With the World Series of Poker in the books, and online gaming legalization seemingly stalled in Pennsylvania and California, the focus of the iGaming world has inevitably turned to daily fantasy sports.
Not only are we fast approaching the busy time for DFS, the NFL season, but the future of DFS has been an extremely hot topic of debate over the course of 2015, particularly after Yahoo and Amaya Gaming entered the space many have come to associate with current market leaders DraftKings and FanDuel.
In addition to the calls for regulation, and the debate over DFS’s classification as a skill game, a recent article by Ed Miller and Daniel Singer highlights one of the fundamental problems the daily fantasy sports industry will face down the road: the skill gap between winning players and losing players.
The 90/1 Rule
According to Miller’s and Singer’s data estimates, 1.3 percent of DFS players are responsible for 91 percent of all player profits in DFS contests. This data seems to indicate that DFS is most certainly a game of skill, but it’s perhaps too skillful to survive long-term its current form.
When games become too skillful, they tend to die out among casual players (chess, 5 Card Stud), as they quickly come to realize they are overmatched and have little chance of beating their more skilled opponents.
It’s one thing to step into the batter’s box against your high school team’s number three pitcher; it’s quite another to step into the batter’s box against Clayton Kershaw.
Multi-entries contribute to the skill gap
The data compiled by Miller and Singer also shows another disturbing trend brought about by the DFS sites allowing multi-entries (sometimes as many as 1000 per player) into their contests: A small percentage of players are responsible for a significant number of total entries in contests.
Multi-entries have two benefits for the sites:
- First, because of the legal stipulations DFS sites must abide by, contest prizes must be announced prior to the contest and cannot change. If a site offers a $20 contest with a $10,000 guarantee, it has to pay $10,000 in prize money whether it has 25 entries or 250. By allowing players to enter multiple times, sites are less likely to have big overlays in their contests.
- Second, multi-entries allow DFS sites to set and market larger guarantees, which brings in more casual players, which causes skilled players to enter more and more times.
This is where things go awry.
The amount of money the top one percent of players are investing in DFS contests compared to “everyone else” is shocking to say the least. According to Miller and Singer, the top 1.3 percent of players accounted for a full 40 percent of all DFS entries, 30 times more entries than should be expected.
Unlike their counterparts at the poker table, DFS players don’t have the luxury of being able to avoid the very best players. For every 100 entries in a DFS contest, 40 of them are in the top one percent of players.
Put another way, if all players were limited to a single entry, that number would be reduced from 40 out of 100 to just one out of 100!
The environment DFS sites are creating by allowing essentially unlimited entries is akin to a Major League pitcher having to face the 2001 version of Barry Bonds in the two, four, six, and eight spots in the lineup.
There’s value at every level
Another aspect where DFS differs from poker is where the pros can be found.
Most poker pros wouldn’t waste their time at a $25 NLHE table or playing a $10 Sit & Go tournament; these pros inhabit the middle and upper limits almost exclusively. But this is not the case with DFS pros. They can be found at every level.
As one industry person I spoke with said, “In contrast to poker, the DFS pros play $1 to $10,600 entry events. I’m not exaggerating, literally one of the best [DFS] players plays $1 HU to $10,600.”
Reason being, once they’ve settled on a lineup they can quickly enter that lineup over and over again in different contests – sometimes with the help of a script.
So unlike in poker, in DFS there is literally no place for new players to hide from the pros. The DFS pros are taking money out of the DFS economy at every level.
Solutions and potential fallout
The simplest solution for DFS sites would be to eliminate multi-entries, but this would essentially destroy the high-cost marketing model they’ve built around million-dollar prize-pools.
There’s simply no way they could reach these targets without the top 1.3 percent of players entering 40 times each. And according to Miller and Singer, another 5 percent of players, who are big losers, account for 36 percent of all entry fees.
If you’re following along at home, 6.3 percent of DFS players account for nearly three quarters of all entry fees.
If DFS cannot do away with multi-entries altogether, what can they do? Miller and Singer offer several possibilities.
They could simply limit entries to two, five, or ten per contest, but this leaves them only marginally better off than completely eliminating multi-entries.
A better option would be to limit the number of daily entries a player can make, and keep that number relatively high for the time being.
This would keep the more skilled players out of the small buy-in events where most of the new players are trying to get their feet wet, and where the pros would have the biggest edge. Like poker pros, DFS pros would have to pass on the lower limits even though they have a larger skill edge over their opponents in these contests.
After all, it’s better to be a 10 percent favorite in a $100 contest than a 50 percent favorite in a $10 contest.
If they limit daily entries, DFS sites could still market their large guarantee contests, as most pros would load up their daily entries into these contests. As time wears on, and DFS becomes more established and mature, they could slowly reduce the number of daily entries each player is permitted.