GPWA Times Magazine - Issue 31 - February 2015

The Sisyphean loop By Hai Ng I n 2003, an accountant from Knoxville, Tenn., went from being just an- other American dreamer to becoming the World Series of Poker champion. Living the American Dream and ful- filling the promise of his name, Chris Moneymaker became the first person to win the WSOP after qualifying through an online poker site. Two years later, PartyPoker took the industry to new heights, listing on the London Stock Exchange with a valuation of over $8 billion. Another year later, the U.S. government passed UIGEA, effec- tively shutting down all forms of online gambling, including online poker. The Rapid Rise and Demise of Online Poker in the U.S. — but that isn’t the title of this article. Daily fantasy sports (DFS) is the rising star today, rapidly pushing into the bil- lion-dollar fantasy sports industry, pro- pelling innovative operators into seven- and eight-figure valuations. Those in the business all see an IPO in the near future for one of the industry’s leaders, FanDuel, which recently managed to secure an in- vestment from the NBA. The industry is not regulated as a gambling business. Before we wrap our heads around that feeling of déjà vu, let’s take a short break for a brief primer on DFS, for those of you thinking this article is about a store at airports. DFS is a fantasy sports game, played and scored in short periods. It takes the most exciting element of fantasy sports, the draft, and quickens the game by limiting the number of games a team’s stats are based upon: Winners and losers are deter- mined within a day, weekend or week, as opposed to an entire season. If you’re totally in the dark but still read- ing, fantasy sports is a game where play- ers draft hypothetical, aka fantasy, teams using actual athletes. The player's team's performance is then scored with a formu- la by using the athletes’ statistical perfor- mances from actual games. Now that we’re all up to speed, let’s get back to the déjà vu. To many in the iGaming industry, watch- ing the rise of DFS brings flashbacks of online poker. Rate of growth and valua- tions aside, many of the events, issues and challenges that have plagued and con- tinue to plague online poker are occurring now in DFS. Why is history repeating itself? Like poker, fantasy sports is a social game, played between friends and col- leagues. Most season-long sites will claim a loyal following of customers but most DFS operators suffer from a large amount of player churn and general lack of player loyalty. As in online poker, it is simply too easy to follow the prizes, crowds and other at- tracting (some might even say distracting) factors. Shorter games mean less commit- ment. Ironically, FanDuel uses the “no commitment” theme in their marketing promotions. Churn and the lack of loyalty lead to is- sues of liquidity, and those issues cascade into the problem of overlay. To solve these problems, many DFS op- erators took a page from the iGaming playbook and headed to big tournament prizes, sign-up incentives and affiliates, opening up the same cans of worms but at a different dinner table. Arguably, the above can be attributed to the nature of the beast, so let’s look elsewhere. In player-vs.-player games, one critical element is player matching. When you’re playing a game, you can only stand to have your butt kicked so many times be- fore giving up, and it’s worse if money is involved. As we learned from online poker, the chal- lenge of “sharks and fish” is a big one — it created an entire business of player rank- ing software and services — but when the skill of the hustle is part of the game, the problem is trickier to solve. DFS, on the other hand, does not involve the art of the bluff, so why aren’t DFS operators taking more action to move to- ward player balancing? Interestingly, many point to an influx of well-heeled online poker players, lured by the large prizes, playing the odds and cleaning up. Add to that the ability to utilize multiple entries in a single tourna- ment, and hedging becomes a much more effective play than analysis. While player balancing might hurt short- term profits, restricting multiple entries should be pretty straightforward. Critics point to greed as the factor that has stayed operators’ hands on any action. After all, some drop tens, even hundreds of entries into the high-value tournaments. Some players are even backed by investors! So DFS faces similar challenges, but at least there isn’t any funny business, right? Two of online poker’s most nefarious mo- ments were the Ultimate Bet super-user scandal and the money “handling” issues revealed when the U.S. Department of Justice (DOJ) went after Full Tilt Poker. SPOTLIGHT ON DAILY FANTASY SPORTS The Sisyphean loop