and sometimes, it is. A lot of these people may be seen as nerds as they compete in pretend leagues with real players. Although it’s more of a bonding experience, what is important to note is that a daily fantasy sports experience can mean big money. By shutting down the exterior image of a hobby and accepting a new namesake as investor-driven, daily fantasy sports has become a haven for computer geeks with algorithms and computer programs. What they’ve done is build these programs specifically to calculate the odds of winning based on player’s performances during the day versus the night, lefty vs righty matchups, right-handed dribblers versus left-handed defenders, pitchers who pitch better in July vs. August, anything and everything to get the slightest of advantage with their algorithms. These computer geeks have consistently dominated daily fantasy games and they are quickly becoming wealthy because of it. Make no mistake about it, daily fantasy sports is a very big business. And one of the biggest beneficiaries are computer geeks.
10. No Gambling = No Taxes
It’s easy to see why daily fantasy sports has quickly grown into what has been dubbed as the new “Silicon Valley” in business. Daily fantasy sports not only offers the opportunity for casual gamblers and habitual gamblers, but it also drives a competitive force in sports that is undeniable for fans everywhere. Not only do you get instant gratification, with your winnings being received overnight, but there’s another aspect to this business that becomes very attractive to those who are very good at it. The fact of the matter is, you need to claim gambling winnings on your taxes. However, since daily fantasy sports has not been officially qualified as gambling, there is no need to pay taxes on the money. Your money can be slipped into your account for five figures deep after you win a few big pots and then you could transfer it to your PayPal account without a single dollar going to Uncle Sam. That is a huge allure for those who are very good at this scale. Very rarely can you receive a six or seven figure payday on anything and not have even one red cent taken out by any country for taxes. That is what daily fantasy provides- a shelter from being taxed and the opportunity for winning a lot of money. Now you can play the lottery and have worse odds statistically and have over half of your winnings taken away. In daily fantasy, what you win is what you get and your odds are MUCH better than a scratch-off.
9. Good For Business
There is a funny “push and pull” going on with daily fantasy sports. Behind the scenes, the government, and in particular state regulators, are seeking to shut down daily fantasy sports in order to force them to pay the piper. What is interesting is the dead silence from big businesses. See, the dirty little secret about daily fantasy sports is that it is producing massive amounts of revenue for all businesses around you. From sports teams who are seeing an increase in viewership as well as officially licensed sales, to advertising dollars spent at sporting events by FanDuel and DraftKings, the world of business is reaping the rewards from daily fantasy sports. And make no mistake about it, big companies like Google and Comcast are happily taking millions upon millions of dollars in advertising revenue from these two daily fantasy giants. This is why it has been so difficult for state regulators to get their dirty little hands on money from DraftKings and FanDuel. Daily fantasy sports is becoming an economy in and of itself, a much-needed injection of cash via advertising revenue that big companies not only won’t turn away from, but will lobby for. And when state senators try to attack daily fantasy sports they run right into some of the biggest business giants in the United States- giants who don’t want to see that money go away.
8. The Presidential Stamp
How exactly did daily fantasy sports emerge from the ground and sprout up to become such a monster? For the answer, one needs to go back to October 12, 2006. For most people it was just any other day. But for the creator and godfather of FanDuel, Nigel Eccles, this was a day that would cement his wealth and position in history. This is the day that President George W. Bush signed the little talked about act entitled The Unlawful Internet Gambling Enforcement Act. What this act entailed was essentially a free haven for gambling online where gamblers could circumvent tax issues and codes. This is the presidential stamp of approval that allows the operation and free-flowing traffic of money over the internet. Because there was so little oversight it became very difficult for off-site gambling companies in the United States government to deal with the implications of a heavily regulated and guarded age-old activity known as gambling. This act freed up the ability for certain companies to move forward in daily fantasy sports and not worry about striking provisions and creating a mold for what was allowed and not allowed with internet gambling. The act itself was brought forward in order to better keep controls on internet gambling and freewheeling companies that attempted to steal money from people. However, this also opened the door for daily fantasy sports and its ability to move forward free of regulation.
7. The Players
In an industry that isn’t nearly as deep as you would think, daily fantasy sports has come down to two giant monsters. Currently FanDuel and DraftKings are the two main players in daily fantasy sports. There are others who have come forth and attempted to make a big push such as Yahoo and their fantasy sports juggernaut. But so far few can compete with FanDuel and DraftKings, who offer massive guaranteed rewards for participation. These two companies, one started overseas in Europe, FanDuel, and DraftKings, the brainchild of some old friends in Boston, Massachusetts, are the two main companies that constantly go head-to-head in advertising. Their commercials are almost identical with the promise of winning large sums of money with little to no risk and fun to be had. These two corporations have spent massive amounts of advertising dollars in order to step forward in the business as the two premier companies that people pay attention to. There’s been some consolidation with smaller companies being absorbed by these larger companies and with the US government still trying to get its share of the pie, there still may be more consolidation to come. FanDuel and DraftKings have been rumored to be considering a possible merger, but that would be a difficult task for sure seeing how large each company is and how much of the industry they dominate. But make no mistake about it, these two rival companies are the two biggest players in this flourishing business.
6. The How
Some people may be wondering how daily fantasy sports is relevant or how these companies can make so much money. Well, there are a few different ways DraftKings and FanDuel make money in order to support their systems and functions. The first is the juice. Like with any gambling entity that skims off the top, they are guaranteed to make a certain amount of money just by being relevant. With FanDuel and DraftKings the participants pay a certain amount of money and if they win they get rewards that are greater than what they put in. But when you look at the actual numbers you will see that FanDuel and DraftKings are collecting at least 10% off of all the participants. So keep in mind that when there is a massive $5 million in cash payouts for one week of NFL football action, the company is making $500,000 for just being there. This 10% juice is the lifeline of the company. In order to stay relevant, the companies advertise wildly in order to maintain market share and fill out all of their events. When you guarantee money the only problem is when you don’t have enough participants and then you don’t receive your 10% juice and you may lose money on the event. So these companies strategically must know exactly how many people are willing to participate in order to maintain their balance sheets. Advertising is only money that they spend, but also money they make at their web sites. Both companies make large amounts of money through advertising because their websites are frequented so often by so many people. When a website has as many hits as they do, advertisers come rolling right up to your front door.
5. The Investors
It is a long standing rule that there is a conflict between gambling and sports. These two entities may go hand-in-hand with spectators, however, with athletes and those involved in sports, gambling can be a big no-no. Just see Pete Rose as an example. Now, you can hit card tables, but when you bet within your sport, there is a clear conflict of interest. With fantasy sports toeing the line between skill and gambling, it is amazing when you take a closer look at who actually invests in daily fantasy sports. First, ESPN’s parent company, Disney, had to back out of an investment in DraftKings in 2015 so it wouldn’t “appear” that it was biased when having to report on the subject.
Let’s stick with DraftKings. Fox Sports picked up Disney’s share in the company and they joined Major League Baseball, The National Hockey Association, Major League Soccer, The Madison Garden Company and Legends, and The Kraft Group (that’s Bob Kraft and the ownership of the New England Patriots).
FanDuel is backed by the National Basketball Association, NBC Sports (including Comcast), Google Capital, Time Warner/Turner Sports, and numerous NFL and NBA owners. If you are thinking that this is a major conflict of interest issue, you’re not the only one. There is no oversight to these partnerships and there is ample opportunity for some cross-over issues. With FanDuel and DraftKings making millions upon millions, and the ownerships of sports franchises involved, it does beg the question of who the hell is watching this industry? No one.
4. Advertising Expenses
Some of the most shocking numbers to come out of daily fantasy sports has to be the massive amounts of advertising dollars being spent. In what seems like an arms race, the two daily fantasy giants usually spend more money combined than the entire beer industry from August through the beginning of the football season. The blitz was most apparent in August through October of 2015. The two companies spent a whopping $205 million through the beginning of October ’15. What is even more interesting is that DraftKings, who originally had Disney (parent company of ESPN) as a big investor in their company, struck an exclusivity deal once Disney backed out of their investment in the company. Both companies wanted to remain partners and ESPN suddenly became the home of DraftKings, agreeing to an exclusive partnership deal in which the sports media giant would air only DraftKings commercials, locking out FanDuel. The flood of money for the two companies last year (2015) was apparent at the beginning of the sports season when a daily fantasy sports ad appeared every 90 seconds on TV. What a meteoric rise for an industry that was spawned less than 10 years ago.
3. Show Me The Money
It takes time to see a profit. And with that said, DraftKings is technically still in its infancy. After three years of operation ended last year, the company was posting triple digit growth and revenue to the tune of $1.2 billion. FanDuel has done even better with $1.8 billion in revenue. These figures are massive but they don’t account for prize money distributed and that’s the knock. The companies keep approximately 10% of entry fee revenue and that is a huge chunk of what they make. That means at the end of the day, Draftkings took home $106 million in revenue and FanDuel reaped $174 million. However, even with the nine figure haul they made in 2015, both companies ended up losing substantial amounts of money. Although their growth tripled, DraftKings lost a whopping $280 million last year and FanDuel ate a $137 million hit. The companies have been reliant on new investors to survive and need growth to continue to forge ahead toward profitability. As they search for new ways to make money, they also are dialing back some of their advertising expenses. As 2016 winds down and the legal battles with the US government continue, it is interesting to see where these daily fantasy leagues will land and if they can survive to make profits.
2. The Birth Of Daily Fantasy Part 1: FanDuel
FanDuel is the brainchild of Nigel Eccles. The company hit the web back in the summer of 2009 and hasn’t looked back. Today, it has offices spanning multiple continents and over 400 employees. The man who calls Northern Ireland his home is closing in on becoming a billionaire. Eccles had helped helm a couple small start-ups and is no novice in business. His daily fantasy sports concept was put into action because he had the knowledge and connections to put an incredible idea into motion. FanDuel has become the leader in daily fantasy sports with over 60% of the current market share. With partnership deals with most of the NBA and NFL it doesn’t appear that they will be slowing down anytime soon. If Eccles can continue the company’s extraordinary business growth, he stands to become a billionaire in the very near future. Despite the speed bumps hit with restrictions put forth by state governments in the US, the company used an extremely aggressive marketing strategy that has made it one of the fastest growing companies doing business in the United States.
1. The Birth Of Daily Fantasy Part 2: DraftKings
As FanDuel was slowly building a company on one side of the pond, in Boston, Massachusetts three friends who were fantasy sports fans were developing their own similar concept. In 2012, as FanDuel was growing, DraftKings made its first footprints. The group was comprised of VistaPrint executives, who, while drinking in a Boston bar, hatched a plan to start a daily fantasy business. This plan came into full fruition in 2012 and when they launched their first competition that coincided with the start of the major league baseball season in 2012, their dream came to light. The launch of DraftKings drew interest from investors, and despite having FanDuel in the marketplace, DraftKings sought to differentiate themselves from the pack. They went aggressive in every way. DraftKings pushed the envelope by offering more leagues in more sports that FanDuel didn’t touch. Their variety immediately hooked fans and with the financial backing they had coming in, they poured millions into advertising. Soon, DraftKings exploded with popularity and rose to challenge FanDuel to dominate the market share. The two companies own the daily fantasy market with Yahoo and others trying to etch out a place of their own. Currently, FanDuel and DraftKings have gobbled up smaller companies as the industry consolidates. But DraftKings has sustained a meteoric rise through its first three years, and if not for legal trouble in the United States, it most likely could have kept on climbing with little impedance.