A maldição da habilidade for Fantasy Game players
Daily Fantasy Sports (DFS) is hot red. In 2014, 1.5 million Americans paid over $1 billion in tournament entry fees, and FanDuel increased the number of active customers by 300%. Yahoo announced on July 8 that it would join the fray. Kohlberg Kravis Roberts & Company, Comcast/NBCUniversal and others have invested in FanDuel, which is now worth more than $1 billion. DraftKings’ exclusive advertising deal with Disney would guarantee $250 million in advertising on ESPN. With sponsorships in every major US league, DFS advertising would soon surpass the levels of online poker sites PokerStars and Full Tilt during the pre-2011 poker boom.
But investors are overlooking a fundamental operational challenge: the risk that the skill element of everyday fantasy will be so high that DFS pros will wipe out recreational players in no time. For a real-money contest to achieve lasting popularity, there needs to be a fine balance between skill and luck. Chess is popular, but hardly anyone plays it for money, because it’s far too skill-based; the best player wins almost every time. Poker thrives because an amateur can beat the best players in the world. Indeed, on June 13, 2015, at the World Series of Poker, a 51-year-old football coach from Jupiter, Florida beat seven pros at the final table of a $5,000 tournament to win $567,000. Another tournament in May set a record for the biggest live poker tournament ever, with 22,374 participants, pros and weekend warriors.
DFS offers a huge advantage to skilled players. During the first half of the 2015 Major League Baseball (MLB) season, 91% of DFS player profits were won by just 1.3% of players (illustration).
Here is the breakdown:
- The top 11 players paid, on average, $2 million in entry fees and profited $135,000 each. They accounted for 17% of all registration fees. The top-earning player in our sample took home $400,000 out of $3 million in entry fees.
- The rest of the top 1.3% players paid an average of $9,100 in entry fees and profited $2,400 each, for an extremely impressive 27% return on investment. These competitors accounted for 23% of all listing fees and 77% of all profits.
- Five percent of players are the big fish; they lost $1,100 on an average listing fee of $3,600.
- Eighty percent of the players were minnows; they lost $25 on an average listing fee of $49.
Therefore, the economy of SFN is highly dependent on the retention of large fish. They had a staggering 31% loss rate of what they paid in entry fees and accounted for 75% of all losses. Each minnow loses less than $10 a month and can continue to play happily, but each big fish loses over $4,000 a year. The entire DFS economy depends on these few players.
How DFS Works Today
Three factors influenced the development of DFS. The first concerns strategy. Although the goal of DFS seems obvious – to pick the players who will hit home runs or score touchdowns on a given game day – in big tournaments with headline-grabbing prize money, the payouts are strongly biased towards the top 1% of participants. Therefore, the goal is to create a range that will produce extreme results (good and bad) more often than the average range.
For example, a casual player might choose Los Angeles Angels center fielder Mike Trout, Boston Red Sox left fielder Hanley Ramirez, and Arizona Diamondbacks first baseman Paul Goldschmidt in an MLB contest because that they are star punchers. A savvy player might instead pick Curtis Granderson, Wilmer Flores, and Lucas Duda, who all play for the New York Mets, because picking players from the same team creates a covariance, the Mets are at Wrigley Field in Chicago, the Chicago Cubs have a right-handed fly-ball pitcher on the mound, the wind will be gusting to right field and the Mets are a road favorite.
The second factor concerns inefficient pricing. Sports betting has thrived despite a large skill gap between the average sports fan and the savvy bettor. The reason for this is that the lines are set by a large liquid market. You can go to a betting window in Las Vegas, pick a random team and still win almost 50% of the time. By betting randomly you will lose money over time, but your average loss will only be slightly more than the 4.5% force.
When you create a DFS roster, you get a fixed salary cap and buy players at prices set by the site. Trout might cost you $5,500 out of your $50,000 cap, while Granderson might only cost $3,500. But these prices do not perfectly reflect the values of the players. For example, at some sites, they do not take into account the opposing starting pitcher or lineup changes on game day. Finding undervalued players among 800 active MLB options can be overwhelming for the novice, but the Sharks use sophisticated models to optimize their lineups.
Finally, DFS offers no protection for novices. In poker, there is a large skill gap between top players and typical recreational players. But luckily for recreational players, the best players won’t be at their tables. Sharks are focusing their energies on tables with buy-ins of $5,000 and above. You can sit at a table with a $50 buy-in and be safely isolated from the best of the best, because it’s not worth them trying to take your money.
In DFS, the best players can participate in each contest. A player, who goes through the maxdalury handle on DraftKings, participates in nearly every MLB contest on the site every day, from $10,600 contests to $1 tournaments. Indeed, sharp players often participate in each small buy-in tournament tens or even hundreds of times. The novice player is like Neo in The Matrix Reloadedsimultaneously fighting hundreds of Smith agents.
There are ways to mitigate these issues and give the game a better chance of thriving in the long run. Salary cap pricing could be made more accurate using algorithms that exist today. Third-party fantasy sports analysis sites such as Rotoviz.com and Razzball.com publish game-by-game player projections that rate players more accurately than the salaries used by DFS site operators.
Sites could offer offered salaries in an overnight market where, in a game within a game, sports fans could “buy” or “sell” players at their market salaries using play money. These trades would succeed or fail depending on how well the players performed in the next day’s matches. The reward for successful traders could be, in addition to bragging rights, the ability to convert play money into free tournament entries or site merchandise. The reward for sites would be salaries assessed more effectively by the wisdom of the crowd.
Limits (eg, no more than two players from the same MLB team) could be placed on roster construction to make optimal strategies more intuitive. Sharp players might be restricted from playing with more casual players. For example, FanDuel has limited the number of entries per day to prevent players from participating in every contest. More drastic changes to the game, including abandoning the salary cap model altogether or offering bracket-style tournaments (like the U.S. National Collegiate Athletic Association basketball tournament) are also possible.
FanDuel’s Managing Director, Nigel Eccles, points out that “sports fans are passionate; they compete in fantasy leagues because DFS makes the sport more exciting. The rapid growth of DFS confirms his point of view. But at some point, will the bottom 5% of DFS players stop saying (like a 1950s Brooklyn Dodgers fan) “Wait until next year”?