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Daily Fantasy Sports

Daily fantasy sports — a spin on traditional season-long fantasy sports contests — has been around since 2007. But many people just started hearing and learning about daily fantasy sports (DFS) in the past few years. What is DFS, and what should you know about it?

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What is Daily Fantasy Sports (DFS)?

 

Daily fantasy sports, in essence, is not a complicated concept. It’s based on the season-long fantasy contests that tens of millions of people play each year — especially for football and the NFL season. In season-long fantasy, you and a group of other people pick rosters of players. You compile points based on those selected players’ statistics over the course of a season. The winner is the person who drafts the team with the players with the best statistics.

DFS, in its purest sense, is like those season-long contests, except boiled down to a single day or week. Instead of drafting a team for an entire season, you pick a team of players for just a day, or for a single week, in the case of DFS contests for the NFL.

Season-long fantasy — which is often played among friends or co-workers (or sometimes against strangers on some free and paid-entry fantasy sites) — is usually limited to a small pool of around a dozen or so people. But in DFS, you could be playing against hundreds of thousands of other people.

The other big difference between season-long and DFS is the money involved. While season-long is often a social game with relatively small pots of money up for grabs, DFS players can vie for thousands, and sometimes millions, of dollars.

The DFS industry is currently dominated by two companies — DraftKings and FanDuel — who likely account for more than 90 percent of market share. While FanDuel was one of the first movers in the DFS space and the clear industry leader through early 2015, DraftKings has come close to pulling even for the No. 1 spot.

Beyond that, pretty much everyone else is vying for a smaller slice of the DFS pie, with Yahoo Daily Fantasy sitting in the No. 3 position after launching a DFS product in 2015. A number of sites on the tier behind the top three operators are in the mix for carving out a relatively small share of the market.

Types of DFS

The main form of DFS is the one offered by DraftKings and FanDuel, with variations across a variety of operators.

In the dominant version of DFS, users select a sport and a contest to enter. Then they select a team of players, under a “salary cap” set by the site. (Each player is assigned a fake value in terms of dollars, and users must construct a roster of players that fall under the salary cap.)

Once a user has picked a team, all that’s left is to wait for the real games to begin, and watch how your team stacks up against the competition. If your team does well, you get a cash prize.

Contests can vary widely in terms of how much they cost to enter (free or 25 cents, all the way up to $10,000) and how they are structured. Examples include:

  • Guaranteed prize pools: Players pay a set entry fee to compete for a share of a fixed prize pool; GPPs run regardless of whether they fill up or not.
  • “Cash games”: Players can either join an existing league or create their own league, in which the best-performing fantasy teams win prizes. These are smaller than GPPs and not guaranteed to run.
  • Head-to-Head: A contest that pits two players against one another; the winner receives the entire prize pool.
  • 50/50:  The top half of the field nearly doubles their investment; the other half of the field receives nothing.

There are also a number of other variants of DFS that stray from the DraftKings/FanDuel model, although they have the common thread of always being based on player statistics. In some forms, players are selected without a “salary” attached to them; there are house-banked versions where you try to predict how well a certain player or players will do; there is even in-game fantasy, in which scoring and decisions take place in real time.

Sports offered in daily fantasy

The major North American team sports are the most popular for DFS:

  • Football (NFL)
  • Basketball (NBA)
  • Baseball (MLB)
  • Hockey (NHL)

That encompasses the entire universe of sports at FanDuel, but DraftKings and other sites offer many other sports, such as:

  • Golf
  • NASCAR
  • Soccer
  • Mixed martial arts
  • Esports (like League of Legends)

And there are even more sports than that offered at some sites. Go here for a snapshot of what sites offer which sports.

DraftKings and FanDuel reached an agreement with the NCAA to stop offering contests based on college events, although other operators still offer them. Regulations cropping up in some states also ban contests based on amateur and/or college, high school and youth sports.

Is Daily Fantasy Sports legal?

The legality of daily fantasy sports is the biggest issue, currently, in the U.S. Answering the question of “Is DFS legal?” is difficult to do, and it usually depends on what state you’re talking about.

In most jurisdictions around the world, DFS is considered a gambling product and requires a gaming license to operate. In the US, the legality of DFS is sometimes quite murky.

Backing up a bit first: The entire industry sprung up in the wake of the passage of the Unlawful Internet Gambling Enforcement Act of 2006. That federal law deals specifically with payment processing for online gambling, but it has a carveout that exempts fantasy sports.

However, there are many people — including the UIGEA’s author — that believe the law was not intended for DFS. That’s in addition to the idea that state law trumps federal law, in this instance, in determining what’s gambling and what is not.

A number of attorneys general around the country have opined that DFS is illegal gambling under state law, and that has led to issues in a number of states, including, Illinois and Texas, to name a few. And those states with negative AG opinions are in addition to a number of other states where DFS is considered to be operating in a gray area, by some legal experts.

All of that has led to a confusing situation about where you can actually play DFS, and to a lot of legislation looking to clear up the legality of DFS. In 2016, a number of states enacted DFS laws.

States where DFS is allowed and not allowed

The question of which states allow DFS is not an easy one to answer, either. At the top level, there are five states where DFS has always been considered to be illegal:

  • Arizona
  • Iowa
  • Washington
  • Louisiana
  • Montana

Most sites also don’t operate in Alabama, Delaware, Idaho, Hawaii, and Nevada based on negative attorney general opinions in those states.

The biggest daily fantasy sports sites — including DraftKings and FanDuel — are in about 80 percent of states. Still others operate in far fewer states than that, based on a more conservative reading of state law.

DFS is also legal and regulated now in New YorkIndiana, Virginia, MassachusettsColoradoMissouriTennessee and MississippiSites must pay a licensing fee to operate in those states (except for Mississippi). Kansas also legalized DFS in 2015.

The states in which DFS sites operate is a constantly shifting picture, but you can get an idea of the current lay of the land here: Where can you play daily fantasy sports?

Pending DFS legislation

At the end of 2015 and start of 2016, state legislatures around the U.S. started introducing bills that would legalize and regulate DFS.

Some of those bore fruit — such as laws mentioned above.

States are taking in some instances wildly different approaches to regulating the DFS industry — from simple, relative “light” regulation, to bills that would treat DFS much like the casino or online gambling industries.

Legislative efforts in the states are constantly evolving, but you can track all active (and inactive) legislation here, and keep an eye on the current environment in many states here.

The DraftKings-FanDuel merger

DraftKings and FanDuel plan to merge at some point in 2017. The two largest DFS operators made the announcement in November of 2016.

When and how that merger will take place, exactly, is still unknown. The two sites are also facing scrutiny from the US government under anti-trust concerns, although the sites insist the merger will not create a monopoly under federal law.

For now, the two sites continue to act and accept users separately.

Frequently asked questions about DFS

Here are some questions and answers about the DFS industry not covered above:

How much money is in daily fantasy sports?

Estimates put the entire amount of entry fees taken in by the DFS industry at more than $3 billion for 2015. Those fees resulted in about $250 million in revenue generated, more than 90% of it by DraftKings and FanDuel.

Because of less marketing and fewer states being served in 2016, that number is likely to be flat or go down.

Is DFS just a form of sports betting?

That depends on who you ask. Sports betting, while considered a game of skill in some corners, is also considered by nearly everyone to be a form of gambling.

The opinions on DFS range from the belief that is 100% a legal game of skill to a form of gambling just based on player statistics. From a casual standpoint, most people consider it a form of skill-based gambling.

In the United States, DFS sites are generally set aside as something not considered to be US betting sites.

What do professional sports leagues think about DFS?

Three of the pro leagues in North America have equity stakes in a DFS site, and they have been supportive of the industry (and of regulation of it):

  • NBA (FanDuel)
  • MLB (DraftKings)
  • NHL (DraftKings)

The NFL has no direct relationship with either site, but most of its franchises have deals with one site or the other. The relationships between the leagues and pro franchises are outlined here.

What are some DFS operators not named DraftKings or FanDuel?

There are dozens of DFS operators on the market. Some of the larger ones include Yahoo, Fantasy Aces, DraftDay, FantasyDraft and Star Fantasy Leagues. You can find more information about some of the second-tier DFS operators here.

Do you have to pay taxes on DFS winnings?

Yes. For more on this topic, see this series on DFS and filing taxes.