Daily fantasy sports
Daily fantasy sports (DFS) are a sub-class of fantasy sport games. As with traditional fantasy sports games, players compete against others by building a team comprised of professional athletes from a particular league or competition, and earn points based on the actual statistical performance of the players in real-world competitions. Daily fantasy sports are an accelerated variant of traditional fantasy sports that are conducted over short-term periods, such as a week or even a single day of competition, as opposed to those that are played across an entire season.
Daily fantasy sports are structured in the form of competitions (typically referred to as a "contest"), where users pay an entry fee in order to participate, and may win a share of a pre-determined pot depending on their overall performance in the competition. Entry fees go towards the pot, but with a percentage going to the provider as commission revenue—the main source of profit for daily fantasy services.
The daily fantasy sports industry in the United States is led by two competing services; DraftKings and FanDuel, which are backed by venture capital investments by various parties, including investment firms, as well as sports leagues and broadcasters. Influenced by their convenience and prospective payouts, daily fantasy sports industry began to experience significant growth in 2014; in 2015, research firm IBISWorld estimated that daily fantasy sports revenue would reach $1.5 billion over the course of the year.
It is disputed whether daily fantasy sports are considered a form of gambling; the legality of daily fantasy sports in the United States is backed by the Unlawful Internet Gambling Enforcement Act, which states that paid fantasy sports competitions—defined as competitions with outcomes based on skill that involve the "accumulated statistical results of sporting events"—with pre-defined prizes, are not considered gambling. However, laws in five U.S. states—Arizona, Montana, Louisiana, Iowa and Washington, either have a more restrictive definition of a game of skill, or outright ban paid fantasy sports, thus making daily fantasy games illegal in these territories.
There are several main disciplines of daily fantasy sports competitions, divided into two categories: cash games, and guaranteed prize pool (GPP). DFP contests typically utilize a salary cap format, in which players are allotted a maximum budget to spend on athletes for their team. Each athlete has their own cost, and the more elite athletes have a higher cost value.
In "Double-up" or "50/50" cash game competitions, the object is to finish with a point total within the top 50% of all participants; players who finish in the top half of the field all share an equal prize that is equal to double the entry fee, while the remainder lose their entry fee. Head-to-head competitions are similar, except that players choose an opponent they must beat to win the prize. Guaranteed prize pool contests have higher stakes, using tiered payouts based on finishing in different percentiles of the field of contestants.
Fantasy sports, the forefather of daily fantasy sports, reportedly started in the late 1950s with a fantasy golf game developed by Wilfred "Bill" Winkenbach.
A large factor in the growth of fantasy sports was the rise of the Internet and personal computers in the mid-1990s. The new technology lowered the barrier to entry to the hobby as statistics could quickly be compiled online and news and information became readily available. Fantasy businesses began to migrate to the internet in the mid-1990s. The sale proved fantasy sports had grown from a mere hobby to big business. By 2003, Commissioner.com helped SportsLine generate $11 million from fantasy revenue.
The passage of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) by President George W. Bush was considered an important milestone for fantasy sports, and by extension daily fantasy sports. UIGEA specifically legalized fantasy sports, and clarified that participation in those games was not wagering or gambling, in the eyes of the law.
Daily fantasy sports
Among the first sites to specialize in the format of daily fantasy was Instant Fantasy Sports, established in 2007; the service's co-founder Chris Fargis was influenced by the popularity of online poker. The site was later acquired by NBC Universal, who had acquired the fantasy sports-focused website Rotoworld in 2006. The service was also re-branded as SnapDraft.
On July 21, 2009, Edinburgh, Scotland-based Hubdub launched FanDuel; the service attempted to market itself as a modern alternative to the fantasy sports services provided by other media companies (particularly, Yahoo! and CBS Sports) with the daily fantasy format, and integration with popular social networks. Its founder, Nigel Eccles, was inspired to create the site after learning about the exceptions for fantasy sports in the U.S. Unlawful Internet Gambling Enforcement Act of 2006, and realizing that it did not specifically state that a legal, paid fantasy sports game had to last for an entire season. In February 2012, the Boston-based DraftKings was established by former VistaPrint executives Jason Robins, Matthew Kalish, and Paul Liberman. DraftKings gained a local, Somerville-based competitor in StarStreet, when it introduced a daily fantasy game of its own.
DraftKings and FanDuel in particular became the subjects of venture capital investments by various parties; in April 2013, Major League Baseball invested an undisclosed amount in DraftKings, becoming the first U.S. professional sports organization to invest in daily fantasy sports. In 2014, DraftKings acquired DraftStreet, as well as StarStreet, and raised another $41 million in investment led by the Raine Group, bringing the company to a total of $75 million in outside funding. FanDuel also pursued investments, with an $11 million Series C funding round that included Comcast Ventures, a $70 million Series D round in September 2014 led by Shamrock Capital Advisors with participation from NBC Sports Ventures and KKR among others, and a Series E funding round of $275 million in July 2015, valuing the company at over $1 billion.
DraftKings and FanDuel also pursued advertising and endorsement deals with sports teams and leagues; in November 2014, DraftKings entered into a multi-year deal with the National Hockey League, which saw it become promoted as the official daily fantasy service of the league, and gain sponsorship placements at events and on the league's digital properties. The deal complimented team-level sponsorship deals it had reached with seven NHL franchises. The same month, the National Basketball Association reached a similar four-year deal with FanDuel, and acquired an equity stake in the company The company also planned to expand the scope of its MLB partnership. In April 2015, after the National Football League began to allow daily fantasy providers to sign multi-year team sponsorship deals, with caveats, FanDuel reached deals with sixteen NFL teams for placements on team-oriented digital properties, radio, and in-stadium.
The mainstream growth of daily fantasy sports heading into 2015 was credited to several factors, including the convenience of the format in comparison to traditional fantasy sports, the prospective cash prizes (with some contests featuring advertised cash prices of up to $1 million), as well as their availability on mobile devices—which compliments technologically-oriented lifestyles. The structure and payouts of daily fantasy games have been described as providing a feeling of "instant gratification" to its players, similar to that of online gambling. The popularity of daily fantasy has also influenced fan engagement with sports; Fox Sports president Erik Shanks felt that daily fantasy sports help improve television viewership of sporting events, while FanDuel stated that users became more engaged with sports content after joining the service. IBISWorld estimated that daily fantasy sports revenue would reach $1.5 billion in 2015. In July 2015, Yahoo!, a historic provider of traditional fantasy sports, announced that it would also begin to offer paid daily and weekly fantasy games as part of its Yahoo! Sports service; chief marketing officer Kathy Savitt justified the entry, explaining that the company was focused on the needs of sports fans and how they would "delight" them.
The aggressive marketing tactics used by DraftKings and FanDuel have also had an impact on the growth of the daily fantasy industry; in July 2015, DraftKings entered into a three-year, $250 million advertising deal with ESPN, which includes "integration" within ESPN's television and digital content, and becoming the sole daily fantasy sports service to be able to advertise on ESPN beginning January 2016. As part of a funding deal with Fox Sports, DraftKings also agreed to pay $250 million on television advertising during its telecasts over the next three years.
In October 2015, iSpot.tv estimated that DraftKings and FanDuel had collectively spent over $107 million on television advertising in September 2015 alone, with nearly half being spent on advertising during National Football League telecasts—$23.6 million spent by DraftKings, $26.7 million spent by FanDuel), and both outspending other companies such as Geico and Verizon. Of the total, $60.1 million was spent by DraftKings, with $7.95 million spent during college football games, $2.05 million during ESPN's sports news program SportsCenter, and $1.36 million during South Park episodes.
Legality in the United States
There have been disputes over whether or not daily fantasy sports constitute gambling. In most U.S. states, fantasy sports (including daily fantasy sports) are generally considered a game of skill and therefore not considered gambling. However, some states, such as Arizona, Montana, Louisiana, Iowa and Washington, either use a more restrictive test of whether a game is one of skill or have specific laws outlawing paid fantasy sports. Despite not being considered as gambling in most states, in 2015, the NCAA banned student athletes from participating in daily fantasy sports, while the NFL limited the amount of money its players could win from DFS.
At a U.S. federal level, fantasy sports is defined and exempted by the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). The bill specifically exempts fantasy sports games, educational games, or any online contest that "has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant's individual performances in such sporting events..." This, however, only applies when prizes are pre-determined in advance, and their value are not influenced by the number of participants or how much they must pay to enter.
Daily fantasy sports websites have also faced legal challenges. On October 6, 2015, the New York Attorney General opened an investigation into DraftKings and FanDuel over whether employees from both websites won money on each other's site using inside information. DFS websites have also been the subject of false advertising lawsuits.
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