by Glenn Stout
The winner of that binge was “maxdalury,” who is really Saahil Sud, a late-twenties former data scientist who lives a few blocks from DraftKings’ Boston headquarters. A 2011 graduate of Amherst College with degrees in math and economics, Sud is a daily fantasy pro notorious for entering hundreds of different lineups in every big-money contest—and some modest-sized ones. For the deep-pocketed player, this strategy is expensive, of course, and so is the exposure. But your chances of winning improve exponentially with 900 lineups in a field of 35,000 when most players have one or two. Sud was also a prolific user of computerized scripts. In one NBA DraftKings contest in which he entered 400 lineups, Sud’s last-minute, scripted swap of veteran Magic big man Channing Frye for late-scratched center Nikola Vučević helped him win an estimated $500,000.
“It’s only a skill game if you have the biggest bankroll and the best technology,” says John Sullivan, 50, a former FanDuel consultant who quit playing high stakes after becoming disenchanted with the lopsided ecosystem. “That’s the dirty little secret.”
One of the more extreme examples of this phenomenon happened in DraftKings’ $1 Million Mega Payoff Pitch contest on May 26, 2015. Sud posted 888 baseball lineups at $27 per lineup. He destroyed the field, scooping up the first-place prize of $100,000. His lineups finished in five of the top 10 spots. Twenty-nine of his lineups placed in the top 100, and 454 of his 888 lineups made money. With a $23,976 investment, Sud won more than $221,000.
An analysis of that contest’s results shows the futility of entering a handful of lineups—even as many as 90—in any big-jackpot contest. Nearly all players who entered fewer than 100 lineups finished with a negative return on investment, most in the double digits. Even those who entered more than 25 lineups (costing at least $700) but fewer than 100 lineups had ROIs of minus-22 percent to minus-27 percent. Of the 21 players who posted more than 100 lineups, Sud and two others had a profitable night.
Regular, smaller-stakes players weren’t blind to the winning methods of sharks like Sud, and they weren’t shy about complaining.
DraftKings and FanDuel responded slowly to the demands by some of their customers for greater transparency and to limit or prohibit the high-volume players’ favorite tools, like the sharks’ multiple entries, scripting, and other predatory practices.
Adam Krejcik, the managing director of Eilers & Krejcik Gaming, observed that the sharks-versus-fish dynamic threatened daily fantasy’s very existence. “The biggest risk for the DFS industry is not regulation but whether it can attract mass market appeal and avoid becoming too ‘hardcore,’ ” Krejcik wrote in a January 2014 presentation. There’s a “very delicate balance that needs to be maintained between ‘grinders’ and ‘casual’ players.”
But the two sites lavished perks only on their high-volume grinders and contest winners. FanDuel gave its big winners NFL luxury box tickets and autographed jerseys, but DraftKings did even more—a party attended by VIPs inside a Gillette Stadium luxury box; the Las Vegas “Tiger Jam VIP Experience,” in which winning players rubbed shoulders with Tiger Woods in the MGM Grand’s poker room and at Shadow Creek Golf Course; a private party for grinders and other VIPs at the LIV nightclub in Miami Beach. And the list goes on.
“Here’s the thing—taking high-liquidity players on junkets is really stupid,” says Joe Brennan Jr., the CEO of rival FastFantasy.com. “Steve Wynn wouldn’t do it—he’d be giving the treats to the high-liquidity losers. The sites should be treating the high-liquidity losers, the guys who are losing all that money that goes right to their bottom line.”
Another way to look at how the companies were allowing their haves to prey on their have-nots: “DraftKings reminds me of the college kids having a kegger and the cops say, ‘Turn the music down,’ and they say, ‘We’re sorry,’ and the cops go away and they turn the music back up,” Sullivan says. “They have bravado—for lack of a better term, it’s balls.”
Some critics now say the companies’ CEOs even had the balls to publicly preach the benefits of hooking large schools of novice fish for their sophisticated, big-bankrolled players to devour.
On RotoGrinders—daily fantasy’s most popular online community where players vent and kvetch—Robins, the DraftKings CEO, told users that his company was spending large sums on advertising to attract new players who would presumably make the site more attractive to the tiny clique of high-volume, consistently winning players. “The goal in how we are set up and the tremendous amount of money we spend on marketing are meant to attract and retain casual players, which in turn should make it an attractive environment for those who profit,” Robins wrote on the message board.
Eccles, the FanDuel CEO, said something similar on RotoGrinders, arguing that the best way for high-volume grinders to enhance their return on investment would be for the site to recruit thousands of new players, presumably with less experience and expertise, rather than have the site reduce its rake percentage. “To be honest,” Eccles wrote, “at the moment, we’ve focused more on bringing in new players, which by our calculations is a lot more important to grinder win rates than cutting rake.”
Robins and Eccles might have found a consensus on that strategy, but they disagreed about many other ways to grow their businesses. Their hostility toward each other was often out in the open.
More than once, Eccles dismissed DraftKings as a “clone” that didn’t pose much of a threat to FanDuel’s dominance. The way Eccles saw it, he and his cofounders had created the industry, and DraftKings’ reckless, risky corporate ethos that pushed the envelope legally would be its undoing. FanDuel also believed that DraftKings overpaid software engineers and analytics employees, raising the cost of doing business for everyone. Robins deeply resented the disrespect, using Eccles’s barbs to motivate his young staff to write better code, develop better products, and beat FanDuel for customer experience. The competition and clashing corporate philosophies turned into bad blood between some of the two companies’ senior executives, and the bitterness ran deepest between Eccles and Robins, consultants and employees told Outside the Lines. Neither Eccles nor Robins denies the bad blood.
For the executives, it was easy to ignore signs of trouble because fresh investors’ money kept flowing, and waves of new customers kept flocking to both sites. It was also easy to ignore the biggest threat to the industry’s best shot for long-term success: nearly all daily fantasy players lose.
On a late autumn weekday afternoon, I sign up for DraftKings and deposit $100. With nearly 250,000 lineups and a top-heavy payout structure, “The Millionaire Maker” seizes the boldest headlines. But the sites also offer countless opportunities to play against small fields for modest stakes. (Contest entry fees range from 25 cents to $10,600, but the most popular entry fee is $3, the sites say.) There are head-to-head matchups, small tournaments of five or nine players, “50-50” games in which players finishing in the top 50 percent win (usually only a few bucks), double-up games in which you can turn $5 into $10, and “invite-only” contests in which you can compete against your friends and colleagues.
So I cobble together a team of players competing in that night’s seven NBA games and post my lineup in a head-to-head contest for a $50 entry fee. Almost instantly—it took six seconds—my team is scooped up by a player named “condia.” I don’t know who condia is, or even what that word means, though a check of RotoGrinders breaks the bad news that condia is the number-one-ranked NBA fantasy player in America. Somewhat despondently, I watch the games on NBA League Pass as my players are annihilated by condia’s lineup by 80-plus points.
The next day, I tell Harber, the former high-volume player, how quickly and effortlessly condia had torched me.
“You got bum-hunted,” he says with a laugh.
Excuse me?
“Bum-hunted. He had a crawler on the page, and it ate up your game,” Harber says. Other players call the condias “lobby hawks,” perched and waiting to pounce on rookies like me who show up in the lobby shopping for a head-to-head game.
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Harber is still chuckling. “All these high-volume guys are archiving all the data to find out who is a good player or a bad player—or a complete novice like you,” he says. High-volume players are so sophisticated that their computerized scripts and other automated systems are often invisible to the sites, Harber and other high-volume players say, though the sites deny that. Some scripts are ones of convenience: allowing high-volume players to change hundreds of lineups to make a late substitution when a player is a last-minute scratch. Others are more predatory, scraping live data from the sites to target the worst of the losing players, the same trick mastered by professional online poker players.
For years, FanDuel had given quiet permission to customers who asked to use certain scripts, a request almost always made by their most valued high-volume customers. DraftKings says it forbade the use of all automated tools before July 2015, but high-volume users say they routinely used such tools—or knew others who did—before then on the site. There was little or no transparency; sites refused to divulge the identities of players who were warned, suspended, or banned for using predatory scripts or violating any of the sites’ other ever-evolving terms and conditions. FanDuel says it has suspended thousands of customers. Says a DraftKings spokeswoman, “We do not reveal specifics about our user activity.”
I soon discover that condia isn’t just a famous, prolific, and high-stakes player, he’s also pretty widely disliked by the regulars. As far as I can tell, he’s disliked not because he plays so much but because he wins so much. He is renowned for trolling the sites’ lobbies for every kind of action, including games for as little as $3, despite having a prodigious bankroll in the high six figures.
Condia’s real name is Charles Chon, and he is a self-deprecating 30-year-old who lives in Denver and majored in accounting at Colorado State. A few months after I join DraftKings, I tell Chon about our instant head-to-head matchup and how effortlessly he hoovered my $50.
“I’m sorry, man,” he says, squeaking out a laugh. “It was just me finding you in the lobby. I like playing the smaller players because it’s easy money—it’s like free money for me. I mean, why wouldn’t you take it? There have been times when I tried to get action against anyone I could, including newer players. I probably got you for that reason.”
Chon denies the persistent accusations on the RotoGrinders message boards that he has cheated by using scripts and other technological edges to find and bankrupt lousy players. “I always try to play by the rules,” he says. “I know some other guys don’t.”
Despite all of their ongoing hostilities, Robins and Eccles met for dinner at the Bellagio in Las Vegas during the FSTA’s winter conference in January 2015. The unthinkable between the two rivals was broached: a merger. Robins pitched the idea at the urging of Jonathan Kraft, president of the New England Patriots and an early DraftKings investor through the Kraft Group. From a long-term financial perspective, a pair of daily fantasy companies trying to outspend each other into oblivion didn’t make sense. Satellite radio rivals Sirius and XM avoided a mutual assured death by merging. Why couldn’t DraftKings and FanDuel?
One proposal had FanDuel and its investors getting 60 percent of a new tied-in company. Although those terms were more favorable to FanDuel, Eccles rejected them, sources say. Eccles “wants to be the Mark Zuckerberg of the industry, to be seen as the godfather of daily fantasy sports,” a consultant with firsthand knowledge of the negotiations told Outside the Lines. Eccles and Robins “really do hate each other. And their egos got in the way.” Says another industry insider privy to the talks, “Guys with cooler heads would have likely gotten it done—a merger made all the sense in the world.”
A month after the dinner, FanDuel hired Christian Genetski to be its chief legal officer, a job that hadn’t previously existed, to build a new legal team. He knew one of his biggest missions would be to try to clarify the gray zone on the legality of DFS in states nationwide, a challenge he viewed as somewhat defensive. “If we were a beach house, we needed to winterize,” says Genetski, 45, who had done legal work at Yahoo before working for several years in the video game industry. “The Farmers’ Almanac didn’t call for the Category 5 hurricane that hit us.”
Genetski reached out to Tim Dent, the chief financial officer of DraftKings, and both sites soon agreed to work together on a modest, defense-only lobbying effort and share the costs of an attorney general consultant.
On May 7, 2015, Genetski, Dent, and a throng of lobbyists and lawyers met to discuss legislative and regulatory opportunities at a midtown Manhattan lobbying office. Again, they discussed FanDuel and DraftKings taking the lead to create an industrywide board that would aggressively self-regulate, similar to the movie ratings board created by the Motion Picture Association of America, while also fielding consumer complaints. When the meeting broke up, there was fresh momentum for the rivals to pursue the proposal, with the tentative name the “Fantasy Sports Control Agency.”
A week later, DraftKings struck a sponsorship deal with NASCAR and introduced contests on its races. FanDuel had also discussed the sponsorship, but after DraftKings landed it, Eccles and his colleagues were furious, telling investors they were convinced that their rival’s new contests violated federal law. “How were they going to self-regulate when one company didn’t agree with what the other company was doing?” a senior industry consultant says. “It really was the end of any hope for cooperation.”
Besides the CEOs’ mutual mistrust and simmering resentments, there were a variety of other reasons the industry never established the board. It was expensive, for one thing. It also required the political skills to cobble together a coalition of dozens of companies with conflicting agendas. “We had a lot of discussions about it,” Robins says, “and we were in the process of collaborating on it. And everything just kind of moved too quickly.”
“We had thought through things like self-regulation, how that would look,” Eccles says. “But we hadn’t invested nearly as much as we should have, if we had known what was coming.”
It was a costly missed opportunity. When investigators and prosecutors began scrutinizing the industry, a self-policing Fantasy Sports Control Agency might have bought some goodwill.
Instead, FanDuel and DraftKings marched toward an expensive war for market share, in part at the urging of impatient investors who wanted the sites to grab a larger chunk of the 57 million Americans who play season-long fantasy sports. The rivals seemed unable to extract themselves from a vicious cycle: The more their executives could show investors the exponential growth rates of new customers and entry fees, the more investor money they could attract. The more investor money the executives could attract, the closer they would come to an IPO and life-changing paydays for everyone.
The summer of 2015 began with soaring financial promise. Everyone wanted in.
In June, ESPN’s parent, the Walt Disney Company, was finalizing a $250 million equity stake in DraftKings. In return, DraftKings pledged to spend a whopping $500 million in advertising on ESPN properties over several years. The deal had been discussed for months and seemed a certainty as industry leaders gathered in midtown Manhattan for the start of the FSTA’s summer conference on June 22. But by the end of that day, word began circulating that the deal had blown up after a top Disney attorney warned executives that he was uncomfortable with the legal uncertainty surrounding DraftKings’ contests.
Undeterred by that setback, and with much fanfare, the industry leaders closed a record-shattering funding round in July—$275 million for FanDuel and $300 million for DraftKings—that pushed both companies’ valuations considerably higher than $1 billion. And then DraftKings raised even more, in another funding round that wasn’t made public.
But trouble loomed.
In late July 2015, an ominous-sounding letter arrived at both companies’ headquarters. It was from a U.S. attorney in Tampa, alerting executives that their companies were the subjects of a criminal tax investigation, sources told Outs
ide the Lines. Despite receiving those notices, the executives moved forward with their marketing plans to try to become number one.
“In hindsight,” an influential consultant close to both companies says, “those commercials were even more insane because they knew they were under federal criminal investigation.”
There was more bad news, but this time it hit publicly. McKinsey & Company released an alarming study showing that a tiny percentage of daily fantasy players win consistently—only 1.3 percent playing baseball. Analyzing three months of results scraped from FanDuel, McKinsey’s study raised major questions about the long-term viability of fantasy sports’ “ecosystem.”
“Investors are overlooking a fundamental operating challenge: the risk that the skill element of daily fantasy is so high that DFS pros will wipe out recreational players in short order,” wrote the report’s coauthors, Dan Singer and Ed Miller. The “whales,” who Singer and Miller say lose thousands a year on baseball contests, bolster the sites’ revenues. “If those whales get discouraged—and they have a negative-31 percent return of investment, so it’s easy to see why they’ll get discouraged—the industry will die,” Singer says.
Neither company was discouraged, and they pressed forward. DraftKings had always intended to invest a big chunk of its new money on a bid to firmly establish itself as the leading daily fantasy site. During the 2014 NFL season, FanDuel boosted its market share by spending more on ads than DraftKings, whose executives vowed they’d never be outspent again. Initially, FanDuel wasn’t planning to spend nearly as much in 2015 as its rival, but executives had watched as DraftKings significantly closed the gap on total market share before surpassing FanDuel in July with nearly 60 percent of the market. FanDuel concluded that the only way to reverse its bleeding market share was to try to match DraftKings’ enormous ad buys that autumn during football season.
Fortified with their overstuffed war chests, the two companies were prepared to spend as much money as it would take to destroy the other guys.
