Wednesday, October 15, 2014

FanDuel Analysis

So while watching your favorite team this year, you have no doubt seen some yokel spouting about how much money he won playing on FanDuel.  I think my favorite ad is the guy who says he won SIX HUNDRED THOUSAND DOLLARS.

Through this post I offer an analysis of FanDuel, try to dispel some of the myths about it and tell you how it works - and how it doesn't.

For those who don't have a lot of time, I will give the short version first.  It is just another way to gamble, and it is likely rigged, similar to everything else in the world.  For those who would like some details, you can read on below.

FanDuel is a website that lets you play fantasy sports with real money (or free, if you prefer).  In most cases, their rake is 10% (more on this later).  I actually looked into investing in the company, but it appears to be privately owned by some venture capitalists.

I signed up for FanDuel because the guys at Over the Cap, a site which I read religiously, set up a league there.  It is a 50/50 league (more on this later as well) and they got a small royalty for people who signed up using their code.  It was the least I could do, as I have learned a lot about the NFL and in particular the salary cap from that site.  I set up an account and deposited $100.  You can also cash out instantly through PayPal, which is very nice.  With some of the older online poker websites back in the day, you had to wait for a check from some indian tribe (where the servers were hosted) and that is a joke, of course.

First, I would like to give a helicopter view of the site, and then I will drill down into some statistics.

Up front, how did FanDuel even become legal?  Well, in 2006 there was a carveout in the "Unlawful Internet Gaming Enforcement Act" that allowed for fantasy sports to be played for money across the country.  It is considered a game of skill, and therefore got the exemption.  Of note, FanDuel is still illegal to play for real money in Arizona, Iowa, Montana, Louisiana and Washington.  In short, FanDuel uses the "pari-mutual" model, where all of the bets are collected, the house takes it's cut or vig, and the rest of the money is used as winnings.

The site is very well made and works quickly on a PC or my phone.  I was looking for an app but realized soon that it doesn't appear that they have one - their site works seamlessly depending on the device.  That was pretty cool.  Also, the results are pretty damned fast.  I had a fantasy team playing last Sunday, and the time it took between my guy scoring and the site to be updated was around a half minute.  They must have some very good server power on their back end.  They have hired Stats, Inc. to do their numbers, so I imagine that company has some good servers as well.

One thing I really like about FanDuel is that there is basically no long term commitment.  They offer no season long leagues.  If you feel like playing, you play that week.  If you don't, you don't so there is no need to keep up all season long on all of the (dumb) league stats and injury reports.

The interface is very easy to use, and is graphic rich. 

I funded my account through my PayPal account (I never trust gambling websites - more on this later, as well) and it was set up instantly. 

FanDuel is very up front about their rake.  It works like this (from this page):

General Leagues

Buy-InRake %Odds Equivalent
$1 to $5010%-125

Guaranteed Prize Pool Leagues

Buy-InRake %Odds Equivalent
$1 to $210.4%-126
$5 to $1010.5%-127

To keep it simple, I will just talk about the "General Leagues" as that is the easiest to get the mind around and I will, for now, ignore the odds equivalent, although that is part of what I am going to get to further down in this piece.

I would imagine (although I don't really know) that the vast majority of the business that FanDuel does is the smaller dollar leagues, in the $1 to $50 category.  I am guessing this because the number of these leagues on the FanDuel website is WAY larger than the more expensive ones.  So as you can see, the FanDuel rake is 10%.  The league I participated in with the Over the Cap guys was a 50/50 league.  This means that 50% of the people get paid, and 50% of the entrants do not.

Simple math time.  In the Over the cap league which I played last week, each player had to pay $2 to enter.  There were six entrants, so the total prize pool was $12.  The payout worked like this:
First place - $5
Second place - $3.50
Third place - $2.30
From this, as you can see, the prize money totaled $10.80.  The total entry fees were $12.  $12 - 10% = $1.20.  $12 - $1.20 = $10.80.   FanDuel earned $1.20 for this league with their 10% rake.

The Over the Cap league was a "salary cap" league - we were allotted a certain amount of money and had to pick players.  I don't follow the NFL that damned closely, so I just went to some website, found some recommendations and picked those players.

So now it was Sunday and it was go time.  As I mentioned before, as the action started, the stats in the league began to update very quickly.  It was interesting to watch the points pile up and see who was in what place and how many guys they had left to play.  That said, fantasy football is probably one of the stupidest things ever invented and makes you start to cheer for outcomes and things that you wouldn't normally do.

Even though my wager was extremely tiny, I was playing for pride, so I was shouting at the TV for Cutler to throw to Martellus Bennett, the Bears tight end, on every play, since Bennett was my tight end.  At one point my wife said "STOP SAYING THROW IT TO BENNETT".

At the end of the day, I was in third place, which was in the money, but was in trouble because two teams behind me had their quarterbacks left to play (you choose a qb, two rb's, three wr's, a tight end and a defense) and one guy also had a receiver.  Well, both of the guys had Eli Manning, sadly, and he laid a giant egg in the game Sunday night.  So Monday night, I was still in third, ahead of a guy who had Brian Quick of the Rams at wide receiver.  So, of course, I am sitting there Monday night rooting for Quick to get injured.  Quick has been hot lately, but the Rams qb didn't throw it to him at all so I was safe.  I won $2.30. I basically got my entry fee back, plus $.30 profit.  My account the next day showed that I indeed had $100.30 in there. 

But wait!  I forgot that when I signed up, I received a "double up bonus up to $200".  Upon reading the fine print, the deposit bonus is paid in real cash at 4% of the entry fee of the contest you enter.  So, $2 x .04 = $.08.  Indeed, I had hauled in another $.08 - making my grand total in my account at the time of this writing $100.38.  So, in the end, I had won thirty eight cents for my fine work, and some pride.

Now that you understand sort of the lay of the land, know that FanDuel offers fantasy hockey, baseball, hoops and has other types of leagues.  They even offer college leagues.

The glass always being half empty to me, I decided last night to poke around a little bit.  I figured very quickly when some yokel is on TV telling me that he won six hundred thousand dollars that there is a scam in there somewhere - and it appears to be the case.

First, the odds.  If the 10% rake sounds familiar to you gamblers out there, well, it should since it is close to land based sportsbooks.  If you go to Vegas or Reno or work with a local bookie, typically you will wager $110 to make $100.  This means that you have to win 52.4% of the time to break even.  Anything lower and your gambling money will slowly wither away.

At FanDuel, the best odds are playing in a head to head league.  That means that you are playing against one other person.  One wins, one doesn't.  But remember, you are still losing that 10% rake every time you play.  By the math, this means that you need to win 55.5% of the time to break even (I will save you the math on this one, just trust me).  So in reality, you are paying an up charge vs. a land based casino or bookie for the convenience of gambling at your house or on your phone.

So some of you may think you are smarter than "one other guy".  But as I mentioned earlier, the glass if half empty to me.  So I started poking around the internet a bit.  Surely as the sun rises in the east, there are a lot of scams out there.  FanDuel allows you to "clone" your lineup and set up as many challenges as you want against others.  If you are just a guy having fun and you are up against a guy who studies fantasy stuff all day while he is supposed to be working, you are at a serious disadvantage.  Further, there are things online popping up indicating that there are actually pros that are getting and paying for information directly from team staff such as trainers or other handlers as to the condition of athletes.  I have also seen stories of the "gatekeepers" of information getting a cut of the pot.  This is a big problem. So you may think you are up against some dude still living with his mom sitting around on his sofa with the online name of "12BudLights" but in reality you could be playing against the FanDuel equivalent of Warren Buffet.

Just like local guys can get the good information on their local college team from people they probably know and try to cash in on it, I have a sneaky suspicion that information networks are already set up to try to game FanDuel.  It was quickly found out that online poker website players were using things like Skype to tell each other what cards they had to pin down the other sucker at the table and then split the winnings.  While a scam like that isn't as easy to replicate on FanDuel, information is always king when betting on sports and always will be.

In the end, I think FanDuel is fun if you want to get a bunch of guys together and have some fun in a private league.  But it is in essence just another (dumb) way to gamble and it is just a matter of time before you start reading about the scams that will eventually come out.


Carl from Chicago said...

That's a great article. You really put a lot of analysis into that system. I like the calculations too.

I hate fantasy football because I don't want to care about all these obscure players for teams that I want to lose and get out of the way of the Bears but I can see the attraction.

Were you wearing your black unicorn shirt too while rooting for Bennett to earn your 30 cents ha ha.

Certainly if you have a small fantasy league group this is a good way to do it. If you know everyone and are not betting enough to really care about it.

Dan from Madison said...

As long as pride is the biggest prize you are all good. One thing I expected was a way to trash talk my competitors during the competition but I didn't see it. It would have added a layer of fun while Eli was melting down Sunday night or while I was rooting for a relatively obscure Rams receiver to get hurt on Monday night.