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Romano: Fantasy sports betting rakes in the cash, and now, the questions

FanDuels and DraftKings, the industry's dominant players, had start-up valuations of $1.3 billion and $1.2 billion in July, according to the Wall Street Journal. Together, they have boasted of more than $3 billion in payouts this year, which suggests an even larger sum of money being put in annually by consumers. [AP photo]

FanDuels and DraftKings, the industry's dominant players, had start-up valuations of $1.3 billion and $1.2 billion in July, according to the Wall Street Journal. Together, they have boasted of more than $3 billion in payouts this year, which suggests an even larger sum of money being put in annually by consumers. [AP photo]

The commercials make it seem so easy. Take your passion for sports, mix it with a little due diligence and then relax as the jackpots come to you.

The only problem is, for most people, the reality of online sports fantasy leagues isn't quite as uplifting. The losers outnumber the winners by a staggering ratio, and celebrations never seem to spontaneously break out like they do in the ads on TV.

Which is a polite way of saying:

Prepare to kiss your money goodbye.

"I'm a sports fanatic, but I'm no match for these guys who do this for a living with all their computer programs,'' said Jay Glaser, a Deerfield Beach retiree who spent years working on Wall Street. "I'm ready to throw in the towel when my money runs out.''

He's not alone. Criticism of the largest sports fantasy operations has grown increasingly loud, and some critics are starting to fight back.

Legislative leaders in Tallahassee have instructed their staffs to look into the question of whether daily fantasy leagues are legal in Florida. A grand jury in Tampa is reportedly investigating whether they violate a federal gambling law, and one South Florida man has accused the leagues of deceptive advertising in a case that was recently merged with a class-action lawsuit in Boston.

Fantasy leagues, and the issue of their legality, even had a featured role in the Republican presidential debate last month.

So what's all the fuss about?

The simple answer is money.

FanDuel and DraftKings, the industry's dominant players, had startup valuations of $1.3 billion and $1.2 billion in July, according to the Wall Street Journal. Together, they have boasted of more than $3 billion in payouts this year, which suggests an even larger sum of money being put in annually by consumers.

These bettors can pay an entry fee and draft their own teams daily — staying under a specified salary cap based on the value of the athletes chosen — and the actual on-field results of those players are used to determine which fantasy team had the best night.

Business had gotten so good that FanDuel and Draft-Kings began throwing hundreds of millions of dollars at television advertising. The aggressive strategy definitely attracted new customers, but it also seems to have caught the eye of politicians and lawyers.

The politicians are wondering aloud whether the fantasy leagues are running afoul of sports betting laws, and the lawyers are questioning the veracity of the ads.

Meanwhile, the scrutiny has also shined a light on how the games are dominated by a handful of tech-savvy players with complex algorithms that help them maximize their fantasy lineups, using weather, injuries, matchups and other factors. These players often enter hundreds of games simultaneously every day, turning it into a full-time job.

A Washington Post story says one consulting firm determined that 1.3 percent of the players were responsible for 40 percent of the entry fees at one point this baseball season, but they also reaped more than 90 percent of the jackpots.

Jason Collette, an award-winning writer for the Fantasy Sports Writers Association, has been playing for more than 20 years. He prefers to enter full-season leagues, but says he's tried daily games about 40 times. Despite his experience and expertise, he says he lost about 90 percent of the time in the daily games.

"You can't dumb-luck your way through these games,'' Collette said. "You may hit a $50 payout every now and then, but long-term you're not going to win. It definitely involves some serious strategy at that level.''

So what, you say? Buyer beware, and all of that.

I tend to agree in a broad sense. But there is also the issue of an insider trading scandal this year that suggests more regulation may be necessary.

And then there are the ever-present ads that promise players that FanDuel or Draft-Kings will match a player's initial investment dollar for dollar, giving the impression that your money will immediately be doubled. The ads don't mention that the matching payout actually comes at a 4 percent rate.

That means a $100 entry fee will get you a $4 matching payment for your first game. You have to keep playing — and keep adding money if you're losing — to get the rest of the matching payment. All at 4 percent a pop.

Not surprisingly, a plaintiff in Miami sued DraftKings earlier this year claiming the ads were deceptive. The claim will be heard with similar cases in Boston.

"If you really want to be up-front would you have 'Free $200 deposit' in large print, and then on your website have an asterisk in tiny print that you have to scroll down to see that gives you the truth?'' said attorney Mason Kerns of the Mase Lara law firm in Miami. "The question is, are they being up-front? The answer is hell no.''

There is a clear appetite for fantasy betting games, and these online operations had the potential to be gold mines. Yet their futures are now much more unsettled because of all the scrutiny they invited from lawmakers and court officials because of the in-your-face level of advertising.

To put it in gambling terms, sometimes you should quit when you're ahead.

Romano: Fantasy sports betting rakes in the cash, and now, the questions 11/07/15 [Last modified: Saturday, November 7, 2015 9:40pm]
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