Here’s what you should know about daily fantasy sports

PROVIDENCE, R.I. (WPRI) – If you tuned into the New England Patriots game at exactly 1:00 Sunday afternoon, the first commercial you saw was for FanDuel, the daily fantasy sports company that will award more than $2 billion in prizes this year.

If you only caught the end of the team’s easy victory over the Washington Redskins, then you probably saw an ad for DraftKings, the other major player in the industry, urging you to find this week’s “sleeper” pick to improve your chances at a big score.

The two companies combine to make up about 95% of the daily fantasy sports market, an industry whose explosive growth in recent years has caught the attention of Wall Street, but also drawn scrutiny from lawmakers and prosecutors throughout the United States.

So what should you know about daily fantasy sports?

Here’s an overview.

It’s more immediate than traditional fantasy sports.
Fantasy football and baseball have been around since at least the 1960s, but the games truly started to take off as households throughout the world started using the Internet. The NFL now has a channel dedicated solely to scoring opportunities in every game so that fantasy football players can follow their players each week. But while traditional fantasy sports leagues start with a draft before the season begins and continue until the playoffs, daily fantasy allows players to log on and select a new team every day. The professional sports leagues love fantasy sports because it keeps viewers glued to the games, according to Ron Washburn, a sports entertainment lawyer who teaches at Brown University. “Those of us who play fantasy leagues watch it to the last second because now we have a vested interest,” Washburn said. “Because now you care about that second string running back who might be starting because of that guy who got injured.”

A lot of people are playing fantasy sports.
Roughly 57 million people in the United States and Canada are playing some type of fantasy sport, up from 12.6 million in 2005, according to the Fantasy Sports Trade Association. Players over the age of 18 report spending about $465 a year on fantasy sports and football is largely the sports of choice. Two-thirds of players are male and the average age of a fantasy player is 37. For daily fantasy sports, the average player spends about $257 a year on entry fees.

There’s a big debate over whether it’s gambling.
Traditional fantasy leagues typically involve a group of friends or coworkers drafting their respective teams at the beginning of the season and sometimes include a per-player entrance fee that is awarded to the winner at the end of the season. In daily fantasy, players generally compete against much larger pools, throwing down anywhere from 10 cents to $1,000 per contest with the hope of winning large payouts. For example, one company will pay $1 million Monday night to the winner of its weekly fantasy football contest. (There was a $20 entry free and more than 322,000 participants.) Because you’re allowed to pick your own players, some argue daily fantasy is a game of skill. The idea is that if you’re more knowledgeable about a sport, you have an edge over your competition. “Anyone can go up to a slot machine and pull a lever, but for you to win in fantasy sports, you have to know the game as opposed to someone randomly picking players,” Andrew Busa, who runs the company FantasyHub, told Target 12. But Providence College accounting professor Patrick Kelly said he believes it is gambling because fantasy players can’t control the performance of the athletes they’re wagering on. “Yes I think it is gambling,” Kelly said. “If gambling is to bet on an uncertain outcome.” Stop Predatory Gambling, a Washington, D.C.-based advocacy group, has accused daily fantasy companies of targeting young people and violating federal law. In Massachusetts, the state lottery is now considering launching a daily fantasy game.

Some states don’t allow daily fantasy sports.
While anyone in Rhode Island and Massachusetts over the age of 18 can sign up to wager on daily fantasy sports, Arizona, Iowa, Louisiana, Montana and Washington all have local laws that lawyers for fantasy gaming companies believe prohibit players from participating. (Those laws weren’t enacted directly to combat daily fantasy, but the companies don’t accept players from those states anyway.) In Arizona, a bill to legalize daily fantasy failed to win passage in 2014. In October, the Nevada Gaming Control Board said daily fantasy sports companies need a license to operate in the state. Some of the companies adhered to the ruling, but at least one continued to allow players to wager. Lawmakers in New Jersey are also holding hearings on fantasy sports.

Full Text of the Internet Gambling Prohibition and Enforcement Act »

Full Text of the Internet Gambling Prohibition and Enforcement Act »

Daily fantasy has online poker to thank for being legal.
So how is it legal? In 2006, Congress approved the Unlawful Internet Gambling Enforcement Act as part of an effort to regulate online gambling. The bill was largely designed to combat online poker, which, along with ESPN’s airing of the World Series of Poker, made the age-old card game popular to millions of new players. (Federal agents didn’t shut down online poker in the United States until 2011 – a day players still refer to as “Black Friday.”) But the statute included a specific carve out for fantasy sports, because “winning outcomes reflect the relative knowledge and skill of the participants.” Preet Bharara, the U.S. Attorney for the Southern District of New York, has launched a probe into whether daily fantasy companies are violating federal law.

Two companies dominate the daily fantasy market.
Although dozens of daily fantasy sports companies have emerged in recent years, New York-based FanDuel and Boston-based DraftKings are by far the largest. The two companies combine to control about 95% of the daily fantasy market, according to some estimates. DraftKings recently secured a $300-million investment, a large portion of which came from Fox Sports. The company also partners with the Kraft Group, which owns the New England Patriots, as well as several professional sports teams. Earlier this year, FanDuel raised $275 million from investors that included Google and Time Warner. NBC Sports has also invested in the company.

DraftKings and FanDuel spend a lot on advertising.
If you watch any television at all, you’ve certainly seen their ads. Between Jan. 1 and Oct. 5, DraftKings and FanDuel reported spending $206 million on television advertising, according to CNN. The companies combined to report about $87 million in revenues in 2014. The reason for the ad blitz is simple. By saturating the market with commercials – particularly during live sporting events – the companies can convince more players to deposit money and compete in daily fantasy tournaments. The companies offer large signup bonuses or free entries into their largest tournaments as a way to attract more players. The NCAA has informed daily fantasy companies that it won’t allow them to advertise during college championship events.

There has been some controversy around daily fantasy sports.
Earlier this year, an employee at DraftKings won $350,000 in a tournament on FanDuel, which led some to argue that the player had an unfair advantage because he had access to statistics that showed which athletes were being drafted most often. (That advantage is significant because it allows players to pick teams that are different than their opponents.) While a law firm hired by DraftKings found that its employee did nothing inappropriate, the companies have since banned their employees from participating in daily fantasy contests for money. The controversy also caught the eye of Massachusetts Attorney General Maura Healey, who told Target 12 she wants to ensure “that there are proper consumer protections in place.”

Rhode Island officials haven’t shown a lot of interest in daily fantasy.
While questions about daily fantasy sports have even made their way into a presidential debate, Rhode Island leaders have taken a different approach. Target 12 contacted all four members of the state’s congressional delegation, and U.S. Sens. Jack Reed and Sheldon Whitehouse and Congressman James Langevin all said they haven’t closely examined the issue. A spokesman for Congressman David Cicilline did not respond to a request for comment. A spokesperson for Langevin said he plans to “follow this discussion.” Amy Kempe, a spokeswoman for Attorney General Peter Kilmartin, referred all questions to the Rhode Island Lottery.

It’s nearly impossible to win big.
If you think you’re going to get rich playing daily fantasy, think again. During the first half of the baseball season in 2015, about 1.3% of players won 91% percent of the payouts, according to Sports Business Daily. Of course, it’s the possibility of winning that brings people back. Daily fantasy companies are required to set prizes in advance – no matter the number of participants in any tournament – so new players are often attracted to the massive guaranteed prizes offered in the days leading up to an NFL weekend or a big slate of baseball or basketball games. But similar to poker, the best players – many of whom have backgrounds in mathematics – prey on inexperienced competitors who have little idea what they’re getting into.

Dan McGowan ( dmcgowan@wpri.com ) covers politics, education and the city of Providence for WPRI.com. Follow him on Facebook and Twitter: @danmcgowan

Send tips to Target 12 Investigator Walt Buteau at wbuteau@wpri.com and follow him on Twitter @wbuteau

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