Skill Games

I was chatting recently with a racetrack insider type. I say that with reverence - this fellow, although now in breeding and racing, has done just about everything in the game, including gamble on it. He told me that within the business he can talk to others in power about virtually anything, but , "Trying to have a rational discussion about racing as a gambling enterprise and what it needs to do is like pulling your hair out."

Add gambling to almost any conversation, and at times, it's like you are speaking Swahili.

The DFS headlines have abound of late, and for those of us who love the pursuit of skill game gambling - racing, DFS, fixed odds wagering etc - it's been like pulling your hair out on what seems like an hourly basis. The misinformation, the lack of (if you will) skill in reporting about gambling in the media - much of the media with their knives out regarding these pursuits - is astonishing.

One of the most insufferable narratives about the skill game market is that it's "broken" because people who play it a lot and who are best at it win, and the vast majority loses. As an article, h/t to O_Crunk notes today, this is the exact definition of any skill game market.

Here’s the thing: while these numbers make for a great click-bait headline, in actuality it’s a non-issue. Why? Because betting markets fundamentally demand winners and losers.

One could make the claim that in a fairer world, the winners would win less and the losers would lose less. But let’s unpack that: for starters, the headlines are deeply skewing the numbers. While it’s true that the “Big fish” are losing 44x more than the “Minnows,” they are also playing stakes 66x higher. Keeping in mind that Fanduel spreads daily games with $1,035 buyins, the idea that affluent bettors regularly playing $300-$1k buyin lose $1,000 over the course of “half an MLB season” is not that surprising. If anything, based on my experience, it appears light.

Let’s also not forget that for the “minnows” who lose a full 50% of the money they deposit – $25 of $49 deposited – that wagering on DFS is entertainment. 

This does not fit well in today's world I suppose, but it's irrelevant. The above, in itself, is what a skill game market with negative EV (money is taken out of a pool, i.e. takeout) is.

For racing, that means that Joe who spends $4 million a year, 100 hours a week, $15,000 per annum on tools etc, will likely do so because he is making a couple of points. Jane, who is a great spot player, might play three times a week, risking $50 per bet. She might make 9 points on low volume. Most of the rest, well, they play a couple of times a week, and lose 25% or 35% (the rake plus a bit).

DFS's advantages regarding where they are on the curve are real and apparent (as the author notes). It's moving like a business like this should in terms of growth. The next stage of their life cycle will be to create a vibrant customer base that every skill game needs: One that works together, so that the entertainment value for losers provides them with enough utility (while they win enough), others who are near or at break even are encouraged to spend more time, money and effort to get better, and those who spend the most money betting either grind away at 1% ROI, are replaced, or move on to something else.

Racing's curve is not different, just older and nowhere near optimal. Most of us who are fighting for the customer want to create an environment that is much closer to DFS, or what they hope to do over time (unless it is regulated all to hell like racing has been):
  • Create a vibrant skill game market ecosystem that encourages top-line, and long-term customer growth.
Right now that's impossible. As my breeder friend above notes, the system, and those in charge, are either not on the same page, or handcuffed by well intended, but poorly thought out regulation that discourages growth, investment and innovation. One day, I hope the page is turned to a new chapter based on gambling logic, and principles. If that happens, I am convinced racing - which in my view is the greatest of all skill gambling games - can grow.

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