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LOST A FANTASY GAME? TRY AGAIN TOMORROW PRO LEAGUES WARM TO ONLINE DAILY FANTASY LEAGUES

Tuesday, July 29, 2014   (0 Comments)
Posted by: Meg Van Petten
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While fighting legalization of sports betting, pro leagues warm to daily online contests.CreditIllustration by Sam Manchester/The New York Times
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BOSTON — As with many start-ups, the idea was born from trivia that suddenly did not seem so useless — the statistics of professional athletes.

Even in his youth, Jason Robins was in touch with his inner Billy Beane, drafting and trading baseball players in fantasy sports leagues. He was a marketing professional at Vistaprint when he and two colleagues, who also had teams in numerous fantasy leagues, discovered an underdeveloped niche: daily fantasy sports websites, which let players put their Moneyball skills — and cash — up against others’ while compressing the grind of a season into a single day.

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Robins, 33, and his colleagues, Matthew Kalish, 32, and Paul Liberman, 31, started their own site, DraftKings.com, in April 2012. They knew they could attract players, with each day offering an opportunity to build a new roster and to cash in. The surprise has been that professional leagues — traditionally ferocious opponents of gambling on their sports, online or off — have quietly embraced gambling on fantasy sports, apparently aware that the passion for it is crucial to their bottom lines.

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Jason Robins, a founder of DraftKings, at the company's office in Boston. The website began in April 2012. CreditGretchen Ertl for The New York Times

Major League Baseball especially has taken daily fantasy sports under its wing. It has a partnership with DraftKings, which offers a daily contest onMLB.com in which prizes include tickets to games rather than cash.

That stance may be surprising for a league that barred Pete Rose for life for betting on games, but baseball executives see daily fantasy sports as an increasingly important part of their future.

In fact, Robert Bowman, the chief executive of Major League Baseball Advanced Media, the league’s Internet company, said it was exploring a larger partnership with DraftKings and did not rule out the possibility of cash tournaments or other formats in which money is at stake.

“We have spent a lot of time inside here and talking to other outside experts and have concluded these are games of skill and adhere to the federal law,” Bowman said. “It keeps people interested in the games.

“Season-long fantasy is a war of attrition. The cleverness here is that it’s over quickly, and for a younger generation, it’s more appropriate. It’s where the people are. It drives traffic. It’s not to make extra bucks for MLB.com. It is evolving, and we are continuing to evolve.”

The N.F.L. declined to comment on its view of daily fantasy sports, but the league’s lobbyists, along with lobbyists from other professional leagues, successfully pushed to exempt fantasy sports from the Unlawful Internet Gambling Enforcement Act of 2006, which outlawed online poker and sports betting.

The N.F.L. hosts season-long leagues on its website, provides fantasy analysis of players and winning strategies, and offers Fantasy Ultimate Experience Leagues, pay-to-enter contests with authentic jerseys and memorabilia as prizes.

Nigel Eccles, a founder of another leading site, FanDuel, said the success that daily fantasy sports had achieved in a short period of time had gotten the professional leagues’ attention. Last year, FanDuel paid out $150 million; this year, that figure is expected to more than double, to $400 million.

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Ian Hills, a software engineer, working at DraftKings. CreditGretchen Ertl for The New York Times

“Leagues are very supportive of fantasy in general, including daily sports,” said Eccles, whose company started in 2009. “We have had informal relationships with them, but we think that will change.”

In many respects, the general sports culture has caught up with the fans behind DraftKings and FanDuel. Fantasy sports place a premium on data, and technological and statistical advances have made a nearly infinite amount of information available instantly.

While season-long fantasy games have long been a major business, with giants like Yahoo, ESPN and CBS hosting leagues, daily fantasy sports websites offer instant gratification.

Like a general manager in a professional sport, players are given a salary cap they cannot exceed in filling out their lineups. There are contests for as little as a quarter or as much as $1,000, and total prize pools ranging from $54 to $100,000.

Daily fantasy sites have also benefited from a Justice Department crackdown on online poker. On April 15, 2011, a day now known to gamblers as Black Friday, the department seized the Internet addresses of three of the largest online poker websites and unsealed fraud and money laundering charges against the sites’ operators.

Gavin Lamothe, a 32-year-old insurance broker, was one of those left without a place to gamble. He began playing on fantasy sites, entering tournaments for $2 to $10, checking on players’ on-base and slugging percentages, and learning how to manage his payroll.

Although he started small, just as he had for online poker, Lamothe was soon spending 35 hours a week researching for and playing daily fantasy games. He won more than $50,000 last year, he said, and discovered another pastime.

“It’s become an extended poker room,” he said. “You get familiar with other players. You learn their strengths and how they like to build a lineup.

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Adam Pelloso worked on a logo for DraftKings for a coming golf tournament contest.CreditGretchen Ertl for The New York Times

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“But as the prizes have grown, so have the number of players, and that’s become harder. I’m starting to see a lot more recreational gamblers coming online.”

DraftKings and FanDuel, as well as larger sites like Yahoo, have tried to distance themselves from other kinds of online gambling, emphasizing that knowledge and skill are rewarded rather than pure luck. But the Fantasy Sports Trade Association, which has 170 members, recently hired lobbyists to track legislation that would make online gambling illegal across the country.

The companies want to protect the fantasy sports exemption of the Unlawful Internet Gambling Enforcement Act, especially at this time of expansion, when major players like Yahoo and ESPN are deciding whether to enter the daily fantasy market. But daily fantasy websites still make up a relatively small market, and the companies’ more immediate focus is on making sure fantasy players know the games are available.

Even though DraftKings has had more than 500,000 players and has more than 2,500 compete in its $2 contest daily, those figures are but a fraction of the more than 36 million people who play in season-long fantasy leagues.

“That’s a pretty low market penetration — about 1 or 1.5 percent for an industry with enough liquidity to have these large prize pools and daily content that is evergreen,” Robins, one of the DraftKings founders, said.

DraftKings and FanDuel have promoted themselves with advertisements that have become ubiquitous on sports talk radio across the country, and both companies are offering grander contests and breaking into new sports as they vie for market share.

DraftKings has been more aggressive, recently buying the New York-based DraftStreet — the No. 3 company in the space — and increasing its customer base by 50 percent. In a little over two years, it has gone from a seven-person company run out of an apartment with a payout of $50 million to a more than 85-member outfit with offices in Boston and New York that are expected to handle more than $200 million this year.

Next month, 50 players will compete in the site’s $3.3 million Fantasy Baseball Championship, with $1 million earmarked for the winner. DraftKings has also introduced a game built around golf’s four major championships; $300,000 will be given away for the contest around the P.G.A. Championship in August, with $100,000 to the winner.

The N.F.L., the N.B.A. and Major League Baseball may continue to explore what to do with daily fantasy sports as they continue their fight against the legalization of sports betting.

“In their eyes, the leagues don’t want to see gambling legalized, but they know how much traffic and interest fantasy is driving,” said Michael Rathburn, who is tracking the industry for Rotowire.com. “This was the happy medium.”


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