8/24/2014 2:33 PM
Daily game explosion spawns big-dollar industry
By TIM DAHLBERG
LAS VEGAS (AP) — When lawmakers carved out an exemption for fantasy sports in a 2006 law targeting online poker, no one predicted that it would spawn an online gambling operation that may someday rival the millions wagered daily in Las Vegas sports books.
But huge money changes hands every day in daily fantasy sports games and, unlike a bet on your favorite team to win a game, it's legal in all but five states. The exploding popularity of the games has attracted investments from traditional media heavyweights Sports Illustrated and USA Today, both of which recently started their own pay-to-play sites.
The key has been the development of weekly and daily fantasy games with paid entry fees and cash payouts. Traditional fantasy sports competitions — those that the 2006 exemption was trying to protect — involve season-long competitions. The online competitions that have been around for more than a decade sometimes offered cash prizes to a handful of victors in a large field, almost like a sweepstakes.
Those kinds of competitions aren't attractive for gamblers trying to make fast money. But, for some gamblers, the daily and weekly games are even more attractive than betting on who will win the game.
The gamblers can play from anywhere — unlike sports gambling, which is legal only in Nevada and Delaware. The legal age to play online fantasy games is 18, unlike 21 for gambling. And, most important, the winners in fantasy games don't have to beat the casino. They simply have to beat most other players.
If online experts have a system or statistical analysis that most players don't, that's enough of an advantage to lead to consistent wins.
But while daily fantasy play on sports is the hot new thing, some companies think the exemption in the 2006 law may lead to even wilder legal bets.
Like Hillary Clinton's chances of becoming president in 2016? There's a chance you may be able to legally put money on that by the time the election comes around.
Think you know the favorites for the Academy Awards next year? Get out your credit card, because there soon may be a way to cash in on that knowledge.
"It's not so far out of the realm of possibility that you can have some fun contest with unusual events," said John Ford, CEO of BetAmerica. "I think we've only begun to explore what is possible under the exemption."
Indeed, the rush to cash in on online daily wagering is on, with companies already offering things as diverse as a million dollar prize to anyone who can pick nine players who hit a home run in one night or a $100 payday for winning a $1 buy-in game. Dozens of companies, many of them startups on a shoestring, have jumped in, ready to do business once the lucrative NFL season begins.
"The bar to entry is low," said Thomas Dwyer, a co-founder of the daily site, Ballr. "These are mostly marketing ventures, which mostly means staying in contact with users and giving them the experience and games they want."
The one thing all the new sites have in common is that they go to great lengths to try and distance themselves from sports betting. Money put in is called an entry fee, not a bet, though just like in sports betting there are winners and losers.
It's all allowed under the 2006 anti-gambling act, which spelled the demise of the online poker industry in the U.S. Those involved in the legislation say the big professional leagues lobbied for an exemption for fantasy sports, though daily games did not really come into existence until 2009 and did not begin to attract much traction until after the NFL lockout in 2011.
Now almost every site offers games in all four major sports leagues (MLB, NHL, NFL, NBA) while some have ventured into soccer and tournament golf.
With a rake of about 10 percent on every bet and low expenses, it's easy to see why daily fantasy play is drawing interest from investors like Comcast Ventures, which last year put $11 million into FanDuel, the leading daily fantasy site.
On USA Today Sports Media Group site FantasyScore.com, there was an opening this month for a game played against only one other contestant with a $5,200 entry fee and a $10,000 cash prize. The FanNation site that Sports Illustrated runs was, on a recent day, offering a contest where players could wager up to $500 on three players they thought might be in for a hot night on the baseball diamond.
"If you are a betting individual, you can choose to lay a little money on the line and come away from your Throwdown with a tidy profit," the website promises.
Unlike Nevada, where sports betting is tightly controlled, there's no regulation of the games and no requirements that companies keep enough money to pay winners. There are no rules other than those that each site plays by, though industry leader FanDuel has made it a point to try and be transparent with statistics on how many players it has and how much money is in play every day.
"We want to show we are open and transparent and we're there to ensure players have a good experience and that we're kind of a mature company," said FanDuel co-founder and CEO Nigel Eccles.
FanDuel is on track to make $400 million in payouts this year. Running second is the DraftKings site, which this summer acquired the business of DraftStreet in a merger.
Figures compiled by the Fantasy Sports Trade Association estimate 41 million people in the United States and Canada play some kind of fantasy sports. Daily fantasy play is still a small fraction of that, but growing fast, with FanDuel expecting up to 500,000 players for the upcoming NFL season.
"It's a fairly straightforward economic model," Dwyer said. "We all agree it's not gambling, it's not poker, but the business model is similar. Can you acquire a user for X amount and have him stay and play with you to generate revenues of 3 to 4 times X amount?"
Dwyer was working in finance when some friends suggested maybe they could start their own site. He and four others put in $100,000 each, recruited a programmer from ESPN to build the site and built a business plan he hopes will pay off with 20,000 customers for the upcoming NFL season.
"We think as the industry matures and people understand the options there's a long runway for people to move," Dwyer said. "Once they get a taste of instant results, cash in your bank account before you go to bed, they like it."
Ford thinks the same thing will happen at BetAmerica, which was started as an online site to bet horse racing before branching into the daily games. He believes the industry is in its infancy and that the future of online games will not be confined to sports.
"We did a test run of an election game in the last election where everyone got a free entry and we gave away 20,000 in prizes to pick the president, a couple of senators, congressmen and governors," he said. "I'm not convinced that game couldn't be done for real money in the fantasy model. It's a real life event using your money and skill in prognosticating who is going to prevail."
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