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23 November 2015
By Aaron Todd
If you've been covering the online gambling industry as long as I have, the parallels between the rise and potential fall of the daily fantasy sports industry (DFS) is like déjà vu all over again.
Looking at the Internet poker boom in the United States in the early 2000s, followed by its post UIGEA and Black Friday fall, it's hard not to see parallels between the two industries. DraftKings CEO Jason Robins described DFS as a "mashup between poker and fantasy sports" in an "Ask Me Anything" forum on Reddit in 2012, and with the recent turmoil, they've grown even more closely related.
So I wasn't surprised when New York Attorney General Eric Schneiderman issued a cease and desist order to DraftKings and FanDuel two weeks ago. Nor was I surprised when he sought a preliminary injunction a week later, when DraftKings continue to operate in the Empire State.
Of course, the DFS industry has the UIGEA to thank for its success; without the law's carveout for fantasy sports, it's unlikely that concept would even exist.
I'm not sure what will happen next, but if it's anything like poker, there will be millions of DFS fans who will find they can no longer play at their favorites sites, wait for years for a return, then suffer through a substandard state-by-state patchwork while reminiscing about the "good old days."
Here are the top 10 similarities between DFS in 2015 and poker pre-UIGEA.
10. Opposition from current stakeholders
Brick-and-mortar casinos hated online poker. Or, to be more precise, they hated that other people were making money on online poker, but they weren't. They lobbied hard for the UIGEA, and got exactly what they wanted with a ban on payment processing for online gambling, unless it was regulated by the states. That booted most of the major offshore operators, and the Black Friday indictments of the biggest companies that stayed in the U.S. market cleared the deck for land-based operators to start their own intrastate sites.
One of the most vocal opponents to the DFS industry has been William Hill US CEO Joe Asher, who challenged Star Fantasy Leagues' COO Seth Young's assertion that DFS shouldn't be regulated as gambling businesses at this year's Global Gaming Expo.
William Hill, of course, is one of the major sportsbook operators worldwide, with many casinos using their sportsbook technology.
9. Federal vs. state fight
Before the UIGEA passed in Congress, several states took actions to restrict residents from playing online poker or online casino games – most notably Washington State, which made it a Class C felony to gamble online, punishable by up to five years in prison and a fine of up to $100,000.
It's no surprise, then, that New York and a few other states are looking to shut down DFS sites. It remains to be seen whether or not Congress will get involved at the federal level.
8. Peer vs. peer, it's a "game of skill"
One of the main arguments poker sites attempted to make pre-UIGEA is that poker is a game played between players, not against the house. Since poker is a game of skill, it's not gambling, right? That didn't pass the smell test for most legislators — and to be honest, it doesn't pass it for most people, either. The same is true of DFS; operators take a portion of the prize pool and dole out winnings to top performers.
The problem with this argument is that both games are not completely based on skill. The player doesn't control the cards that are dealt in poker in the same way that he doesn't control the offensive coordinator's play call in a football game. Of course these games have an element of skill, and there are players who can prove that their winnings are the result of that skill rather than an extraordinary run of luck. That doesn't change the fact that it's still gambling.
7. Sites use winning players to attempt to win hearts and minds
Those aforementioned winning players? Other than the operators, they have the most to lose if the DFS industry is forced to fold. Online poker sites trotted out dozens of wizards who said they would lose their livelihood if online poker was banned in the U.S. DraftKings is now using the same tactic, with players predicting doomsday scenarios if they're no longer allowed to play DFS.
While I sympathize with these players who have come to rely on the income they earn from DFS, the argument is a losing one. Politicians don't care about players who are raking it in hand over fist, thanks to the losing wagers of other players, especially when they don't get their cut.
6. Ad blitz raises unwanted awareness
Online poker had been around for a few years before Chris Moneymaker won the World Series of Poker in 2003, gaining entry to the tournament thanks to a $39 satellite on PokerStars. After that win captivated the collective consciousness of the 18-35-year-old male demographic in the United States, online poker sites bounced, spending millions in advertising in a race to acquire the most customers and become the market leader.
While there wasn't a similar moment for the DFS industry, the sites' marketing agreements with professional sports teams gave them confidence and the cache to raise more venture capital to spend on advertising. The result? More than $200 million in advertisements for the two market leaders in the first 10 months of 2015, and a sudden awareness among the general population — and perhaps more importantly, lawmakers, attorneys general and U.S. attorneys — that such an industry even exists.
5. Nature of the advertising
Sheer volume isn't the only similarity in advertisements in DFS in 2015 and online poker in the early 2000s. The focus of many of those ads are also the same. Poker focused on how glamorous winners' lives were. The game is simple: just log on, make a deposit and you can win!
Nearly 10 years later, all you need to do to win at DFS is deposit and find out who the sleeper pick is from your Uncle Rico.
4. Big prize used as primary acquisition tool
The promise of big bucks is a great way to sell a gambling product. Hey, all you need is a dollar and a dream, right?
Online poker trumped up big tournament prizes 10 years ago, and DFS operators are doing the same with DraftKings' Millionaire Maker and FanDuel's Sunday Million tournaments. Who wouldn't want to win $1 million?
3. Lots of bluster in the face of serious threats
In the waning weeks of the 2006 Congressional session, industry advocates were breathing a sigh of relief, practically celebrating Congress' inability to pass an online gambling prohibition. They spoke about how the industry was too important to the collective consciousness of the American people, saying the momentum that had been generated in support of online poker could not be stopped. Then, Senate Majority Leader Bill Frist attached the UIGEA to the SAFE Port Act, and everything changed overnight. The must-pass legislation passed, and online poker in the United States has never been the same.
Some members of the DFS industry, most notably DraftKings, have taken the same stance. Their confidence may be an act, but clearly they know the stakes. If they pass legal muster, they stand to make a mint. If they don't, the entire empire they've built will quickly come crashing down.
2. Sites attempt to turn players into advocates
If you follow any of the DFS operators' Twitter feeds, you'll see a fair amount of advocacy in with the typical mix of ticket giveaways, silly GIFs and draft advice columns. The sites are attempting to mobilize players to show just how popular the game is. There was even a rally outside Schneiderman's office in New York City that drew roughly 300 people, though the best estimates of the journalists in attendance indicate that roughly 75% of the protestors were in fact DFS employees.
Poker sites attempted to do the same 10 years ago. The problem is, hobbyists don't care enough to do much more than sign an online petition. The only people who are going to really be motivated to do anything about a possible ban are the people who stand to lose the most. Those people, whether they be employees of the operator or regular winners on the site, aren't going to be seen as sympathetic characters by politicians when compared to the stories anti-gambling forces tell of bankruptcy, lost families and ruined lives.
Neither of these groups represent the typical experience for the vast majority of players, but that vast majority won't be seen or heard from in the debate.
1. It won't go away entirely
Poker hasn't disappeared online in the United States. You can still play for real money at offshore sites like Bovada (though the number of people doing so represents a fraction of the pre-Black Friday player pool); for Bitcoin at SwCPoker; and if you live in New Jersey, Delaware or Nevada, at state-regulated sites like WSOP.com. No doubt more states will be coming online in the near future.
No matter what happens on the legal level, DFS is too big to fold entirely. Nevada left the door open to DFS operators to offer games in the Silver State, as long as they obtain a license. Brick-and-mortar operators may choose to fill the void, if DraftKings and FanDuel are prevented from offering their games in specific states, or even nationwide.
But even if players aren't allowed to bet money on DFS contests, the game will still exist, and prizes will still be given away. There won't be $1 million winners, but there's value in keeping your fan base interested in all the games, no matter how bad they might be. Professional sports leagues have seen huge increases in fan engagement thanks to the DFS industry, and they won't want to see that end. If, as recent reports indicate, Major League Baseball "bails" on its agreement with DraftKings, I expect that by the time the 2016 season starts, the league will have some sort of DFS sweepstakes available for fans to play on MLB.com.
Top 10 similarities in the rise and potential fall of DFS and poker is republished from Online.CasinoCity.com.
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