Daily fantasy sports become a gambling reality

Posted Sept. 24, 2010, at 6:44 p.m.
Last modified Sept. 24, 2010, at 7:30 p.m.

LAS VEGAS — Sports fans are betting online each night on athletes’ performances — and it’s all legal.

The bets are an exception to laws banning online gambling because they take the form of fantasy sports — where participants pick a team of real-life players in baseball, football or other sports and compete based on their real-life statistics. Such competitions typically last a season, but more websites are springing up that offer prize money for teams that last only one night.

Drawn by the possibility of quick cash payouts, instead of just end-of-season glory, fans ready for more-than-casual rivalries among friends or co-workers are building new nightly online betting into a hit for the $800 million fantasy sports industry.

More than a dozen websites have sprung up to manage daily fantasy sports wagers and grab a percentage, says Paul Charchian, president of the Fantasy Sports Trade Association, which represents 120 companies. Those commissions amount to $35 per player per month at one of the largest new sites, FanDuel.com, according to its CEO. And with nearly 7 million Americans and Canadians already playing fantasy sports for money by 2008, the total is expected to soar.

“It’s always been a little murky, so I think a lot of companies didn’t have the stomach for it,” said Charchian. “People now are jumping on board.”

Gambling on fantasy sports online has been explicitly legal in all but six states since 2006, thanks to an exception built into that year’s federal ban on most online gambling.

But Charchian says most website operators remained worried about the legality of wagering of any kind until one popular fantasy sports site, Fanball.com, launched a daily game in late 2008 called Snapdraft, and attracted players intead of trouble. Charchian, who co-founded Fanball in 1993 and had left in 2007, said Fanball didn’t jump into daily betting sooner because the legal issues hadn’t been resolved.

A far less popular site run by Fantasy Day Sports Corp., FantasySportsLive.com, launched daily games with gambling in mid-2007.

Here’s how fantasy sports gambling online works. As in the office pool, fans compile teams of their favorite professional athletes and advance or fall back based on how the athletes perform in reality. A few major portals, including Yahoo.com and ESPN.com, have long offered platforms for the hobby without betting. But the newest online games pay cash each day out to the participants whose teams for that night include the highest-achieving individual players.

“This isn’t replacing their leagues with family and friends,” Charchian said. “You don’t play these kinds of games for the fun of it, you play it for the profit.”

This isn’t considered sports gambling, like Las Vegas casinos offer, because gamblers can’t wager on scores or team wins or losses, and they can’t create fantasy teams that mirror real-world teams. Not that they’d want to if they expect to win. These are what-if teams, where individual performance is the most important factor.

Dave Nutini, a 31-year-old former bank contract manager who quit his job three weeks ago to play poker professionally, said he plans to wager $200 to $300 per week on fantasy football using FanDuel this season. He sees players who take the games seriously making a steady income off FanDuel soon.

“I think it’s pretty similar to the online poker thing,” Nutini said. “I’ve looked on there, and there are a few guys who are making a significant amount every month.”

Right away, Nutini scored $500 in cash plus a trip to Las Vegas to compete for $25,000 on a $10 wager when he won the first week of the FanDuel Fantasy Football Championship. Even counting his losses on two other $25 bets, Nutini is well ahead — though his winnings are nowhere close to steady yet.

“I’m obviously not doing that for a living — my bankroll management on that stinks,” he said. “I think eventually, once I get the hang of it, I wouldn’t mind.”

FanDuel launched in the spring with $1.8 million in venture capital funding and now averages 20,000 users per month who have placed more than 65,000 bets worth more than $1 million to their winners since play started, CEO Nigel Eccles told The Associated Press.

Eccles said the site’s use increased 10-fold with the start of the NFL season this month.

“Whereas season-long drafts have already had their single bite … our daily draft model enables us and our partners to continue to add players throughout the NFL season,” Eccles said.

Football is by far the most popular fantasy sport.

Players who gamble on fantasy sports were spending an average of $134 per year on their leagues, an Ipsos study found in 2008, when the daily gambling sites were just starting to take off. Ipsos found that of the 27 million Americans and nearly 3 million Canadians who play fantasy sports each year, about three-quarters do it just for bragging rights.

FanDuel just launched in Canada and expanded in the U.S. this fall. It now has deals with seven major U.S. newspapers to attract players. The papers promote FanDuel on their pages, often quite prominently, while FanDuel customizes the look of the site for each outlet and oversees the wagering and customer service. The two businesses evenly split the commission FanDuel collects on each bet.

Yoni Greenbaum, vice president of product development for Philly.com, the website of the Philadelphia Inquirer and Philadelphia Daily News, said its revenue from FanDuel is small, but the partnership gives readers something new and different.

“It’s a niche that fits into a larger strategy,” he said. The hope is that links like this will get readers to make Philly.com part of their daily routine; already some players have complained that they can’t bet enough each night, he said.

Eccles expects FanDuel to become profitable in the next year, though he says he often still must convince customers they won’t get in trouble for gambling on the site.

“It’s not straightforward, and I think most people, they don’t understand where the legal situation is,” he said.

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