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A Few Quick Thoughts on Daily Fantasy Sports

Excellent New York Times article by Jay Caspian Kang.  I actually just watched "The Big Short" last night, and feel like there is an easy parallel: much like Standard & Poors essentially had to "sell" AAA ratings to shitty sub-prime mortgages packaged together as a tranche for fear of the rating fee going to a competitor (ie Moody's), DraftKings and FanDuel have to allow high-volume DFS gamblers to make hundreds, if not thousands, of entries using an computer algorithms (at $20/entry) in order to provide competitive prize money pools.  By doing so, however, they completely take advantage of the "average Joe" DFS gambler who puts in one $20 entry.  It's a systematic failure.  In fact, one could also reasonably compare this to the high-frequency trading issue we saw on Wall Street in Flash Boys - faster software allowed the "average Joe" trader to get screwed, for lack of better word  (Editor's Note: Perhaps I just called Michael Lewis's next book?).
If DraftKings has a $1M pool, and FanDuel has a $2M pool, simple behavioral psychology tells you that everyone will join the FanDuel pool.  In order for DraftKings to up their prize $ to $2M to compete, they will never get enough funds from 50,000 "Average Joes" putting in 1 entry ($1M) to fund the pool; they have to rely on several high volume gamblers like Saahil Sud that may put in 900 different lineups at $20 each for a total of $25K/day.  "When evidence of the competitive advantages enjoyed by these high-volume players became too overwhelming for the companies to ignore, DraftKings and FanDuel enacted rules that in the end are likely to protect the high-volume players rather than regulate them. In any case, a stricter ban on computer scripting would have been functionally impossible — because, as a representative of FanDuel told me, D.F.S. companies cannot reliably detect it on their sites."  At the end of the day, without these high-volume players, the business model of these DFS sites is flat-out unsustainable.
More interesting data that either will blow your mind, or is completely unsurprising (there is no middle ground on this): "A recent McKinsey study showed that in the first half of the 2015 Major League Baseball season, 91 percent of the prize money was won by a mere 1.3 percent of the players."  Hmm - sounds eerily similar to something else I've recently read about.
The home run (sports pun intended) of the article: “FanDuel and DraftKings are optimized for power players to rape and pillage regular players over and over again.  In D.F.S., the easiest way to win money is to turn a sucker into an A.T.M."  I'll leave this lingering, without personal editorial.
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