These Monsters are Usually Created

For most of you who have followed the DFS machinations the last several years, you're well aware that there are two big companies plying their trade in the space - Draftkings and FanDuel.

It wasn't always like this, of course. During the space's growth period there were several companies vying for customers' bankrolls. Many have fallen by the wayside, as AG's, states and others have made it tougher to do business. A duopoly was created.

That duopoly has now come full circle - at a point where they have price control - and customers are well, kind of upset.
  • Users began paying increased rake — the percentage of entry fees kept by the site — across some daily fantasy football contests on the site in Week 4, and the move did not go unnoticed on Twitter. By taking more fees off the top of contests, DraftKings puts a dent in the return on investment of every single user. And by skewing that increase toward casual contests, the little guys are the ones paying the biggest price. Anyone who’s played a low-limit poker game knows how hard it is to beat the rake in the long run. Without a constant influx of new players, the table dries up and the house ends up as the big winner. Increasing the rake accelerates that process. 
Make no mistake, your neighborhood bookie could act exactly like this, if there were only two of them.  This monster, like most entities who can exert price control, was created.

In racing we see many of the same traits from the big dogs. As "A" signals get more and more prevalent in the landscape, their margins have gone up, not down, as they try and exert price control. California starts, Churchill follows, Keeneland follows, and so on. It's the major reason plenty of horseplayers have tried to draw lines in the sand with boycotts : when one does it, and it succeeds, it's not like it stops.

"DFS" in my view, will probably end up a lot like racing, when and if sports betting becomes legalized. It's doubtful there will be one or two sports betting providers, and that will keep the monsters in the wings. You'll get -110 lines, because that's what the market bears. The DFS customers will then substitute by moving their play to sports betting.

And I doubt DFS will be able to get slots to help them out.

For industry types, like those who love playing fantasy football, and love betting horse racing, these tactics are really quite disconcerting. Both create a shrinking pie, where the top line numbers inevitably fall. We've all seen that - horse racing compared to yesteryear is like visiting a Myspace page.

This hurts virtually everyone in the wagering ecosystem - in DFS's case, it's the data providers, touts, information gatherers; in racing it's the ADW (you do not put money into innovation if your top line isn't growing), data, handicapping information sellers, and touts, too. The ecosystem just kind of fades, and revenue shrinks. But, they hope they make more margin, from the shrink, to stay afloat.

Notes:

It's enjoyable to see what social media (as well as a boycott, to ensure people are speaking about a policy) can do. Skip Sauer, a Clemson economist, pops out to tackle the Keeneland numbers in a great twitter thread. He gave Crunk some props for his analysis, which was nice to see. He probably still has nightmares trying to convince the masses that using "difference in difference" estimates for Canterbury results was proper, instead of "holy crap, when I multiply handle by juice they made more money this year so Crunk is nuts"
Give Skip's thread a read. It's quite good.

Have a great Tuesday everyone.


 

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