DraftKings: Skill or Luck?

Daily Fantasy Sports have become a common phrase among anyone who watches football or participates in fantasy sports leagues. The premise behind the idea is pretty simple.  Basically, a user pays an entry fee to participate in one of the many contests available. Once the contest is chosen, they are given a set budget that they have to use in order to pick players that they believe will perform well. The better they perform, the more points they will acquire, and if you are one of the top performers in the contest then you would be eligible to receive a cash prize. As someone who has participated, I can tell you first hand that playing in these leagues is addicting as hell.

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Two main players have emerged in this space: DraftKings and Fanduel. Both companies saw a metoric rise to the top, and their popularity was at its highest probably in 2015. Before the 2015 season began, both FanDuel and DraftKings raised $1.3 billion and $1.2 billion, respectively. Both companies spent an absurd amount on advertising – $750 million combined. At its peak last summer, a daily fantasy get-rich-now commercial aired every 90 seconds on television. The demand was definitely there as well, and one can see that by their evaluations. In just a little over 3 years after it was created, DraftKings had become a $2 billion company. Combined, the leaders in the industry brought in a whopping $3 billion in revenue. However, despite all of this, Daily Fantasy Sports have gotten a pretty bad rap among people who know how the game actually works, due to the overlying system being inherently unfair.

While using DraftKings and FanDuel can definitely be fun, the odds of an everyday player consistently winning money is overwhelmingly low. While any player on any given day might get lucky on the back of a handful of entries, over time practically all of the winnings flow to a tiny elite equipped with elaborate statistical modeling and automated tools that can manage hundreds of entries at once and identify the weakest opponents. The contests are dominated by individuals named “sharks.”

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Saahil Sud is one of those sharks who routinely dominates the field. Sud claims to risk an average of $140,000 per day with a return of about 8 percent. Sud, a former math and economics major at Amherst College, took a job in data science at a digital marketing firm before shifting to full-time fantasy. Saahil has now become one of the top-ranked daily fantasy sports players, according to Rotogrinders, a stats site for daily fantasy players. In 2015 alone, he made over $2 million playing fantasy football. Its essentially a full time job for him. Sud personally spends between eight and 15 hours working from his two-bedroom apartment in downtown Boston. He plays in contests involving baseball and football. For baseball, he puts about 200 entries into tournaments each night, and he can play more than 1,000 times in the weekly contests during NFL season. No normal person has the kind of resources to put together thousands of lineups per contest, and it leads to them having a low chance of winning cash. In DFS Baseball in 2015 for example, The top 1 percent of players, according to McKinsey & Co, paid 40 percent of the entry fees but reaped 91 percent of the profits. Meanwhile, the “minnows” in the bottom 80 percent paid an average of $49 in entry fees and lost half that cash.

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This is probably the biggest fear for everyday fans of DFS. Yes, they can definitely be a great form of entertainment/betting (DFS is a form of betting, don’t let anyone else tell you otherwise). However, the entire ecosystem of DraftKings, FanDuel, and other DFS sites rely on individuals who bet large amounts of money and enter hundreds of contests. If the sharks aren’t making money, they will leave the game, which doesn’t bode well for business. DraftKings and FanDuel are now testing different ways to make less successful players (the overwhelming majority) feel comfortable and enhance the impression that they might actually have a shot. For the huge contests whose prizes regularly top $1 million, both websites now limit the number of entries from a single player. FanDuel put a cap of about 1,000 entries on big football tournaments this year. For DraftKings’s “Millionaire Maker” tournament, players are limited to 500 entries at the $10 level.

If one didn’t realize how sharks on DK and FD role, one would assume that those limits are barely restrictive. However, all of the elite DFS players enter hundreds of lineups. Analysis from Rotogrinders, conducted for Bloomberg shows that the top 100 ranked players enter 330 winning lineups per day, and the top 10 players combine to win an average of 873 times daily. The remaining  players won just 13 times per day, on average. On the outside, someone who doesn’t know how DFS works would assume that, for the most part, everyone has similar odds of winning. One might be able to increase their chances by having general knowledge about what is happening in sports, similarly to how a player in blackjack can increase their chance of winning if they know when hit. However, if you look deeper, its clear to see that the everyday user is at a serious disadvantage when it comes to DFS, and they should definitely tread lightly and do some research before diving straight in.

6 comments

  1. Ike, very good article. As an outsider never playing on any of these sites, I have always been skeptical. They have ads of ‘real’ people winning large sums but something for me doesn’t add up. It was interesting to learn more about these sharks. They put themselves at statistical advantages to win large amounts of money. Definitely reading this makes me more hesitant to stay away from these sites.

    Interesting aside, I know that Fanduel and Draft Kings are looking into potentially M&A activities. I don’t know if this will be allowed to pass, but I thought I should mention.

  2. michaelahoff · ·

    I knew some stuff about DFS before but these stats are quite informative, Ike. That’s big money involved in a game that seems pretty rigged for the best and the brightest and against the little guy. I hope you heed your own advice and either become one of those best and the brightest or just stop playing.

  3. Great article. I thought your statistic about how frequent these commercials aired on television. I have personally felt the wrath of these platforms and have have great winnings only to end up losing. What perplexes me is what exactly goes into these algorithms that the sharks are using to make such accurate picks. Can the common man make one of these or are we saying there is something proprietary about them? Like Drew, I have removed my cash from these sites and have gone to the good days of just watching. Great post thanks so much for sharing.

  4. Nice detailed analysis. This is exactly why I don’t play these sites, and I can’t imagine the business models are sustainable with these guys basically siphoning off all the winnings.

  5. I briefly talked about Daily Fantasy Sports in one of my blogs earlier this year. https://isys6621.com/2016/10/03/ways-advances-in-social-media-and-technology-have-affected-the-profitability-of-pro-sports-their-coverage-and-related-goods/
    On top of the fact that the sharks claim a substantial portion of the money, both Draftkings and FanDuel have been accused of insider trading thus making the odds even less in favor of the common man. The policy was always that employees were never allowed to bet within the company because the information that is available to them could give them an enormous advantage over the competition. However, it never stated anything about gambling on other DFS sites which is exactly what employees from these companies were doing. The data for both companies are extremely similar. They were able to see which players were drafted by X amount of people. Using that data, all an employee has to do is pick the best players drafted by the least amount of people and their odds of winning substantially go up. This policy has changed since the insider trading accusations and now prohibits employees from playing any Daily Fantasy Sports but regardless it shows one more reason not to bet on these sites because all someone would have to do is get a 3rd party to place the bet for them. Great post overall.

  6. Nice post! I think that we may have seen the peak of these daily fantasy sites. They can’t resolve a lot of issues you listed without alienating the majority of their revenue stream. Also, legal issues are not going away either. Not a great place to be in.

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