DraftKings and FanDuel, Both Billion Dollar Companies, Will Be Out of Business 24 Months

DraftKings and FanDuel have built billion dollar businesses using government loopholes and shady advertising practices. But the end is near...

January 7, 2016

I’m a money hungry, commie-hating, greedy capitalist who loves watching stupid companies die miserable deaths and seeing creative entrepreneurs make a buck off the backs of government loopholes, weak businesses, and questionable schemes.

But even I know that fantasy football sites like FanDuel and DraftKings are no different from sleazy online poker sites and shouldn’t exist, or if they do, be heavily regulated similar to online poker sites. Thankfully I’m not alone.

In a recent expose in The New York Times, Jay Kang (a FanDuel customer) eloquently explained the shadiness inherent in fantasy sports league. It’s a long read and I suggest giving it a look if you’re extremely interested in the topic, but I’ve summarized it for you here:

  • Kang is an average 30-something yuppie. He watches sports and occasionally places small time bets on DraftKings and FanDuel.
  • Before placing a bet, Kang does a little research and picks which players he wants to bet on. Then he competes against other players, most of which are internet people he doesn’t know, selected at random. Whoever has the best performing players wins the other person’s money.
  • In the last year Kang’s lost $1,900 on DraftKings and FanDuel, the two main proprietors of daily fantasy sports (D.F.S.).
  • Like most D.F.S. players, Kang found out about D.F.S. from their catchy ads. If you have a TV or have walked around New York City then you know exactly what I’m talking about. They’re everywhere and directed to the average sports fan looking to make a quick buck.
  • During Kangs investigation he saw that the big winners in D.F.S. were people placing a high number of bets using computer algorithms and scripts that automated their picks, a practice that D.F.S. allows. Although high volume winners only made up about 1% of these sophisticated players, they won 91% of all the prize money on D.F.S. sites.
  • Until recently D.F.S. only had a niche audience of competitive gamblers. A few years ago that changed when a handful of entrepreneurs with backgrounds in statistics and professional poker started FanDuel and Draft Kings. Within a few years these companies have brought in hundreds of millions of dollars in both revenue and funding, and have valuations in the billions.
  • The article ended by explaining the D.F.S., unlike online gambling or casinos, are completely unregulated because their considered a “game of skill.”

And that’s pretty much the what the article had to say. This got my blood boiling. How on earth are they getting away with running this scheme when D.F.S. is clearly gambling, no different than traditional poker. It’s the Wild West right now in D.F.S. and something needs to change.

fanduel-com-fantasy-football-win-any-weekend-large-3

Cheesesteak.

 

What got me so angry is that D.F.S. are not different than the online poker sites that have previously been outlawed or are now heavily regulated. D.F.S. are thriving right now because of a 1998 law the prohibits online gambling but not “games of skill.” Because of this D.F.S. are currently unregulated, and, according to John Oliver, are barely slipping through that loophole like a wolf going through a doggy door.

Of course, D.F.S. are far from being a game of skill. According to Kang, unlike gambling at a casino where you can play against other new players at the small stakes table, D.F.S. are dominated by expert players with thousands of entries that systematically prey on rookie players, hence 1% of winners taking over 90% of the winnings. There’s even a term in the D.F.S. for this predatory style behavior called bumhunting where experienced players seek out noobs and wreak havoc. In fact, there’s an entire online community where ex-professional online poker players discuss successful bumhunting tactics.

You may not be familiar with this term, but I promise that if used properly and plentifully – will pad your pockets with plenty of $$$. All online poker sharks used to do this – the concept is simple,” wrote one of the community members in a blog post on how to successfully bumhunt.

And if you’re not aware of how big of an issue this is, it’s been reported that there’s a D.F.S. advert playing on TV every 90 seconds. That’s hundreds of millions of dollars a year in marketing. And worse yet, the ads are targeted average sport fans who claim to be making tens of thousands of dollars in earnings.

Nigel Eccles and Jason Robins, the cheeky founders of FanDuel and DraftKings.

Nigel Eccles and Jason Robins, the cheeky founders of FanDuel and DraftKings.

Now, I’m no grinch. Personally I can’t stand gambling but it’s not up to me how people blow their money. I’m completely fine with gambling being legal. And I understand that putting a few bucks on a game can make it more fun. But when things get so systematic to the point of having sophisticated computer scripts or hundreds of millions of dollars in venture funding, and thousands of employees (who, by the way, are using insider knowledge to win on one another’s platform) I’ve think that’s going too far.

In fact, D.F.S. is so corrupt that most professional sports leagues and even the media now has a stake in FanDuel or DraftKings. NBC, host of most professional football games, owns a stake in FanDuel as does the NBA and Fox and MLB own part of DraftKings. Even though Fox or the NFL have a squeaky clean record of not taking advantage of their power and influence, it’s not unfathomable to believe that if D.F.S. companies grow large enough that these investors may be tempted to tamper with the outcome.

Again, I don’t mind a “creative” entrepreneur but having a sports league associated with a gambling site seems a little fishy to me.

Unlicensed gambling is currently illegal in most states. And the ones that do allow gambling are heavily regulated. As much as FanDuel, DraftKings, and your bro cousin Tucker want you to believe that it is, fantasy sports are not a game of skill. I don’t like the government getting involved in business any more than the next capitalist but unregulated D.F.S. is wrong. I don’t need to explain how addicted slot machine are, and this is no different. And thanks to great work by the NY Times, I predict that in the next 24 months we’ll see the demise of both FanDuel and DraftKings.

Wanna bet?



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