Does DFS Deserve The Next Big Thing In Gaming Label?
Unlike during the Poker Boom, when online gaming options were limited to traditional casino and sports betting, in 2015 there are a number of “gaming” style entertainment options to choose from on the Internet.
There is the remains of the once prosperous online poker and casino industry, and in some locales the emergence of licensed and regulated online gambling.
There are social gaming options and play money options.
There are still offshore sports betting and legal online horse betting options out there.
There are also fantasy sports leagues, and of course Daily Fantasy Sports (DFS), which happens to be the topic of this column, and what is being billed by many to be the greatest thing to happen since seedless watermelon.
But is this new fascination with DFS deserved?
Is DFS really the next big thing in online gaming?
It could be, but there are still a lot of question marks surrounding the nascent industry.
Capitalizing on a loophole
One concern I’ve harbored all along is DFS’s reliance on the carve outs afforded to fantasy sports.
The industry was created by some very smart people in the wake of the passage of UIGEA. The gist of DFS was to fill the void created by the vacated (or harder to play at) online gaming sites.
The rules of DFS contests were created to explicitly fall in line with the definitions of Fantasy Sports in UIGEA, and to their credit, the creators of these games did an admirable job in crafting them. So much so that sports leagues and Disney have gotten involved in the space, and PayPal is even willing to process DFS transactions.
However, as the industry continues to grow there is growing talk about legalization/prohibition.
Furthermore, more than one lawyer has questioned the legality of DFS contests, particularly as the industry branches out into other sports and pushes the envelope when it comes to the “single contest” stipulation in UIGEA.
Quite frankly, the entire DFS industry could come crashing down if lawmakers decide to separate DFS from season-long fantasy sports.
Fortunately, this is unlikely to happen.
Over the past two years, DFS companies have entered into numerous partnerships with sports leagues who have realized DFS could potentially be as good for business as season-long fantasy. With the backing of these powerful partners should be able to remain under the fantasy sports umbrella.
Show me the money
Another issue the DFS industry needs to keep an eye on is its profitability. To date, no DFS site has managed to turn a profit.
Regardless of how popular or fun DFS is if the business model isn’t right there won’t be a DFS industry.
As gross revenue continues to rise DFS companies are eventually going to have to prove to their investors they have a profitable business plan in place that goes beyond offering a Round P fundraising.
Still, it’s hard to imagine the top DFS companies continuing to operate in the red much longer.
FanDuel and DraftKings have secured the type of high-profiled partners they could have only dreamt of a few years ago, and with every passing day, the country becomes more and more aware of the DFS industry.
That being said, DraftKings deal with Disney essentially locked them into what could prove to be impossible ad buy requirements, and at some point, the industry will need to drastically reduce its marketing spend.
You’re gonna need a bigger boat
One of the reasons DFS sites are forced to market so heavily is the skill factor in DFS contests, and the current system that allows for unlimited entries in DFS contests – a ploy borrowed from poker to boost the overall numbers of entries without boosting the number of unique entrants.
Because of this, the DFS waters are very sharky, and when you have sharky waters you have a very high turnover rate.
All of the money DFS sites are investing in marketing to new players could very well wind up being completely offset by the sharkiness of the sites. And as more and more players try, and quickly lose interest in, DFS, the higher the cost will be for new player acquisition.
There are several ways to lessen the skillfulness of DFS contests, beginning with limiting entries to a more manageable number. Unfortunately, this will likely have to wait until the sites can run seven-figure guarantees without unlimited entries, or they may be stuck in the proverbial Catch-22.
Another option would be to increase the amount of luck in DFS contests. Perhaps clearly labeling high-skill and low-skill contests, or randomly assigning each participant a certain number of players.
Final thought
So is DFS the next big thing in gaming?
Maybe…
Steve Ruddock is the content director for BettingUSA and the Editor-in-Chief of Gaming Law Review.
Steve has covered the legal and legislative developments in the US gambling sector for more than a decade for online and print publications.
