Back in August, Lazy Man gave us a tip – avoid DraftKings and FanDuel. I won’t recap the entirety of his article (I may get paid by the word, but I have scruples. I’m getting paid for this parenthetical explanation, though. Jackpot!). In a nutshell, you create a fantasy team (staying within a “salary cap”) and your team competes against millions of other entries. If your collection of players does really really well, you win money. Otherwise you lose your entry fee. Because of the number of competing entries, you have to do amazingly incredibly awesome to cash in. Having a team that is merely “great” won’t be enough.
Gambling or not gambling
There’s been lot of discussion about whether daily fantasy sports (DFS) such as DraftKings and FanDuel are gambling. It’s very clear cut to me. It’s definitely gambling. Gambling does not always mean a contest of pure chance (slot machines) – gambling can also be a contest with a large element of skill. Poker and horse racing fit this mold. Horse racing is unequivocally gambling, but it’s clearly not a game of pure chance. Someone who has expert knowledge is going to do far better (over the long run) betting the horses than I will. Daily Fantasy Sports is basically betting the horses, but swapping out humans for the horses.
The question of whether DFS should be legal or not is an entirely different question. Currently, Daily Fantasy Sports are legal in 45 states.
Several days ago, the FBI began an investigation into DraftKings and FanDuel. The event that triggered this was a DraftKings employee winning $350,000 in a contest on competitor FanDuel. Until recently, employees were banned from competing in contests run by their employers, but not those run by competitors. They are now banned from competing on contests on competing site.
How much do these employees win? At a conference last month, the co-founder of DraftKings bragged that some employees made more from contests on other sites than they did from their salaries at DraftKings. A FanDuel spokesperson recently said that DraftKings employees have won 0.3% of the money the company has awarded in its history. This might sound like a small number, but bear in mind that there are millions of people playing and that this relatively small group is winning 1 of every $300.
What’s the Problem?
These employees are probably winning because they’re huge sports fans, right? Well, not necessarily. Some of these employees have access to ownership data – they know how many people have selected each player.
How does this help? Let’s look at a completely hypothetical example. Let’s say that Tom Brady and Peyton Manning have the exact same salary and are projected to have the exact same value in the coming week. It’s a coin flip.
Let’s also say that 100,000 people picked Peyton Manning and 200,000 picked Tom Brady – and as an employee with access to ownership data, you know this. Why the disparity? Perhaps non-football reasons that are not obvious to the casual fan. Peyton’s brother Eli threw four interceptions last week and is pulling Peyton down with him. Meanwhile Giselle was in a popular commercial and Tom got a bit of a boost from that. These are obviously stupid reasons to pick Tom over Peyton, but subtle things often affect us subconsciously.
Who do you pick? You pick Peyton. Why? Because the projected payoff is exactly the same, but you get a better boost with Peyton. If Peyton outperforms Tom, you get a boost that you have to share with 100,000 people. If Tom outperforms Peyton, you get a boost that you have to share with 200,000 people. Tom helps you less.
If the point isn’t clear, perhaps this will help. You’re in a March Madness pool with 20 people. There are two equally dominant teams – Lazyford and Kosvard. Since Lazyford’s campus is twenty miles away, 16 people have picked them to win. Which team do you pick in order to maximize your potential payout? Kosvard, of course. It’s the same basic concept – when the projected cost/reward ratio are the same for teams/players, pick the least popular one.
What Does the Future Hold for DFS?
Honestly, I don’t know. While employees of the sites are now banned from playing on competing sites, this really doesn’t fix the problem of ownership data being used to optimize lineups. An employee could simply share (or sell) this data to family and friends, have them play, and take a cut. If they are smart enough – playing medium-sized games and spreading out the people geographically – they can probably get away with it.