Kings for a day: The rise and pitfalls of daily fantasy sports

Taylor Ericson was listening to one of the St. Louis-area sports radio shows he frequents about two months ago. A commercial for DraftKings overtook the airwaves.

Taylor Ericson, DraftKings player | Courtesy of Ericson
Taylor Ericson | Courtesy of Ericson

Ericson, a 32-year-old from St. Peters, was already aware of the daily fantasy sports site’s advertising reach. For the past few months, he, like millions of Americans, has been bombarded with commercials from daily fantasy football sites begging customers to join and win absurd amounts of money without any season-long commitment.

DraftKings was going to match his first deposit upon entrance. He signed up for the daily fantasy site’s NASCAR leagues, and now he regularly enters lineups into low-risk contests and other leagues.

“The most I’ve won at any time, I put in $4 across a couple different games, and I think I ended up with $11 at the end of the night,” Ericson said. “For my purposes, it’s never much. But, it is easy to win, but it’s easy to lose, too.”

Ericson isn’t alone in joining the daily fantasy sports explosion. In the past two years, DraftKings and fellow daily fantasy site FanDuel have seen their popularity skyrocket, thanks to advertising budgets that run in the hundreds of millions and the perceived opportunity to win big.

But the rise in attention and the lack of regulation of the sites has led to concern over their legal, economic and social implications. They thrive on a gambling law loophole, and there are now allegations of insider trading. “There’s no escaping it now,” says Nicholas Watanabe, a sports marketing professor at the University of Missouri. “What we’ve seen (recently), it’s turned into an even bigger issue potentially.”

Games of skill

It begins in 2006 with the passage of the Unlawful Internet Gaming Enforcement Act. Although online poker and other under-the-table forms of sports gambling were outlawed, the act specifically highlighted the legality of fantasy sports. That led to the emergence of FanDuel and DraftKings.

The main takeaway was that fantasy sports are considered games of skill. People who play fantasy sports tend to agree that the games take a certain level of ability and knowledge to win.

Typically in fantasy sports, participants draft teams of real players. Those teams earn points in head-to-head matchups based on how the players perform in their actual games.

Daily fantasy sites are different in that there is no season-long commitment, and players are assigned by certain values. Participants then enter money into one-day leagues. The contests usually vary, but participants with the best performers on their team are more likely to win.

“One thing I’ll do is look on data analytics sites for what a player’s projections are,” said Alex Wilke, a senior at the University of Missouri who plays fantasy football on DraftKings. “I’ll look at defensive ranks and the way they’ve previously played just to get an idea of what they’re going to (be).”

Wilke says interpreting statistics does require a bit of experience and skill. It’s how he creates his lineups.

“It’s awesome,” Wilke said. “It’s fun. It’s my entertainment. I’d much rather spend $15 on a sport than go out and eat and spend 15 bucks.”

However, the skill factor of daily fantasy sports doesn’t really go beyond that, he says. Participants don’t know whether the players in their lineups are actually going to perform well. They could get hurt and not live up to their statistical expectations.

Nick Watanabe, Missouri professor | Courtesy of the MU School of Natural Resources
Nicholas Watanabe | Courtesy of the MU School of Natural Resources

“I would say there’s a skill element to it, but there’s a chance element to it,” Watanabe said. “Poker requires a level of skill, but no matter how good your skill level is … if you just get bad cards continuously, you’re sort of out of luck.”

Watanabe, who is co-authoring a book about fantasy sports, says the Fantasy Sports Trade Association, a lobbying group, is able to survive on that fantasy sports loophole.

A bigger problem, however, is that fantasy sports are unregulated. That lack of regulation has led to concerns over the integrity of the industry. Although DraftKings employees were not allowed to enter the leagues they work for, there were no limitations on joining other sites’ leagues.

That wouldn’t necessarily stop a DraftKings employee from scraping data from his or her own website and using that data to outperform others in a FanDuel league. That’s considered insider trading, and it’s what recent allegations against the sites reflect. An employee for DraftKings was accused of using data and inside knowledge to win money at FanDuel.

The sites have since put an end to this, although it has the attention of lawmakers and the New York attorney general. Nevada’s gaming board ruled daily fantasy sites illegal. The FBI and the U.S. Justice Department are also getting involved. But does this spell an immediate end for these websites?

“From an economic perspective, (DraftKings and FanDuel) are more important and relevant than ever,” Watanabe said. “They have more capital — both social and financial — behind them. I’m sure they have a strong push to do everything they can within reason to make sure DraftKings and FanDuel do OK.”

Powerful partners, major momentum

The alleged scandal has also caught the attention of professional sports organizations like the NFL and MLB. FanDuel has sponsorship deals with 15 NFL teams, and DraftKings planned to spend almost $250 million on advertising over the next three years with Fox Sports.

The NFL and its commissioner, Roger Goodell, said the sites won’t tarnish the reputation or the “integrity of the game.”

“But the moment something goes fishy, and we’ll see how this current situation goes, the more people say they should back off a little bit,” Watanabe said.

Watanabe says daily fantasy sites have raised a variety of other questions. Will there be support groups for fantasy sports addicts akin to those for people with gambling problems? How will the sites affect fan engagement?

“You don’t care so much about what happens in the game,” Watanabe said. “You want to see the games and who’s … in a scoring position.”

If nothing else, daily fantasy sites encourage viewers to consume a wide array of sports media. But with all the advertising, more attention and scrutiny is aimed at daily fantasy sites now than there even was last month.

There may still be millions of participants setting their lineups, but the future of the sites remains blurry.

“I’m definitely paying a lot more attention, and I think the leagues probably benefit from (daily fantasy sites),” Ericson said. “I think you’d see them trying to prop these sites up as long as they can, because the return investment, whether they want to admit it or not, they’re probably getting more people interested.”

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