Why Daily Fantasy Sports Games Are for Suckers
Business + Economy

Why Daily Fantasy Sports Games Are for Suckers


If you watched some NFL football over the weekend, you were probably inundated with ads for DraftKings and FanDuel. Each spent over an estimated $10 million on TV advertising in the first week of September, and DraftKings reportedly spent $20 million on ads that ran 5,800 times over the past week.

DraftKings and FanDuel are the two biggest companies in daily fantasy sports, the hyperactive cousin of fantasy football that insiders refer to as "DFS."

It's become incredibly popular. Some people risk $5, others more than $100,000.

But it is so much harder to win big than most people think.

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The basic rules of DFS are familiar to anyone who's played regular fantasy sports: You assemble a team of players you think will do well, and if your collection of players gets better statistics than your opponents' players, you win.

The difference is, in many popular DFS formats you're sometimes playing against hundreds of people in large tournaments for different payouts based on how much money everyone put in. And rather than stretching out for the whole season, it's just one day (or one week's worth of football).

The DFS commercials show users who have won between $300 and $2 million playing the game. "On my third week of playing, I won $15,000 off of a $5 entry," says user Scott H. in a testimonial for FanDuel.

According to a paywalled survey of 1,400 DFS players that Eilers Research shared with Tech Insider, 70% of fantasy sports players report losing money. Insiders call these casual players "fish," since more advanced players — "sharks" — feed on their losses.

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One shark, which Bloomberg described as a "fake sports apex predator," claims to risk about $140,000 every day — with an 8% return on investment.

It's evidence of what a big business fantasy sports have become.

As a whole, fantasy football is valued at $11 billion, and DraftKings and FanDuel have both raised over $300 million at over $1 billion valuations, as Bloomberg reports.

A report by Adam Krejcik at Eilers Research says that 3.9 million people will play DFS by the end of 2015, up from 1.2 million last year. Most of them are male millennials, and about 48% of them used to play online poker.

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DraftKings also just announced they're holding a $15 million championship at the end of the year, which will be broadcast on ESPN.

While online gambling is illegal in most US states, fantasy sports are legal because they're games of "skill" instead of "luck," per a 2006 federal law — though a New Jersey congressman wants a hearing to reconsider the relationship between fantasy sports and gambling.

FanDuel PR rep Justine Sacco tells Tech Insider that "more of our users are sports fans than anything else and they play because it is a sports entertainment product."

But the data says that if you're looking to make money, DFS is a losing bet for most people.

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According to data put together at Sports Business Daily, a small portion of players take home the cash.

They used data drawn from the first three months of the current Major League Baseball season. While not the same as pro football — the NFL has 16 games in a season, MLB 162 — the sources Tech Insider talked to are confident that the trends translate from baseball to football, since it's essentially the same game of fantasy sports but with different athletes used on teams.

"In the first half of the 2015 MLB season, 91% of daily fantasy sports player profits were won by just 1.3% of players," write the authors Ed Miller and Dan Singer.

Miller, who has written half a dozen books on poker strategy, and Singer, who leads McKinsey's sports and gaming practice, broke out some startling statistics about who does the winning in DFS.

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• A few people are "sharks." According to Miller and Singer, the top 11 DFS players risked an average of a whopping $2 million in entry fees and profited $135,000 per person over those three months, and the remaining people in that top 1.3% paid $9,100 and profited $2,400.

• The mass majority of people are "fish." "[Five] percent of players are the big fish; they lost $1,100 on entry fees of $3,600 on average," Miller and Singer say. "[Eighty] percent of players were the minnows; they lost $25 on entry fees of $49 on average."

Why this unbalanced dynamic? Because, as people close with the industry told Tech Insider, DFS is such a game of skill that the best players dominate everybody else.

And the most crucial portion of that ecosystem are the 5% of users who are "big fish." As Miller and Singer observe, that tiny group accounted for 75% of all the losses.

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"Each minnow loses less than $10 per month and may happily continue to play forever, but each big fish loses more than $4,000 per year," they explain. "The entire DFS economy depends on these few players."

The Eilers Research analyst Adam Krejcik explained to us that the top players are exceptional in four primary ways.

They have:

Bankroll: The top players will risk $100,000 a day in entry fees. Why? Krejcik says that some tournaments allows users to enter hundreds or thousands of lineups in a tournament that has a fixed number of entries — meaning that players with deep pockets can enter 5% to 10% of lineups. In many tournaments, the top 1% to 10% of winners get the outsize payout, making all that investment worthwhile. He estimates top players get 30% ROI — not much when you're betting $100 but quite a bit when you're getting into six figures.

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Statistical chops: "A guy who knows sports can do well, but if you're looking at high stakes then it favors people who understand statistics and can apply it to this type of format," he says. "Everybody has their own player ratings, models, and at a minimum is tracking all this on Excel."

Understanding of public perception: "To win these big pools, you want to find players who aren't widely owned that are still going to perform," Krejcik says. "Rob Gronkowski, he's 50% owned. If he has a great night, you and half the tournament will do well, so it's hard to move up. But if someone is underowned, like Kansas City tight end Travis Kelce or Bengals tight end Tyler Eifert, he was on the winning lineups for the people who won the big payouts."

Time: If you're crunching numbers, watching games, and entering in hundreds of lineups for a tournament, it's going to take real time commitment — like 8 to 14 hours a day.

So the top players in DFS aren't the guys you'll find hollering at the TV at the nearest sports bar; they're more likely to be MIT math grads with a huge bankroll behind them.

Analyst Chris Grove of LegalSportsReport.com sees a lot of similarities between the people who excel in DFS and the top poker players from the online poker boom of 2010 and 2011.

"The primary characteristic in both DFS and poker is the willingness to develop a comfort with data analysis," he says. A willingness to believe that there is a truth in the data, and the willingness to pursue that truth, and be willing to risk money on that truth."

But here's the thing.

If you're trying to make real money playing DFS, the data says you probably don't have the statistical chops to do so, unless you're already a pro with Excel.

But if you just use it as a way to enhance your experience of watching the games, it's up to you if it's entertaining enough, same as heading to the casino is entertaining even if you know you're going to probably lose.

That comes out in the data, too: In that survey of 1,400 DFS players — where 70% weren't making money — over half said that they "love it and would never quit."

This article orginally appeared on Business Insider.
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