A decade ago, I worked in a big building in downtown Washington. Every Thursday during NFL season, a smiling guy would come around to distribute sheets for the office football pool. You’d make your picks, hand the guy $5 and not win. Neither would anyone else you knew.
The next Thursday the guy would be back with another sheet. At the bottom was an entry for who, supposedly, won the previous week — but names at the bottom were always smudged and illegible. After a while it dawned on me that I never met anyone in the building who received the pool money. No wonder the guy was always happy!
I thought of the smiling guy Monday, when FanDuel and DraftKings defended their integrity after accusations of what amounts to insider trading. I always wondered if that office pool could be trusted. Perhaps now we should wonder the same about DraftKings and FanDuel.
These sports wagering websites — officially, fantasy leagues that award prizes — take over TV, and NFL.com, during football broadcasts. NFL Network’s highlights channel is now “NFL RedZone Presented by DraftKings.” ESPN’s “Monday Night Football” now has a “FanDuel Chalk Talk” segment.
This season, fans can sip cocktails and place wagers at FanDuel or DraftKings lounges in pro football stadiums. As of Sunday, Aaron Rodgers, Andrew Luck and Peyton Manning were, in a sense, endorsing Internet gambling: DraftKings just signed a deal with the NFL Players Association, giving the union a fee in return for use of pro football players’ images in the company’s ads. Washington-area Metro buses now bear DraftKings side banners.
As enterprises, DraftKings and FanDuel are entirely legal; they accept wagers only on game statistics, not on who covers the spread. The distinction is explained here.
Both ventures have extensive Fortune 500 support: back to that in a moment. First, the glitz. FanDuel: “$75 million paid out every week!” DraftKings: “$1 billion in prizes in 2015!” FanDuel vows to distribute $2 billion in winnings during the NFL season; DraftKings vows a weekly $1 million grand prize.
“The giant check is no myth,” a DraftKings advertisement assures, showing a triumphant guy celebrating. That ad ends, BECOME A MILLIONAIRE!
In a FanDuel television ad, a man — viewers have no idea whether he’s an actor — says to the camera, “Every single week I can win money on Fan Duel!” Can is quite a fudge word: Statements of this nature would not pass scrutiny in breakfast-cereal advertising. Then another man says he put down a mere $35 and won $2,136,431. The second man is “Scott H.” Real player? Actor?
I asked both companies for the names of big winners. Sabrina Macias, head of corporate communications for DraftKings, suggested David Gomes, a 2014 big winner; it’s him celebrating in the DraftKings ad. When I asked for more names, Macias said, “We have had 20 winners of $1 million prizes.” She promised to get back to me with a list of those names, and never did.
Emily Bass, public relations manager for FanDuel, suggested Scott Hanson, “Scott H.,” a 2014 big winner. When I asked for more names, Bass said her company has “a huge number” of big winners. She promised to get back to me with a list of names, and never did.
Naturally, many who win lawfully at gambling would prefer their identities not be disseminated. State lotteries and some casinos prove that prizes were distributed by issuing audited financial statements. As long as the auditors do a good job, players know that purses were paid and shills weren’t hired to leap up and scream, “I won!”
As privately held startups in a business area that is unregulated, DraftKings and FanDuel are under no obligation to substantiate their numbers.
“We do not disclose financials; that is company policy,” Mohammed Dieye, a DraftKings official, told me.
FanDuel says it paid $560 million in prizes in 2014 — click “press kit.” But the statement is a promotional claim, not an auditor’s attestation.
Thus neither company offers anything, beyond its say-so, backing up the advertising.
What about the experiences of David Gomes and Scott Hanson?
Gomes, 25, grew up in Boston, is studying to be a physician assistant, and reports that he wisely saved the after-tax portion of his $1 million prize. His big payday came last season, from selecting New England’s Jonas Gray for a fantasy team days before the undrafted free agent ran for a surprising 201 yards and four touchdowns against Indianapolis.
“Sure there was luck involved, but this wasn’t just a wild guess,” Gomes said. “Gray caught my eye in training camp, and the Colts were weak against the rush in 2014. So it was a calculated risk. With state lotteries, a machine issues a number — how do you know if other numbers really won? With online fantasy sports, yes it’s gambling, but you watch the games and know for sure whether your choices were good or not. This is more honest to the public than lotteries based on random numbers.”
Hanson lives in Pasadena, California, was an elementary schoolteacher for a while, worked as a sports analyst for the analytics website ProFootballFocus, and this year is playing daily fantasy sports full-time. Hanson’s insight late in the 2014 season was to select little-known Cincinnati tailback Jeremy Hill when the Bengals were facing the Cleveland Browns and the erratic rookie quarterback Johnny Manziel.
Hanson said, “I figured Manziel would turn the ball over, giving Hill some carries in the Cleveland red zone, where he’d score.”
Both things happened. Hanson also tabbed the Carolina backup quarterback Derek Anderson, whom few other players wanted. Anderson threw a touchdown pass but no interceptions, which was great value in fantasy-sports terms.
“FanDuel and DraftKings are more like stock investing than you’d probably expect, including the need to diversify,” Hanson said. “Don’t wager a lot unless you really know what you are doing. If you’re just in it for some fun, don’t spend more than $20.”
Gomes and Hanson converted their smarts into winnings — though both say they are down so far this season.
FanDuel and DraftKings are run by plucky entrepreneurs, the type of people society rightly admires. On the flip side, both enterprises are using national television, and the imprimatur of the highly subsidized NFL, to make incredible promises while leaving the public no way of knowing whether the claims are true — and while tempting the unsophisticated to throw their money out the window.
In fiscal 2014, Americans’ largest gambling outflow was on state-sponsored lotteries: about $63 billion spent that year, about $255 per adult. If fantasy-based sport betting reaches even a fraction of that sum, it’s a substantial economic development.
New York Times columnist David Brooks contends that most gambling targets those who can’t afford to lose. Neil Irwin of The Upshot, in contrast, thinks that legalizing wagering on point spreads would improve the situation for small-money players.
Whoever is right about the ethics of gambling, this much is certain: The house always wins. Be it online lotto (now offered by the nation’s capital), daily fantasy sports, blackjack, the ponies or James Bond versus a well-dressed supervillain at baccarat, as a group, players always come out behind. The business model of FanDuel and DraftKings — and others entering the market — makes sense only if most players lose money.
DraftKings and FanDuel seduce men and women into a dream of instant wealth. A handful do achieve instant wealth; for most, this dream only worsens inequality. And should the NFL, which draws about $1 billion annually in taxpayers’ money, be encouraging average people to gamble even more — that is, to lose even more?
Now about the corporate backing. Comcast, Fox, Google, Time Warner, the NBA, Major League Baseball and NFL owners Jerry Jones and Robert Kraft have invested in FanDuel and DraftKings. Yahoo has launched its own entry to the field.
Corporate America missed the market opening for the $63 billion lotto business, most of which is run by the Multi-State Lottery Association, a quasi-governmental agency. Today the Fortune 500 appears to see daily fantasy games as a chance to get in on the ground floor of the next big thing in gambling — to create a gambling-industrial complex. Professional sports leagues like the NBA and MLB, and individual NFL teams including the Dallas Cowboys seem to see a chance to seize the vigorish now collected by bookies and Las Vegas.
“Just pick your game, pick your team and pick up your winnings,” a DraftKings ad declares.
But set the phoniness aside: DraftKings and FanDuel wouldn’t make business sense to Comcast, Fox, Google, Time Warner and pro sports owners unless the websites allow participants quickly and conveniently to use their smartphones to lose money.