The implosion of the daily fantasy industry | Hacker News Reader

The implosion of the daily fantasy industry

espn.com

93 pointsgolfstrom50 comments

With user acquisition costs of "$190 per user for DraftKings and $110 for FanDuel" [0], what, besides long term casino-style gambling addiction, can hope to recover the costs? And unlike casino gamblers, don't 'bro-classic' people tend to grow out of these things after a while?

[0] http://www.usnews.com/news/articles/2015/10/30/draftkings-fa...

Honestly, I'm thinking long term freemium-style addiction can hope to recover those costs.

I was surprised that they didn't monetize some of the analytics (or whatever utility player scripts were providing) that the big winners were using after banning them from using their own scripts.

But then again, a lot of the decisions described in the article were surprising.

Change $190 to $500k and I think you just described venture capitalism!

But without the instant feedback and athleticism, which is why millennials aren't venture capitalists. That, and most don't have $500k.

"User acquisition cost" refers to the average amount a company spends on marketing to acquire one new user. It does not mean the price a user pays to sign up.

Generally speaking, insurance industries can pay these CAC costs and turn a profit.

For what it's worth, Fortune writer Dan Primack said on Twitter, "There is an amazing amount wrong with this ESPN piece on DraftKings/FanDuel. Awful." https://twitter.com/danprimack/status/768463010503467009

Then followed up: "ESPN and @DVNJr write that daily fantasy has 'imploded.' Really? Both leading players are still operating. [...] True neither FD nor DK are profitable. But they are young tech startups. Lack of profitability doesn't mean disaster at this stage" https://twitter.com/danprimack/status/768464361258098688

Does anyone know what Primack's axe to grind is? Because it's such a strong, emotional objection, I suspect there's more to it than a dispute over the facts and analysis.

You think "There is an amazing amount wrong with this ESPN piece on DraftKings/FanDuel. Awful." is a strong, emotional objection?

Maybe he is an investor...

With the way states were blocking them from operating in them at such a rapid pace for a while once FD/DK started advertising like crazy, I don't know if they will ever be able to get back to where they were. Once you are lumped in as gambling the rules change and get much harder online.

Lack of profitability isn't their problem, lack of ability to continue operating anywhere legally is.

> Lack of profitability isn't their problem, lack of ability to continue operating anywhere legally is.

From the POV of investors, I'd say that the former is the critical problem, the latter is merely the cause of the problem.

From other POVs, that might be different.

I think what's missing here is that the product is sticky for a number of people and spending on user acquisition costs are likely to go down. Each company essentially takes a 10% rake on every game and I'd imagine these companies will be profitable in the long. I don't think legal issues will destroy these companies as it's really only a matter of time before sports gambling becomes legal across the US and New York is already letting these companies continue to operate this year.

I don't believe the issue around small numbers of players making all of the money is important. As someone who uses both platforms for fun, I find I'm willing and many of my friends are willing to lose a bit of money each week as it makes the games far more entertaining to watch when you have a rooting interest. Many of the sports leagues and ESPN realize this which is why you saw them invest in these companies. Fantasy leads to more engagement with the sports and daily fantasy leads to even more engagement.

Daily fantasy is not for everyone, but it'll likely maintain a core number of users, many of whom use both FanDuel and DraftKings. Acquisition costs will be less important in the future and provided that fixed costs such as legal fees decrease in the coming years, these companies will become stable and profitable.

> ... it's really only a matter of time before sports gambling becomes legal across the US and New York is already letting these companies continue to operate this year.

According to the article we're discussing, NY passed a bill, the Governor signed it into law, and both DraftKings and FanDuel started accepting NY customers again the following Monday.

The wheels of power seem to move more smoothly back east.

I'm wondering why gambling(except for lotteries and casinos, etc.) was made illegal? Was it a 'we must protect people from themselves' type of law? Or a 'casinos have lobbied for protection of their business' type of law? Or 'this type of industry requires regulation but its too damn expensive to regulate' type of law?

I say this as the guy who consistently makes fun of the lottery while also buying video game 'this is totally not gambling either' loot chests.

It's a religion thing here in the US. Large Christian churches (Methodist for example) are against gambling on moral grounds, fight addictions, personal weakness, avarice, etc. Since money and an ability to get members to turn out to vote run everything in American politics, you end up with many states banning gambling on "moral grounds".

About 8 years ago where I live they wanted to built a horse racing track and we regularly got flyers from the anti-horse-racing group(local giant church) that claimed gambling brings crime, alcoholism, and prostitution to any community that allows it.

http://www.gambleonline.co/religious-views-of-gambling/

http://www.gotquestions.org/gambling-sin.html

Gambling is also strictly regulated in China, Japan, Muslim countries, Russia, and good chunks of Europe, and that's just the countries/regions I checked, I'm sure there are others. A local religion-based explanation is at best an incomplete picture of why people object to gambling. Like many aspects of civilization where the code happens to live in religion, it probably is corrosive to civilized behavior, because it seems like all successful civilizations put substantial regulations on it. (As cause and effect is hard to tease apart that's about all I can establish in an HN post.) Given the high frequency with which gambling is deregulated and then often very quickly reregulated (by the standards of government regulation motion, anyhow), it is hard to believe all of those cultures are reacting to irrational, unrealistic concerns.

It's something of a relic of the resurgence of Puritan-esque positions from the 2nd Great Awakening. You get the abolitionism and the women's rights, but you have to take the prohibition and the frowning and finger-shaking at anybody that's trying to enjoy themselves along with it.

Gambling is an entertainment industry that, without strict regulation, quickly devolves into crime.

(It is not unique in that respect.)

Pre-regulation gambling was often for much higher stakes. Gambling in modern times is for fairly low stakes in comparison. Legalized casinos are supposed to control the amount that people lose and keep it to reasonable values.

Second, that was a time where households relied on a single male breadwinner. If that man became a gambling addict, it destroyed not only his future, but the future of his wife and children as well. So much the same as the Temperance movement, anti-gambling laws were aimed at protecting the entire family.

Where I live (Québec in Canada) the government has a crown corporation that has a monopoly on gambling. Competition is illegal because it would make the government lose revenues.

Publicly run gambling is interesting. I mean, a bookie is a bookie, but it seems a safer bet if your bookie is a publicly accountable institution.

Until you realize that the "muscle" coming to collect is your local law enforcement..

There's no "muscle" to "collect" if you pay your fee in advance.

Yes, also: profits from the operation are going to the state, which presumably puts them to better use than the local gangster.

I think the idea of state monopolies over "vices" (see also, government-run liquor stores) is to remove the profit incentive from running these businesses while still providing legal options for customers so they don't enrich criminals.

EDIT: to address the sibling comment. if companies that manage the monopolies earn a fixed fee rather than per-unit, the non-profit motive is still attained.

Depends on how you look at it. Where I live the mobsters returned a much larger share of the betting as prizes, back when it was called the "numbers racket". The state doesn't actually get that much, but the company they hired to administer the lottery does.

One should always endeavor to enrich the most powerful gangster around, so giving the money to the state makes sense

Regulated online poker is mostly being fought by the brick and mortar casino industry to protect their revenue.

You want it to be regulated, and the government also needs to be able to collect tax revenue from it.

and not be used for obvious money laundering scenarios.

"Hey boss, Guido picked up the unsupervised merchandise off the back of our truck, but don't worry he just lost a $10000 bet on our blackjack table." (wink, wink)

> I'm wondering why gambling(except for lotteries and casinos, etc.) was made illegal?

Because the State can't stand the competition. Note that most numbers games (i.e., private lotteries) have better payout odds than the State lottery.

In many cases it was made illegal and state lotteries only created much later, so that explanation for why it was made illegal is not plausible.

It really is a game of skill. And that's killing the industry. The good players, with a big bankroll and computer support, can win. Everybody else is a sucker. Like the stock market. So the suckers are bailing.

Yeah, but in most games of skill you have some system in place to ensure your best players don't drive away the worst. When money gets involved things become murkier though.

Tell that to the person who logs onto League of Legends to see what the fuss is about, and is dinged with "l2p nub" -- and worse.

When you tie an arm around the "skilled" player's back, you can't justify claiming that what you do isn't gambling.

It's not about tying their arm behind their back, it's about putting skilled players against skilled players. In pretty much any skilled game you have rough tiers that people of similar skill level face eachother.

In general, high school teams don't play against pro teams. And if they do, we don't call the high school team "suckers" if they lose.

The incentives are different. Gambling models that require a rake always have a sucker tier.

> The good players, with a big bankroll and computer support, can win.

That's pretty much the key to winning on these. Whenever they interview a 'big winner' they all seem to do the same thing - play a bunch of picks for each bet to spread out their chances. This of course is not what the little guy does or can do. There's so much 'luck' involved that you have to spread it out to have any hope of any sort of consistent winning.

That's also why there are more multi picks vs single-only picks available. The big guys can then buy bunches of entries in multi-pick contests.

It's the same as the stock market, but with the guarantee that the Bata is always negative.

Yes and I believe the sites allow the high rollers to create lineups via API.

Good. I probably saw/heard their ads thousands of times (no exagg.) over a few month period. They annoyed me so much I wouldn't give them any business even if I found their product fun (which I didn't).

i don't know how accurate the article is but arguable the dfs industry is shrinking. almost no one other than fanduel/draftkings exists on a scale to possibly make a profit. and then you have state governments trying to ban them or charge them with crimes.

the biggest long term problem i see (and the article partially addresses) is all these pros bumhunting the low-stakes games because there's no reason not to. it doesn't take any additional time nor mental focus to join some microstakes games like it would if you were playing online poker.

anyone who play dfs, how are money withdrawals from the site? is it relatively quick/easy to get money out of your accounts? otherwise i definitely see that as a huge risk just like it was towards the end of the online poker boom.

I've played both, and it's much easier to withdraw from DraftKings than it was from PokerStars/Full Tilt/Party Poker.

In the dark days of online poker after they shut down a lot of the payment vendors, I'd get shady looking checks from some middle man that I had to wait weeks for at times(never played/won enough to need wire transfers or fancier methods). That was horrible.

I've had withdrawals from DraftKings that take a day or two and go straight to my credit card or PayPal account. FWIW I play in California.

Edit: To be fair, paper check withdrawals did get faster as time wore on. Not sure how it is now. I live in SoCal and always preferred the card rooms than online poker anyway, so it's not worth the trouble for me.

I had no trouble getting my winnings out of Fanduel. I had to provide them with my social security number for tax purposes, but once they had that they mailed me a check within a week or so, and they sent me the appropriate tax info at the end of the year.

I write my own golf blog, with weekly previews of the tournaments, and as a way to get traffic, I'd post a weekly DFS picks post, and then link to both articles in a reddit comment on the DFS subreddit[1]. The idea being that people would look at the pics, but also read the more interesting preview I'd write.

I eventually stopped doing that after seeing weekly posts on that subreddit about how people were losing too much money and had to stop playing for a while. Didn't want to keep messing around helping people lose money. Always that side to an industry based on gambling.

[1] https://www.reddit.com/r/dfsports/

I haven't read this (long) article in its entirety yet but I did make this presentation[1] last year to satisfy my interest in the space and help me understand where it stood.

I borrowed a lot from Adam Krejcik's tweets, who is quoted in this article. See slide 21 for notes about player attrition

[1] http://www.slideshare.net/robinhowlett/daily-fantasy-sports-...

Reply on news.ycombinator.com