Business

Skill or chance? States eye fantasy games

It wasn’t only New England Patriots fans grimacing as star tight end Rob Gronkowski writhed in pain near the end of a loss Sunday night to the Denver Broncos.

“Gronk” had carried millions of teams among those created by an estimated 58 million fantasy sports players in the U.S. and Canada to strong seasons and office bragging rights. Those may have buckled with Gronkowski’s right knee.

Gronkowski’s injury may have cost hundreds or thousands of dollars to players of daily fantasy sports, a wagering variation of traditional fantasy-sports games. Daily players at such sites as FanDuel and DraftKings staked as much as $5,300 in each game they played this week in hopes of winning millions. Some players may have hoped Gronkowski could score a late-game touchdown that would bump their scores into the ranks of the top finishers, earning the big checks shown on FanDuel and DraftKing commercials that run endlessly on sports TV channels.

The ads promise easy game play and a chance at big returns. As their popularity kept growing this fall, a scandal erupted: Investigators found DraftKings employees used insider information to win hundreds of thousands of dollars on FanDuel. Regulators and lawmakers around the country started asking the obvious question: Aren’t wager-and-payout games like those offered by DraftKings and FanDuel gambling?

Within two weeks, gambling regulators in Nevada banned daily fantasy sports from the state. In November, New York Attorney General Eric Schneiderman sent cease-and-desist orders to the companies, saying the games are illegal there. Legislatures in 15 states have or are expected to soon debate bills that would either regulate daily fantasy games or exempt them from state gambling laws, according to GamblingCompliance, an industry research company. Idaho has not tackled the issue, though one lawmaker expects it to.

FANTASY BOOM

Fantasy games have changed the way fans follow sports, said Tim Campbell, general manager of Taphouse, a bar and restaurant at 760 W. Main St. in Downtown Boise. Patrons there split their attention between the row of TVs, each showing a different game, and their smartphones, where fantasy apps display scoreboards that change with each reception, run or touchdown almost as soon as it happens.

Campbell, 33, plays season-long fantasy football, where players assign real players to imaginary teams and earn points based on the players’ performances in real games. He said Taphouse patrons are subtler than those at bars he has visited in California, where fans post up with laptops so they can easily monitor several teams.

Fantasy has changed sports bar culture, he said.

“The majority of people come to watch football, and even the older people seem to be in at least one fantasy league,” Campbell said.

Brett Grieser, 34, of Meridian, started playing season-long fantasy football around 2009 and usually plays in two or three leagues each football season. Grieser, who works as a loan document specialist at Wells Fargo, said he was swayed by ads for FanDuel and DraftKings to try daily fantasy last season.

“I really love playing fantasy football,” he said. “Any additional fantasy football is a plus.”

He said he started an account on FanDuel because the site offered to match his deposit up to $200, a promotion still available today.

Grieser won back his initial wager of $20 during his first week. The next week, he entered several tournaments and won $150. His winnings petered out after a few more weeks of playing, so he quit.

This year, Grieser said, he wagered $50. After a few small wins, the deposit again dwindled and he gave up. He said the insider trading scandal dampered his enthusiasm.

“I quit FanDuel because I felt like I was throwing money away,” he said. “When the story came out about DraftKings employees using information to get an advantage on FanDuel, it soured me on the whole thing.”

FanDuel and DraftKings blanketed TV airwaves with ads in 2015, outspending the beer industry from Aug. 16 through the opening week of the NFL season, CNN reported.

DraftKings spent $131.4 million to broadcast TV ads more than 40,000 times through Oct. 5, up from about 8,700 airings through the same period last year, according to CNN. FanDuel spend $74.5 million for about 21,500 ad airings, in that period, up from about 14,000 the year before.

Grieser said competing industries, such as casinos and Las Vegas sports books (the parts of casinos that accept bets on sports events), were bound to respond by complaining to regulators.

“Both FanDuel and DraftKings were so in our faces with commercials at every break,” Grieser said. “I feel like they brought it on themselves.”

REGULATORS TAKE NOTICE

The daily sports industry argues that its games are games of skill, not chance. The industry leans on a 2006 law that cracked down on Internet gambling but specifically exempted fantasy sports.

Industry critics say the law intended to exempt season-long fantasy sports that prohibit unlimited wagering, which FanDuel and DraftKings allow. Players may have paid $50 dues to join a season-long league in 2006. FanDuel came along in 2009 and DraftKings in 2010.

Laws in six states already categorize daily fantasy sports as illegal gambling: Washington, Montana, Iowa, Arizona, Louisiana and Nevada.

Legislatures or attorneys general in 14 states are considering whether daily fantasy sports should be deemed legal, according to GamblingCompliance. Most proposals, including one in Washington state, would regulate DraftKings, FanDuel and similar sites, said James Kilsby, managing director of GamblingCompliance in North America.

“There’s every indication that the issue will no longer be whether daily fantasy sports will be regulated. It’s how,” Kilsby said. “It’s now a matter of how strict regulations will be.”

Until recently, the daily fantasy sports industry insisted that it is not subject to regulation. That has changed in recent months, Kilsby said.

“It’s better to be at the table than on the menu,” Kilsby said. “That’s how industry is approaching this issue.”

Most states considering regulation want basic concessions — such as the industry taking steps to ensure children cannot play or that player deposits are guarded from business failure — that the industry will accept, Kilsby said.

A proposal in Illinois would take a light approach, setting 18 as the minimum age and prohibiting insider play by daily-fantasy employees. The bill would designate the state’s attorney general as a regulator, but the industry would largely self-regulate.

A tougher California proposal would require sites to pay licensing fees and taxes, and it would set 21 as the minimum age. The California Department of Justice would take a more active role as regulator.

The industry is focusing its lobbying efforts in high-population states for now, Kilsby said. Idaho has not considered any proposals on the topic. Any bill would likely pass through the Idaho Senate State Affairs Committee, chaired by Nampa Republican Curt McKenzie.

McKenzie said he has heard no chatter about a daily fantasy sports bill, but he expects lawmakers to become conversant as other states vote on proposals.

“There’s enough money at stake and enough people who play these leagues that I’m not surprised that states are looking at it,” McKenzie said. “I wouldn’t be surprised if it was something that came before the Idaho Legislature in the next couple of years.”

ADDICTS BEWARE

Daily fantasy sports could lead to debt, divorce, depression and all of the other problems caused by gambling addiction, Boise psychologist Charles Rice said.

Like poker, slot machines or any other form of gambling, daily fantasy sports reinforce the behavior with wins and provides ample opportunity to wager compulsively after losses.

“It’s an expectation in your imagination for a score, and intermittently it’s reinforced to keep you going,” Rice said. “All of these things empower the chemicals in your limbic system, the pleasure center for the brain.”

While Grieser stopped after losing his deposit on FanDuel, he said players with more addictive personalities might double down.

“Several times when I lost money I had that urge to deposit more, that maybe I could at least win back what I’d lost,” he said. “I could easily dump a bunch of money in it, because when I won that $150, it seemed easy, like I was pretty good at it.”

Daily fantasy could be particularly tempting for people with addictive personalities who are not comfortable with seedier people or places where people may place bets or buy drugs, Rice said. Plus, the Internet is anonymous and fast, which Rice said has already led to an increase in sex addiction.

“That’s the thing about the Internet: It’s so easy,” Rice said. “You don’t have to hang out with other gamblers. You don’t have to deal with sociopaths to buy cocaine. It’s safe, so you can be a closet gambler.”

STACKED DECK

FanDuel and DraftKings commercials often depict average-looking guys who struck it rich, but analysis shows players like Grieser don’t win big checks.

Bloomberg reported that only 1.3 percent of players on daily fantasy sites won money during a three-month period, and that another survey found 70 percent of more than 1,400 fantasy sports players lost money during a three-month period.

So, who wins those millions? Bloomberg found that most were players like Saahil Sud, who worked in the data science field before switching to playing daily fantasy sports between eight and 15 hours each day, plugging numbers into advanced predictive models. Sud told Bloomberg he risked an average of $140,000 per day while entering hundreds of baseball and football contests. He earned an 8 percent average return.

Grieser said he consumes news and analysis about the NFL and fantasy football voraciously, but he resists the urge to think he is a step ahead of other fantasy players.

“If I continued to play, maybe I’d win some smaller payouts,” he said. “But I know the top spots will be taken by professionals who are doing this for a living.”

ZACH KYLE

Zach has played season-long fantasy football for years but hadn’t tried a daily fantasy game until losing $10 while reporting on this story. In one season-long league he plays in, he faces 11 opponents scattered across the U.S. and Europe who exchange hundreds of trash-talk emails each week. He has met two of them. He has never met Ryan Molenkamp, a Seattle professional painter who draws slightly warped portraits based on Facebook photos of the player with the highest score each week (like one he drew of Zach, left). Zach’s wife hates the half-dozen portraits he has accumulated over three years of earning high scores.

THE GROWTH OF FANTASY

Fantasy sports are nothing new. An estimated 500,000 residents of the U.S. and Canada played in 1988, according to the Fantasy Sports Trade Association. Those numbers swelled to nearly 58 million this year. Of those, 70 percent played fantasy football, echoing the rising popularity of the NFL.

But traditional leagues were relatively low-stakes. In season-long, head-to-head fantasy leagues, people draft players who remain on their roster unless they waive or trade them. Their stats — for example, yards and touchdowns in football — contribute to the team's ongoing performance week to week. Players use fantasy services available on a plethora of websites, including popular sites such as Yahoo! and ESPN, that track scores and allow players to trade players or add and drop them from rosters.

Some season-long leagues have buy-ins distributed to the eventual winner or top finishers at the end of the season. Many leagues are free.

Regulators never targeted fantasy sports until DraftKings and FanDuel.com started offering a new kind of game: daily fantasy sports. In daily fantasy, players wager between $1 and thousands of dollars to enter weeklong contests, sometimes competing against thousands of other online players. The potential for high stakes and the game structure allow players to bet repeatedly during a season or week.

  Comments