Saturday, January 9, 2016

How the Daily Fantasy Sports Industry Turns Fans Into Suckers

Full disclosure: I am a 36-year-old dude who bores easily, drinks I.P.A.s and wears sports-themed T-shirts, especially ones with faded, nostalgic logos that suggest better times. In my early 20s, I developed a gambling problem that I’ve since learned to spread out over a variety of low-stakes games — Scrabble, pitch-and-putt golf, my stock profile on ETrade. I watch somewhere between six and 20 hours of basketball per week. I try to keep up with the usual cultural things — documentaries about conflict in South Sudan, Netflix binge shows, memes — but whenever I find myself awake in the early morning and there is no email to answer and no news to track, I watch SportsCenter, or I scan the previous night’s N.B.A. box scores to check up on Porzingis, or I read some dissertation on Johnny Cueto’s unusual ability to hold runners on first base. It’s not the most glamorous way to spend my time, but what can I do? My mind, at its most aimless, obsessively seeks out sports information. I am, in other words, the target demographic for the daily fantasy sports industry.

Since the start of this N.F.L. season, I have lost roughly $1,900 on DraftKings and FanDuel, the two main proprietors of daily fantasy sports (D.F.S.). I play pretty much every night. This requires me to pick a team of players — whether baseball, basketball, football, hockey or soccer — each of whom have been assigned a dollar amount, and fit them all under a salary cap. I base these lineups on reasonably educated hunches, something to the effect of: I’ll play the Indiana Pacers point guard George Hill tonight, because he’s going up against the New Orleans Pelicans, who have been a defensive train wreck this season, especially on the perimeter. Also, Monta Ellis, Hill’s back-court partner, is sitting out, which means more of the usage load should fall to Hill. Sometimes, usually while walking the dog, I’ll even sit down on a park bench and check to make sure that at least some of those facts are real. My bets range anywhere from $3 to $100. My losses in D.F.S. are not financially crippling, nor are they happening at a rate that should be cause for concern. But every gambler, whatever the size of the problem, wants to know that he or she has some chance of winning.

The ads, I admit, are what got me. For the first 10 months of 2015, DraftKings and FanDuel spent more than a combined $200 million on advertising, a surge that peaked at the start of the football season, when a DraftKings ad ran seemingly every couple of minutes on television. In addition to the ads, many of which showed regular guys like me who had won, in the DraftKings parlance, “a shipload of money,” there were DraftKings lounges in N.F.L. stadiums, FanDuel sidelines in N.B.A. arenas and daily fantasy advice segments in the sports sections of newspapers and all over ESPN, which, during the first weeks of the N.F.L. season, felt as if it had been converted into a nonstop publicity machine for DraftKings. As of August, both companies had billion-dollar valuations and promised weekly competitions with huge payouts and fast and easy withdrawals.

Initially, D.F.S. seemed harmless enough — on Sunday mornings, I would challenge a couple of my friends in California to head-to-head match-ups for $50 and put a few $20 entries into the million-dollar fantasy-football contest. Then, on Sunday, Sept. 27, Ethan Haskell, an employee at DraftKings, inadvertently published information that could have given him an edge over his competitors. That day, Haskell won $350,000 in prizes on FanDuel. (DraftKings later concluded, in an internal review conducted by a former United States attorney, that Haskell obtained the information after the deadline for submitting his lineup in the contest and couldn’t use it for profit.) Haskell’s accidental disclosure and subsequent bonanza caught the attention of several media outlets, including The Times, leading to a volley of articles and columns that placed the operations of daily fantasy sports under close scrutiny.Continue reading the main story

In the three months that have passed since Haskell’s post, DraftKings and FanDuel have been reeling. In October, Nevada joined Arizona, Iowa, Louisiana, Montana and Washington on the list of states where DraftKings and FanDuel cannot be played. On Nov. 10, Attorney General Eric Schneiderman of New York issued cease-and-desist letters to the two companies, and later filed lawsuits against the two companies. In response, a judge ordered them to stop accepting bets in the state. (The judge’s order has now been stayed, and both companies continue to do business in New York. Last week, Schneiderman asked a judge to order DraftKings and FanDuel to reimburse the money New York State residents have lost on the site.) On Dec. 23, Lisa Madigan, attorney general for the state of Illinois, released an opinion stating that daily fantasy games “clearly constitutes gambling.” (The two companies have argued that D.F.S. is a game of skill.) A chill has hit the D.F.S. industry. Prize pools have been steadily declining, and in the eyes of the public and much of the media, D.F.S. has become synonymous with online poker or offshore sports gambling — an industry, in other words, that deserves neither protection nor sympathy.

Since the scandal broke, I have traveled to D.F.S. events, spent dozens of hours playing on DraftKings and FanDuel and talked to players and industry media figures. I initially intended to write an article about the bro culture that had sprouted up around D.F.S., which, from a distance, reminded me of the sweaty, sardonic camaraderie you typically see at high-stakes poker events. At the time, the crusade against D.F.S. felt a few degrees too hot — DraftKings and FanDuel struck me as obviously gambling sites, but the game itself felt sort of like homework. You research players. You build a spreadsheet. You project data and enter a team. You watch the team either fulfill or fall short of your projections. The next day, you start over again. The ruinous thrill of other forms of gambling — sports betting, blackjack, poker — just wasn’t there.

Instead, I came across a different sort of problem: a rapacious ecosystem in which high-volume gamblers, often aided by computer scripts and optimization software that allow players to submit hundreds or even thousands of lineups at a time, repeatedly take advantage of new players, who, after watching an ad, deposit some money on DraftKings and FanDuel and start betting. Both companies mostly looked the other way. And, when evidence of the competitive advantages enjoyed by these high-volume players became too overwhelming for the companies to ignore, DraftKings and FanDuel enacted rules that in the end are likely to protect the high-volume players rather than regulate them. In any case, a stricter ban on computer scripting would have been functionally impossible — because, as a representative of FanDuel told me, D.F.S. companies cannot reliably detect it on their sites.

Each company took advantage of language in a federal law that allowed them to plug directly into two huge, overlapping populations — fantasy sports players and gamblers. Each company was able to raise hundreds of millions of dollars in venture capital funding and sponsorships, all of which created pressure to increase user bases, which, in turn, led to an advertising deluge this past fall. It takes years of testing, regulation and outside oversight to create a reliable betting market. But DraftKings and FanDuel rose to prominence — and now, seemingly, have become derailed — in the course of a single N.F.L. regular season.

The betting economy that has been created is highly unstable and corrupt. One critic I spoke to was Gabriel Harber, a well-known D.F.S. podcaster and writer who has worked in the D.F.S. industry since its inception and goes by the handle CrazyGabey. He has come forward to discuss the rampant exploitation in D.F.S.’s betting economy.

“The idea that these sites exist so that regular guys can make a lot of money playing daily fantasy sports is a lie,” Harber told me. “FanDuel and DraftKings are optimized for power players to rape and pillage regular players over and over again.”

by Jay Caspian Kang, NY Times |  Read more: