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Where Fantasy Sports Meets Stock Market Scams

Daily fantasy games are wildly popular and completely infuriating

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The first month of the 2015 NFL season has been characterized by an onslaught of advertising for daily fantasy sports betting. Viewers have sat helplessly by as their normal football-watching experience (usually typified by beer and pizza advertisements, with occasional interruptions of extreme violence and holding penalties) was overwhelmed by a seemingly unending succession of pitches by the two titans of the daily fantasy industry: FanDuel and DraftKings.

These two companies have already aired over 60,000 commercials promising ridiculous payouts to the layman bettor this year. Both have benefited from tremendous institutional backing from the sports they were profiting off of (as well as the networks they were buying ad-time on). And both have also seen a massive surge in users, as football fans caved to the demands of their televisions, which were promising special one-time offers, complimentary credits to gamble with, and perhaps, millions and millions of dollars in winnings. The rules of daily fantasy football are simple: participants have a fixed budget that they can spend on any combination of football players, with the hope that their roster scores more fantasy points (which are based on individual statistics) than anyone else in their “pool.” The size and prizes of each pool differ on how much money the player is willing to buy-in for.

The sudden media saturation of daily fantasy betting was the culmination of a carefully plotted PR push: both companies seem to have circled the start of the 2015 football season as the moment when this new-ish form of gambling would go completely mainstream. Shortly after ESPN and DraftKings inked a massive advertising deal in July my inbox at a men’s magazine began filling with PR pitches touting the media availability of supposed “experts” of daily fantasy betting, who would help participants win serious cash by helping them identify hidden gems: low cost players who would deliver unbelievable returns in production. Soon after that, ESPN’s own coverage of football was overtaken by these very same experts, with entire segments of programming (sponsored, of course, by DraftKings) devoted to “sleeper picks” and “over-performers”.

If this sounds familiar, it should—it’s essentially the same game as day-trading on the stock market. A buyer looks for cheap, underperforming stocks, and hopes that they will shoot up in price before they cash out, having maximized their earnings while minimizing the losses. Nothing that FanDuel or DraftKings were doing or saying was terribly novel or all that revolutionary—like many online stock brokerage services, they were extracting fees (the bets) in exchange for the remote chance to win big. And ESPN was more than willing to position itself as Daily Fantasy’s CNBC, Bloomberg, and Fox Business all rolled into one.

The parallels with Wall Street don’t stop there. By week three of this football season, it became clear that only a small group of elite players won consistently taking home the vast majority of the available money, while everyone else got squat. ESPN had to disclose that one of its supposed daily fantasy “experts” was, in fact, a paid spokesman for DraftKings. Finally, this past weekend, it came out that an employee of DraftKings was possibly using inside information on ownership and lineup data to place bets at rival company FanDuel. That employee took home $350,000 on a $25 bet, sparking a series of revelations from both companies—they released a joint statement on Tuesday—that some of their biggest winners were, in fact, employees of the other company. By this past Tuesday, sports radio was dominated by talk of insider trading and lax regulation, terms not often heard on shows usually devoted to the most banal of sports analysis. By Wednesday evening, New York State Attorney General, Eric Schneiderman had sent letters to the CEOs of both FanDuel and DraftKings asking for information about their practices, and not one, but two house committees had called for hearings to look into possible regulations for the daily fantasy industry.

The connection between Wall Street and fantasy sports has always been tangible. One of the earliest online fantasy games, Wall Street Sports, had players “buy” athletes at a certain stock price, and possibly earn dividends on their player as their stock either rose or fell depending on their performance. The site ran its own market, like today’s daily fantasy, that decided the price of the player. The site bottomed out after the first tech bubble burst, but the roots for daily fantasy had been laid. While Wall Street Sports kept your portfolio rolling over from week to week, daily fantasy has further gamified the process, making every day a brand new beginning: you didn’t have to worry about your best stock crashing. If MarShawn Lynch broke his leg on Sunday, it wouldn’t affect your performance on Monday. While a small minority was able to win regularly (perhaps as a result of having inside information), most players are entirely dependent on luck. Daily fantasy exists in a toxic nether-region between the financialization of sporting statistics and the low-risk of pulling a lever on a slot machine. And that’s where it’s getting into trouble.

Because daily fantasy has been classified as a “skill-based” game, it has so far eluded the type of stringent regulation that accompanies other types of gambling, considered “games of chance,” like casino games and horse-racing. Presently, it has found a regulatory niche where it can enjoy the best of both the worlds of business and gambling. By operating both the marketplace and the limits to payouts, daily fantasy is able, unlike a casino, to maximize their earnings while limiting their losses. A casino or track can take serious losses on a longshot or ill-considered odds (like the Black Sunday affair of 1979), but daily fantasy companies know exactly how much they will pay out each day. The only thing that can ever hurt it is a downturn in customers—which is why you end up with the advertising blitz.

Of course, these games do no harm to anyone by fleecing people of a few bucks every Sunday for a remote chance at millions. People play the lottery every day and by the same logic, many play the stock market too. It’s an entertaining way for a person to part themselves from their money: for most, playing daily fantasy is no different than buying a scratch-off ticket. Nevertheless, the idea that daily fantasy should be regulated like the stock market is not a bad one, especially when one considers the vast difference between what these companies promise—the possibility for anyone to make a fantastic amount of money just by playing—and reality: a tiny minority of players who make nearly all of the money given away, some of whom apparently work for the companies themselves.

What’s more concerning is the speed with which FanDuel and DraftKings have been able to install themselves as major players within the sports world. By savvily signing marketing agreements with major broadcasters, then accepting investment from sports team owners and the leagues themselves, the two fantasy companies were able to insulate themselves from scrutiny up until they got caught dipping into the trough. But because of the vast amount of money involved, the two companies aren’t going anywhere—maybe they’ll tone down the advertising, and maybe journalists will now disclose when they’re on one of the company’s payrolls, but an online poker-style federal crackdown is not in the works. Instead the government will have to spend money constructing serious regulatory apparati, making sure that the kind of insider trading the two companies have been accused of never happens again. Rest assured, however that much like the financial sector, insider trading and other malfeasance will recur, and almost certainly the politicians who receive intense lobbying from the NFL on behalf of daily fantasy will attempt to defang any regulations as soon as possible.

Which brings us to an unlikely, but beneficial (for consumers, at least) possible outcome: The legalization of gambling on the outcome of actual games. While team owners have long fought against this, they’ve invited the idea into conversation by wholeheartedly endorsing a form of gambling that is rigged in their favor (and also incredibly dull). They found a way to financialize the statistics of even the most meaningless moments of their sport, and are now reaping the rewards hand over fist. Right now, the economic activity of sports fans is directed squarely into the pockets of team owners and their investments.

Fantasy football, in its classic “group of friends” or “office pool” form, always provided at least a few people with decent payouts. Daily Fantasy presents an almost impossible chance of actually winning and by doing so, it’s taken the fun out of the game. Ordinary people can’t win playing daily fantasy, but they can win betting on sports. By legalizing gambling, states will be able to transfer some of the profits from the sports leagues and owners (whose own profit motive is apparently unquenchable) and back into the pockets of the people who are betting in the first place. Allowing betting on outcomes raises the percentage of winners, and it may even make the viewing experience more enjoyable—something daily fantasy certainly doesn’t. The hunger for betting in America is surely there, but the odds are far from even—for now.