Millennials New Drug Of Choice: Fantasy Football

*This article was originally featured on Forbes.com by Neale Godfrey, DriveWealth Board of Advisors

With the DraftKings and FanDuel “insider trading” scandal making headlines last week, many of my contemporaries are asking, “What is Fantasy Football?” (To my chagrin, it isn’t a game played on Fantasy Island, just after you hear, “De plane, de plane.”)

Puns aside, it’s big business.  Wikipedia defines Fantasy Football as, “… a statistical game in which players compete against each other by managing groups of real players or position units selected from American football teams.”

NFL.com goes on to say that, “You select from a list of the best players in the NFL and they compete on a weekly basis for your team (that you create). Their on-field performance drives your fantasy point total and overall success.”  And, TechSpot explains that, “‘Owners’ of all the teams gather at the beginning of the season and select players in a draft, much like the NFL does every April. Once the season begins, the owners select which players will ‘play’ each week, meaning they are allowed to accumulate fantasy points for the team.  Players earn points when they accomplish certain feats, like scoring touchdowns or picking up certain amounts of yardage.”

My definition: Fantasy Football is pure gambling. And, when it comes to the user demographics “in this game,” Eilers Research found that, “Most of them are male millennials, and about 48% of them used to play online poker.”

How Big A Business Is Fantasy Football?

American Express indicated in a recent study that 74.7 million Americans will participate in a fantasy football league in 2015 while spending close to $4.6 billion to do so.  As we are now aware, DraftKings and FanDuel are two of the dominant marketing and promotional companies in this space; however, Yahoo, Disney and CBS are entering the fray. How about DraftKings offering $25 million in guaranteed prize money for opening week, while FanDuel offered $12 million?  “DraftKings expects to payout close to $2 billion in prizes this year, and some fantasy football games pay out as much as $10 million a week,” according to CNN Money. Looks like big business to me.

The TV networks are afraid of losing eyeballs as fans fire-up the Internet looking for Fantasy Football scoring.  In reaction to this, “Stadiums now list fantasy stats of other games on their scoreboards so fans can follow along.  And teams are upgrading wireless and wifi coverage in stadiums to help fans stay up-to-the-minute.”  How about, “A year ago the league renewed its exclusive contract with DirecTV to show those out-of-market games (on your TV screen), for an average of $1.5 billion a year,” according to CNN Money.

The marketing companies are winning in this.  “Daily fantasy companies make money by taking a slice—usually around 10 percent—from entry fees, which range from $1 for low stakes contests to thousands of dollars,” indicates Cleveland.com. And, the business is not limited to football; it is growing to all sports.

Is The Gambling World Going To Take This Lightly?

Nope. They have tried to fight Fantasy Football. They are contending that wagering $20 to win $1 million by picking the winning combination of NFL players is gambling. “… Las Vegas casinos and sports books are feeling like they’re on the wrong end of a double-standard,” as reported by US News & World Report.

Sports gambling is illegal in all states except for Nevada. But, they may not have that much to say about this situation, as daily fantasy sports are legal in every state except five; Arizona, Iowa, Louisiana, Montana and Washington. “… federal law has deemed that fantasy sports are a game of skill which is therefore totally legal,” according to CNN Money.  “The federal law applies to processing payments for online gambling to curb online sports betting and, to that end, allows fantasy sportscompanies to process transactions.” Fantasy sports don’t qualify as online gambling—thanks to a loophole in the Unlawful Internet Gambling Enforcement Act, of 2006. The Associated Press reported that, “The fantasy industry says it’s already legal and has no interest in being regulated if it comes with a “gambling” label.  They just are satisfied with “fantasy sports” as a label.

 Addiction:  A Cautionary Tale

Like with any gambling addiction, users are lured by the sexy ads and the huge pools of potential prize money. “These ads never spell out a simple truth about daily fantasy competitions: While any player might get lucky on the back of a handful of entries, over time nearly all of the prize money flows to a tiny elite equipped with elaborate statistical modeling and automated tools that can manage hundreds of entries at once and identify the weakest opponents,” reports Bloomberg. The top players are known as “sharks” and they are very skilled at the game and can spend hours each day playing, obsessively.

As with any gambling, the money-losers (Minnows) can get lucky and win a few times and get lured back to playing.  According to data published in July in Sports Business Journal, “36 percent of lost entry fees on one daily site (alone) during the first half of the current baseball season came from just 5 percent of the players.”  Bloomberg, quoted Daniel Singer, a senior adviser at McKinsey & Co.’s Global Sports & Gaming Practice and co-author of the study as saying, “ ‘These big spenders invested an average of $3,600 on entry fees and lost an average of $1,100, a negative 31 percent return.’ ” The study goes on to reinforce that, “…a huge advantage (goes) to skilled players. In the first half of 2015…, 91 percent of… profits were won by just 1.3 percent of the players.”

Enough said.  You can guess my advice and council on this.  Consider this type of betting as part of your “Entertainment Budget.”  If you would rather throw your money away on this (and yes, that is what you are doing), than go out for an evening… it’s your choice. I leave you with the words of Wilson Mizner, the American playwright and raconteur, when asked about this subject; “Gambling: The sure way of getting nothing for something.”