Daily Fantasy Sports Cope With Uncertain Future

If you have turned on a television and watched a sporting event at any time in the past year, you know something about daily fantasy sports. Maybe you’ve played yourself.

But as the 2016 baseball season nears, you may have noticed that you’re not seeing nearly as much advertising for FanDuel, DraftKings and other daily fantasy sites as you did before.

Part of that is natural, as the NFL season has ended and taken with it its wall-to-wall daily fantasy commercials. But it’s also a response to New York attorney general Eric Schneiderman’s ruling that DFS is illegal in New York. In some ways, his ruling was just a further battle in a long-running skirmish between daily fantasy operators and states. New York wasn’t the first state to outlaw daily fantasy—but New York’s decision was the crest of a wave of negative coverage of daily fantasy sports that has intensified in the months since.

The month before Schneiderman’s decision, The New York Times reported that a DraftKings employee won $350,000 competing in a FanDuel competition. Around the same time, stories reported that a vast majority of daily fantasy site winnings were concentrated among a small cluster of players.

Attorneys general in multiple other states including Illinois and Texas have also ruled that daily fantasy sports violate their states’ gambling laws.

In the months that followed, ESPN announced that it would end its exclusive advertising deal with DraftKings. And Fox parent News Corp. announced it was devaluing its investment in DraftKings by 60 percent.

Daily fantasy sites large and small have laid off workers in recent months, and DraftKings and FanDuel have shifted money from advertising to pay for legal proceedings and lobbying. The daily fantasy landscape in 2016 is vastly different than it was going into 2015. The future is very murky, and the industry’s long-term outlook is largely to be determined by legislatures and court rulings.

Nationally, the Unlawful Internet Gambling Enforcement Act of 2006 made daily fantasy sports legal—before anyone had actually invented it.

Thanks to lobbying by professional sports leagues, a carve-out was created in the UIGEA that said any fantasy sports game in which the makeup of a fantasy player’s roster was not based on the current membership of a real team; where the scoring was not based on the score, point spread or performance of a team; and where the winning outcomes were determined by the skill of the participants was legally exempted from UIGEA.

It was another three years before daily fantasy sports were invented, but the industry’s foundation came in pro sports leagues’ determination to ensure fantasy sports were legal. In theory, at least, daily fantasy games are like traditional fantasy leagues, just with radically shorter timeframes. In practice, though, daily fantasy has played out like online gambling, with power players winning the vast majority of proceeds.

So whatever the long-term outlook for daily fantasy is, if it survives it will be with much more significant regulation. Lawmakers and other officials will look at these areas when deciding how to regulate the industry.

Age Limitations

Everyone involved believes that an age requirement is necessary; most feel 18 years old is appropriate. Kids playing daily fantasy games has not been identified as a major problem, but everyone agrees that it makes sense to have it as a part of legislation. Some states are attempting to tie playing age to the drinking age and raise it to 21.

Clearer Information

Legislators and industry experts agree consumers need to be informed so they can make good decisions. Consumers need to better understand daily fantasy, the games they are playing and the nature of the competition they are playing against, as well as safeguards to prevent and assist problem gamblers.

Multiple Entries

Professional daily players enter the same tournament hundreds of times, making million-dollar prize pools possible but also making it extremely difficult for the casual player to share in the winnings. If entries were limited, or the ability to enter the same contest a multiple of times were eliminated, it would level the playing field for consumers.
Prize pools would likely shrink and the loss of those entries could affect the profitability of the larger sites. Those sites say their profits are tied to the volume of player entries and if entries were capped for individual players, then the sites would need to find more players. This could help smaller sites remain viable, because one of the draws of DraftKings and FanDuel is the large prize pools, something the smaller sites can’t afford to offer.

Scripting

Scripting is a process that allows a player to use software to tweak hundreds of lineups with a few keystrokes. Scripting enables high-volume players to enter and edit hundreds of lineups quickly, giving professional players an edge. Limiting this ability as well as multi-entry tournaments would level the playing field for many players.

Handling Of Money

Lawmakers have expressed concern that the sites are using or could use money deposited by consumers to pay their operating expenses. That is how Ponzi schemes work and how organized crime launders money, drawing future scrutiny.
Despite all of the hits its image has taken of late, however, daily fantasy games remain popular. That popularity could make it difficult to totally outlaw them, though it happened to online poker.

According to the Fantasy Sports Trade Association, 51.6 million people play fantasy sports in the United States, as of June 2015, and of that number it was estimated that 4.5 million play daily fantasy sports.

Rick Wolf of the FSTA estimates that with the recent boom in daily games, that number may be closer to 8.5 million and some fantasy experts believe it could reach 15 million. The possibility that the number of daily players may have almost doubled since June is part of the reason why the industry is facing legislation or a possible ban now.

On the PBS program “Frontline,” FanDuel CFO Matt King said that his company has “several million paid players” and is “signing up 20,000-30,000 new players every single day.” He also estimated that 50-60 percent of those players are under the age of 30, a prized demographic. In the run-up to football season, Frontline reported that FanDuel and DraftKings spent hundreds of millions of dollars on advertising and some weeks were the No. 1 advertiser on television.

Industry experts see an industry that currently has millions of players with lots of room for growth. They believe that may inure them from being banned or regulated to the point where it isn’t economically viable for companies to operate. They have come around to the idea that more regulation and consumer protections are needed.

With the legal wrangling and the speculation over which states will allow daily fantasy sports, the industry could end up legal in the majority of states and dominated by two or three well-funded corporations or industry heavyweights.

While daily fantasy has established itself in mainstream culture, it can’t shake its gambling reputation, not with advertising that emphasizes high-dollar prize pools and images of winners holding giant checks and talking about the rush they get playing daily games.

The daily fantasy industry considers its products games of skill, and it has thrived in a loose regulatory atmosphere and is spending heavily to have a say in those regulations. The states are in the process of deciding how they categorize the industry, and how to regulate it. It could take years to shake out, but the wild west days of the industry’s infancy appear to be over.

Chris Mitchell is a staff writer for RotoExperts.com