Fantasy Sports gives sports bettors a new wagering option

Fantasy sports is a growing trend in the U.S. and some bettors are finding it to be a legal and new way to bet on sports.

When Monmouth Park announced it was going to offer fantasy sports betting after it was denied the right to offer sports betting I thought it would be a waste of time. After all what does fantasy sports have to do with real sports betting? My thought process changed, however, when a friend of mine, a moderate sports bettor from Rochester, New York, told me that he has given up gambling on sports offshore and now only wagers with legal fantasy sports leagues. Moreover, he claims to have won more on fantasy sports in the short time he has played than he ever did wagering on games with bookmakers.

"I was tired of all the hassles trying to get payments in and out from my offshore books and explaining to the bank why I had a check from Iceland or Cyprus for a large sum of money so I decided to start using a local bookie instead. That went ok until I couldn't collect on an NCAA football game I won a dime on when I found out that my bookie was arrested the night before. It was at that point I just gave up on offshore and local sports betting for good. The stress of it all wasn't worth the few dollars I was making. The break was nice but I missed wagering on NFL games so a friend told me to go to FanDuel. My first reaction was quite negative, after all why would I want to be in a rotisserie league against 50,000 other people that I need to follow for a whole season? To me that's a waste of my time. But he told me that you can bet head to head and that games are decided on one day. So I felt that I had nothing to lose. I made a deposit with PayPal and after winning a nickel on an NFL Sunday I was sold. I realize I'm wagering on player stats rather than on a spread or total but to be honest this is much more fun and by betting head to head it's just a different form of gambling that requires just as much handicapping and skill. I'll still head to Vegas to bet the Super Bowl like I do every year but my days of offshore and local betting are over."

fantasy sports bettingWhile there are several companies offering fantasy sports, the two largest by far and away are Fan Duel and Draft Kings. Fan Duel was launched in 2009 to immediate success and has received significant investments and new signups since. In fact in 2014 venture capitalists invested $70 million in Fan Duel including major investments from Shamrock Capital, Bullpen Capital and Comcast Investments. What's notable about Bullpen Capital is that they have been accurate predictors of success for these types of ventures including a major investment in the early days of Zynga. Not long before that investment Draft Kings, which was founded in 2012, raised $41 million in capital from The Raine Group, Redpoint Ventures, GGV Capital and Atlas Venture Capital. The infusion in capital has allowed both companies to increase their customer base by offering more types of wagers and higher payouts. It should be noted that Fan Duel also inked an agreement for daily fantasy sports with NBC and the NBA.

While most people are likely familiar with fee-based fantasy sports contests offered on websites like Yahoo or CBS Sportsline, those contests are generally for the whole season and the key is to constantly update the rosters. If you aren't following the action and keeping track of player injuries and line changes diligently it's almost impossible to win. Not surprisingly that takes a lot of time and commitment and more importantly because there are so many entrants the chance of winning anything is very slim.

The difference with daily fantasy sports is that the picks are made for a single day (although some contests run for a week) and the number of participants can be as few as 2 or as many as a few thousand. The prizes are reflected accordingly and the picks are locked in so there's no need to change players throughout the contest.

Fan Duel offers four types of fantasy pools people can enter. The first type of pool offered is the tournament where the prizes are announced and guaranteed regardless of how many people enter. For the divisional championship games, for example, there was a tournament with a $25 buy in and approximately 92,000 potential entries. The top 2 prizes were guaranteed to pay $200,000 and $100,000 respectively and over 17,000 prizes were paid out. There was also a $1 buy in pool for the games with around 69,000 potential entrants and $60,000 in prizes paid out. The second type of pool offered by FanDuel is called a league. Unlike tournaments, a league will only go ahead if a specified number of contestants enter. Leagues have a minimum of 3 entrants and as many as 250. The third type of pool is the 50/50 where there is no set number of contestants but half the contestants will win and half will lose. So if there are 200 entrants then the top 100 will collect while the other half will lose. The last pool type is the head to head pool and as the title suggests it is one person playing against another. The buy in is as low as $1 and as high as $10,000. Not surprisingly for typical sports bettors head to head contests are the most popular. For interest sake, according to individuals I spoke to, the most popular days for playing fantasy sports are the January 1st bowl games as well as March Madness.
One of the biggest downfalls to the fantasy games is the takeout by the fantasy sports sites which varies based on the side of the buy-in for the contest. So at $5000 for a head to head contest at FanDuel one has to invest $5,300 to win $10,000 which works out to a 94% return on investment (comparable to most bookmakers) but at $1 one only receives 80 cents on the dollar. For tournaments and leagues the payout also falls between 80 and 95 percent depending on the buy-in amount. No doubt FanDuel would attribute the higher percentage on low entry cost games on the fact that administrative costs are more prohibitive for them. And for tournaments the higher takeout on tournaments is due to the fact that tournament prizes are guaranteed even if they don't get the maximum number of entries specified. So technically, FanDuel can lose money on a particular tournament if the set number of entrants for that tournament is not met.

All pools at FanDuel work the same way. Each game is scored based on set criteria, i.e. 6 points for a touchdown, 1 point for each rushing yard, -1 point for each interception thrown, etc. and for basketball points are assigned for points, assists, rebounds, etc. For football each player is assigned a value and a team must be chosen for set positions. Contestants must choose 1 QB, 2 running backs, 3 wide receivers, a tight end a kicker and a team defense. There is a salary cap which contenders can't go over, so the skill is in selecting the players that will maximize the points by selecting a combination of good and average players. All games for a sport on a given day are listed and the entrants can choose their players from all participants on that day. FanDuel and DraftKings have rules in place that deal with injuries or players that are sat out. Currently Fan Duel only offers wagering on team sports but there has been some discussion in Congress that would amend the rules to allow wagering on individual sports provided the contest is broken into different events. So for golf, for example, it may be possible to allow wagering on an event provided the contest is broken into 4 different parts with each day of the tournament being scored separately and for NASCAR it may be possible to offer a contest that scores the 1st half of the race separately from the 2nd half.

No doubt many are probably curious how this could be legal but it stems from the 2006 UIGEA regulations which made all forms of online gambling illegal with the exception of lotteries, horse racing and fantasy sports. And as for league concerns, it has been widely suggested that the sports leagues actually petitioned Congress to include an exemption for fantasy sports in the UIGEA because they felt it would encourage people to follow individual player performances to generate interest in games while avoiding the urge to wager on individual teams.

The UIGEA rules are listed in S5362 (1) (E) (ix) and provides the following exclusion for fantasy sports:

A Bet or wager does not include...

(ix)  participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:

(I)   All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II)   All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(III)  No winning outcome is based

(aa) on the score, pointspread, or any performance or performances of any single real world team or any combination of such teams; or
(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.

It should be noted that Canadians can play as of September 2014, after the fantasy sites got a legal opinion that the Canadian criminal code does not specifically address fantasy sports and hence is legal as a game of pure skill. While one can argue that fantasy sports is not completely skill based and therefore is illegal under section 202(1) of the Canadian criminal code, which disallows fee based contests that involve a combination of skill and chance, no Canadian law enforcement agency has challenged the legality of fantasy sports and it doesn't appear any agencies have a desire to challenge the legality of the contests. Residents of Quebec were prohibited from signing up at some fantasy sports sites in the past but it appears all sites now allow Quebec-based accounts also. FanDuel has cut off players from Washington State which has stated that this type of fee based contest is illegal per their state laws and they also don't allow real money play for residents of Arizona, Iowa, Louisiana and Montana since the legality of fantasy sports betting there is unknown. More than likely FanDuel would win any court challenge if they decided to offer real play for residents of those states but they seem to be airing on the side of caution and only operating in states where it's clearly legal. Players from those states listed can participate in free games.

Because the rules under the UIGEA do not permit real money fantasy sports on single games, Mark Williams, a contact at FanDuel informed me that they will not be offering anything for the Super Bowl. I asked him if it was possible to create a contest that combines say the Super Bowl and an NBA game or perhaps the Super Bowl and Pro Bowl but I received no response. Chances are most entrants wouldn't be interested in a dual sport contest anyway.

So just how popular is fantasy sports? According to the Fantasy Sports Trade Association over 41 million people have played fantasy sports in the United States and Canada in 2014 and that number is expected rise significantly in 2015. Make no mistake about it - fantasy sports is a growing trend in the U.S., is clearly legal in at least 45 states and is supported by the leagues. Perhaps Monmouth Park management isn't so crazy after all.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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