What DraftKings & FanDuel Don't Want You to Know

Daily fantasy sports gambling misleads consumers, manipulates the law and swindles millions from sports fans.

Before you read any further, we want to be clear. Nebraska Family Alliance is not opposed to people playing fantasy sports.

Many of us enjoy playing in fantasy sports leagues. That is not the issue. The issue is daily fantasy sports companies organizing betting or wagering on daily and even hourly fantasy sports contests.

At the expense of average citizens, daily fantasy sports sites, such as DraftKings and FanDuel, manipulate the law and fleece sports fans out of millions to keep their illegal gambling scheme afloat.

Legal Loopholes

Daily fantasy sports gambling operates in a legal gray area by exploiting a loophole in the Unlawful Internet Gaming Enforcement Act (UIGEA) enacted by Congress in 2006.

The UIGEA essentially struck down online gambling altogether. However, the law doesn’t address fantasy sports – because fantasy sports were just coming into being and daily fantasy sports didn’t exist yet.

The author of that law, Rep. Jim Leach (R-IA), recently made it clear that this law was never intended to provide an exemption for today’s daily fantasy sports model.

“No one ever conceived of [fantasy sports] becoming a large scale activity or that it could transition into one-day contests…but it is sheer chutzpah for a fantasy sports company to cite the law as a legal basis for existing. Quite precisely, UIGEA does not exempt fantasy sports companies from any other obligation to any other law.”[2]

Daily Fantasy Sports is Gambling

By every perceivable definition, wagering on daily fantasy sports is gambling.

All three components necessary to constitute gambling are present in daily fantasy sports contests. Consideration? Check. Chance? Check. Prize? Check. Entry fees are wagers, and cash prizes are jackpots. And the experts agree:

“Very simply, it’s gambling. [It’s putting] money on an event with a certain outcome in the hopes of winning more money. To call it anything else is really just not accurate.” – Dr. Timothy Fong, an associate clinical professor at the UCLA Gambling Studies Program and a leading researcher on fantasy sports gambling.

“I don’t know how to run a football team, but I do know how to run a casino, and this is gambling.” – Jim Murren, MGM Casinos Chairman.

“You put up something of value, cash, to win something of value, cash. It’s the classic definition of gambling…any suggestion that (fantasy sports) is not gambling is the biggest bunch of baloney I’ve ever seen.” – Joe Asher, CEO of major sports book operator William Hill U.S.

The most condemning assessment, however, comes from DraftKings CEO Jason Robins, who in an online discussion board acknowledged his website was “almost identical to a casino.”[3]

Gaming – Skill Vs. Chance

One of the most common arguments in support of legalizing fantasy sports gambling is that it is a game of skill, not chance.

While some degree of skill can be displayed playing fantasy sports, its role diminishes tremendously when taken down from the traditional, season-long format to single day or hourly contests.

There are uncontrollable components of chance in every fantasy sports contest and players are reliant on chance to win. Injuries, weather, the way the ball bounces and a coach’s play calling and decision making impact player performance and consequently the outcome of fantasy sports contests.

This is evident by the fact that people can lose playing fantasy sports despite their skill. In chess, for example, it is solely about one player’s skill versus their opponents. You cannot lose a game of chess because of an unlucky set of chess pieces.

Distinguishing between skill and chance is important, however, Nebraska law prohibits wagering on games regardless of any skill component (Nebraska Rev. Stat. 28-1101 ((4).

The Dirty Little Secret

It’s only a game of skill if you have the biggest bankroll and best technology.

According to a former FanDuel consultant who quit playing high stakes games after identifying how the lopsided system works, “It’s only a skill game if you have the biggest bankroll and the best technology. That’s the dirty little secret.”[4]

In one of the many lawsuits involving DraftKings and FanDuel, one of the plaintiffs stated: “DFS sites knowingly and intentionally pulled the wool over the eyes of many Americans when quoting the UIGEA. We deserve our money back.”

Another major lawsuit alleges that the companies “granted scores of advantages to an elite group of high-volume players.” According to New York attorney Hunter J. Shkolnik, “The vast majority of bettors who are small guys, playing one or two contests a day for $20 at most, are overmatched by an elite few who have the algorithms, the technological advantages, all the advantages to win the biggest money. No one tells you that in the commercials.”

The lawsuit also alleges that “FanDuel revealed to its investors that only the top one-tenth of a percent of its customers actually win money. The top 10,000 users had a negative-9.5 percent return on investment.”[5]

How it Works: Sharks Vs. Fish

Daily fantasy sports sites like DraftKings and FanDuel can only exist and remain operating if new players keep signing up and losing money.

These companies rely on a small number of high-roller “sharks,” that they treat to lavish gifts and perks, to spend tens of thousands of dollars while simultaneously hooking large numbers of novice “fish” to enter the same contests with smaller bets – who consistently lose their money to the “sharks.”

The CEO of DraftKings even admitted to this business strategy, writing in an online forum that “The goal in how we are set up and the tremendous amount of money we spend on marketing are meant to attract and retain casual players, which in turn should make it an attractive environment for those who profit.”

Daily fantasy sports sites make their money by taking a 6 to 15 percent cut, or “rake,” of players’ wagers. The greater the betting volume, the more the sites get to keep.

According to an in-depth report by ESPN’s Outside the Lines,

“60 percent of the daily fantasy industry’s revenue comes from the roughly 15,000 high-volume players wagering at least $10,000 a year. Nearly 50 players, most of whom are savvy, analytics-driven professionals, each wager at least $1 million a year. And some go even higher.”[6]

According to the same report, an analysis of DraftKings’ “$1 Million Mega Payoff Pitch” contest on May 26, 2015, demonstrates the:

“futility of entering a handful of lineups — even as many as 90 — in any big-jackpot contest. Nearly all players who entered fewer than 100 lineups finished with a negative return on investment, most in the double digits. Even those who entered more than 25 lineups (costing at least $700) but fewer than 100 lineups had ROIs of minus-22 percent to minus-27 percent. Of the 21 players who posted more than 100 lineups, [a player] and two others had a profitable night.”

Eric Soufer, senior counsel to the New York attorney general stated: “Even beyond the illegal gambling claims, the evidence of false and deceptive advertising was massive, and it was clear to all sides that those claims would be moving forward.”

It’s not Investing and it’s not Entertainment

Gambling, in general, is not like investing, and this holds true for fantasy sports.

When you invest in the stock market you are taking a risk with money, but that is where the parallel between gambling and investing stops.

When you make an investment you are given something of value in return – shares in a company that actually make you a part owner. Instantly, you hold something of value. When you wager money on a fantasy sports contest the only thing you are given is a lie that you have a realistic chance of winning that money back.

Investing allows you to own something of value while making money with others. When you gamble you own nothing and can only profit by taking money away money from someone else.

Not only is gambling on fantasy sports not like investing, people can play for entertainment purposes without being taken advantage of or losing money.

Players are being drawn into daily fantasy sports contests with the hopes that they can win money. If people were playing for pure entertainment purposes, they would be playing on other sites for free. The fact that they are wagering money on fantasy sports contests indicates that they are there to gamble, not for entertainment.

States are Recognizing the Truth About Daily Fantasy Sports Gambling

In some states, attorney general offices have released reports declaring that daily fantasy gambling is illegal, including Iowa, Nevada, Illinois, Texas, and New York.

In November 2015, New York Attorney General Eric Schneiderman affirmed that DraftKings and FanDuel were conducting illegal gambling under state law and ordered the companies to stop accepting money from the residents of New York.

“It is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” Schneiderman stated. He also accused the companies of intentionally misleading consumers and found they violated the state’s false advertising and consumer fraud laws.

Although the New York legislature has since passed a law legalizing fantasy sports gambling, DraftKings and FanDuel are now barred from accepting wagers from players in 11 states, up from five a year ago.[7]

At least three federal grand juries have notified one or both companies that they are under criminal investigation.

The Data is in and the House Always Wins

DraftKings and FanDuel are running a gambling scheme in which the vast majority of people lose.

A recent analysis of DFS winners and losers from Bloomberg Businessweek shows that the “majority of DFS customers lack the skill to ever have success and thus are relying largely on chance” to earn their money back. [8]

Numbers from DraftKings showed that 89.3% of players had an overall negative return across 2013 and 2014.

The New York Times reported that just 10 to 20 percent of entrants win anything at all.

The Sports Business Journal found that through the first half of the 2015 Major League Baseball season, 91% of all winnings were collected by just 1% of all players.

In what may be the most telling piece of information about daily fantasy sports, we now know that the longer seasons go on the fewer people play – because they are all losing.

During the second half of the 2015 NFL season, DraftKings and FanDuel saw week-by-week reductions in entry fees and major tournament payouts. By Week 14, DraftKings’ large tournament entry fees had fallen 32 percent from Week 5, and FanDuel’s entry fees had dropped 53 percent from Week 6.[9]

The more consumers play, the more they lose. Once a player makes this realization and quits depositing money or loses everything they have, DraftKings and FanDuel must attract a new player to fall into the same scheme.

Now that we have this information, the worst thing a state could do is provide a predatory and deceptive industry a permanent foothold by legalizing it instead of protecting citizens from being intentionally taken advantage of.

“There’s a sucker born every minute”

The infamous phrase, “There’s a sucker born every minute,” is often credited to the late 1860s Chicago saloon and gambling-house keeper Michael Cassius McDonald.

McDonald allegedly said the phrase when equipping his gambling house with a large number of gambling devices. The phrase represents the same attitude and business strategy that daily fantasy sports operators rely on today.

Daily fantasy sports sites provide little to no safeguards for consumers. With just a few clicks of a button, individuals can lose their entire bank account to a stranger over the internet who is utilizing highly sophisticated algorithms and technological advantages.

The harms of gambling are serious, even if the mechanism is not. As The New York Times documented, fantasy sports can lead to a ruinous path for problem gamblers.

Fantasy sports gambling is simply an online casino under the guise of fantasy football. Nebraska voters, as recently as the fall of 2016, have repeatedly and continually rejected bringing casinos and video gambling into our state.

State-sponsored gambling has been a spectacular failure. We should look for ways to decrease the harms and negative social and economic consequences of gambling, not increase them.

Who would benefit from legalizing this industry in Nebraska? Since consumers can already play fantasy sports for free, it seems that the only real winners in legalizing daily fantasy sports gambling are the companies who operate them.

This article was originally published September 19, 2016. Minor edits were made and it was republished January 17, 2018.