Daily Fantasy Sports: Overview
Daily Fantasy Sports (DFS) are a shortened version of fantasy sports in which players pick a team of professional athletes to compete in a competition or a league usually under a salary cap.
The players earn money and points based on the actual statistical performance of the athletes in their team. Unlike normal fantasy sports which are season long, the contests in DFS are short in duration, lasting from one day for some sports to a maximum of two or three days for other sports. Players play with real money.
Athletes are assigned monetary values based on their real world appeal. Players draft athletes into their team but cannot exceed their salary cap when selecting their choice of players. Even though each draft is independent, two players can have the exact same team.
Payments are cleared immediately at the end of the contest. Companies offering DFS charge a fee for players to play and also earn money from commissions based on player earnings.
Daily Fantasy Sports: Betting Formats
There are different formats of play offered by DFS companies. There is a “Double-up” or “50/50” in which players earn double their entry fees amount if they place within the top 50% of all participants. Head to head competitions pits two players against each other, usually of their choice. Guaranteed Prize Pool (GPP) have tiered payouts depending on finishing in different percentiles or ranks. There are other formats also offered like Triple/Quadruple/Quintuple Up’s and Sit-N-Go’s.
DFS is a relatively new phenomenon having started five years back but has gained strong momentum during the last two and a half years. The popularity of DFS is mostly seen in America and Canada though similar versions are offered in other countries. DFS exists for a variety of games including Baseball, Golf, American Football, Hockey and Football.
Top Daily Fantasy Sports Providers
The market is currently dominated by two main companies which account for 95% of the total transactions that take place. FanDuel is a spinoff of Scotland based prediction market game Hubdub and was launched in July 2009. Boston based DraftKings was launched in February 2012. Seeing the immense potential of DFS, both these companies received the backing of venture capitalists and are now valued at more than $1 billion. Even big sports leagues such as the Major League Baseball have invested in DraftKings. Both these DFS companies are promoting themselves aggressively to gain a wider customer base. DraftKings signed a deal with ESPN in early 2016 worth $250 million which will allow the company to advertise on the ESPN networks.
There are other companies which have ventured into DFS including Fantasy Aces and Yahoo Sports, though they are much smaller in size when compared to DraftKings and FanDuel.
Is The DFS Industry Similar To Casino Games?
The DFS industry is currently facing a number of challenges and lawsuits especially in America. One such dispute is whether DFS constitutes gambling which is based on chance or is it a sport based on skills. People who consider DFS as gambling argue that players are essentially making bets based on various statistical outputs of a player’s performance. Further bets are also made on a player’s chances of performing well, since even the best of athletes may have off days.
They argue that when chance comes into the equation then it constitutes gambling. On the other hand, DFS proponents consider it as a game of pure skill as decisions are made based on knowledge of the sport as well as a players performance at that particular time and also due to the fact that the selection of these players is limited to salary caps.
DFS Providers Facing Litigation In The U.S
The DFS market in America is monitored by the respective states and recently a number of states including New York, Nevada, Texas and Idaho banned DFS operators from offering paid for cash games as they deemed that the DFS industry violated the state’s laws on online gambling. These states have stated that DFS games are not games of skill or sports and hence DFS operators must obtain a gambling license if they want to provide paid for cash games in their respective states. The ban on the DFS industry has now forced a number of other states to turn the scanner on the DFS industry and DFS providers could soon be banned in a number of other states before the end of this year.
In Canada, DFS has still not fallen under the category of gambling even though legal experts agree that DFS is a game of both skill and chance and therefore constitutes as gambling.
Are DFS Games Based on Chance or Skill?
A second reason why DFS is under scrutiny is because of the skill levels of certain DFS players, or DFS pros as they are called which are so high that winning against them is nearly impossible. Data shows that these DFS pros constitute 1.3% of all players but pay 40% of entry fees and have won 91% of the total profits. The data also reveals that 5% of the players are those that pay 36% of the entry fees, paying on average $3,600. Of this amount, they lose $1100. Stats also reveal that 80% of all the players that play, bet a small amount, generally under $50 and always loose half of this amount. Chances are that players who loose frequently will stop playing when they realize that they will always loose.
A scandal broke out in 2015 when it was alleged that employees working for the two companies, FanDuel and DraftKings made profits from inside information. One employee of DraftKing had used inside information to make $350,000 on a FanDuel contest. Both companies have now barred their employees from participating in DFS.
While a number of countries and states across the globe have taken steps to ban the DFS industry due to the fact that DFS games constitute gambling and violate their gaming law, DFS players have taken to using proxies to bypass security features and access DFS games. DFS providers are now faced with the challenge of upgrading their software to ensure that this does not happen or else they could end up facing more lawsuits.
DFS Market Opportunities in Europe
While DFS has faced challenges in the United States, the industry as a whole has flourished as the global market for DFS games has continued to grow significantly. One of the biggest markets for DFS games is in Europe. FanDuel and DraftKings have yet to enter the European market mainly due to the on-going legal issues that the two companies are facing in the US. Should these two DFS giants enter the European market, it would significantly boost the European DFS industry as gambling continues to be very popular in the EU.
The gambling market in the UK is estimated to be around 1.2 billion pounds. Even though fantasy sports like season long soccer leagues are offered in Europe, the largest being the English Premier League, there are no major European operators currently offering DFS. Therefore an exciting opportunity exists for a major provider to setup a DFS base in Europe and gain a strong foothold in the EU.
Difference Between Daily Fantasy Sports And eSports Formats
Both DFS and eSports are projected to grow exponentially in the next few years. There are quite a few differences between the two. The biggest difference is in the mode through which revenue is earned. DFS companies earn money when players pay to play and also through commissions earned on the prize money. In eSports, money is earned through advertisements streaming the game on video platforms and through selling in-game content.
It is argued that DFS could be considered gambling since victory is based on both skills and chance. eSports on the other hand requires skill to win and the element of chance is removed. Players spend hours honing their skills in the eSports industry and their performance is directly related to how well they play. However in DFS games, a player depends on his fantasy athlete’s performance that he selected via a salary cap.
One of the reasons why the DFS industry is facing so much scrutiny is because of the failure of DFS games in communicating with its target audience. It now appears that both DraftKings and FanDuel were so focussed on earning revenue that they forgot to educate their audience about why DFS is a game of skill.
eSports Industry Should Enforce Better Policies
eSports currently does not face any threat of being termed as gambling but eSports companies would do themselves good by learning from the mistakes of the DFS industry. Effort should be made to educate audiences on all aspects of the eSports industry, especially highlighting facts as to why it is not a form of gambling.
Issues like fair play and having a zero tolerance policy for cheating should also be enforced so that the industry remains as scandal free as possible. Some of the issues that need addressing including eSport players not being allowed to use artificial means to improve their performances. Players should be prevented from altering their statistics which represents how good they are and eSports platform should be transparent and follow best practices related to matters of finance and technology.
The DFS industry has recognized the potential of the eSports industry and is slowly offering DFS based on popular eSports games. It was only in September 2015 that FanDuel acquired DFS service AlphaDraft and DraftKings started offering contests for the 2015 League of Legends World Championships.