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Is Daily Fantasy Football on FanDuel and DraftKings a Scam?

Andy Dalton and A.J. Green's games versus the Ravens boosted Ethan Haskell's 2nd place effort.

Andy Dalton and A.J. Green's games versus the Ravens boosted Ethan Haskell's 2nd place effort.

Is FanDuel and DraftKings Rigged?

In the wake of the recent scandal involving a DraftKings employee (Ethan Haskel) who won $350,000 while playing daily fantasy football on rival DFS platform, FanDuel, it’s legitimate to ask the question: Is daily fantasy sports a scam?

The question is basic to the hobby. If entrants in the DFS contests can’t be certain their games are fair, then they shouldn’t be playing in them. If someone working at one of the sites has inside information and is playing in the same contests, then it isn’t fair. It’s a serious question. In the wake of the controversy, ESPN has said it would limit the number of commercials DraftKings and FanDuel can run in a telecast, which might be a relief to many fans.

So a full review of what happened, along with a broader discussion of how the industry works, is in order.

I believe Ethan Haskel did not have access to the statistics people say he did, but that’s only based on trust and a bit of deduction. It is my contention those statistics would not have been as useful as the New York Times makes it out to be.

In the last day, Mark Edelman of Forbes followed suit and suggested DraftKings and FanDuel have practically the same salary cap stats. Later, I’ll prove definitively that isn’t the case, so this couldn’t have been “insider trading“. I’ll discuss the basics at first.

What Caused the FanDuel/DraftKings Controversy?

Every Sunday during the NFL season, FanDuel offers the NFL Sunday Million, which promises to pay the winner a guaranteed million dollars, and maybe more. It’s a huge weekly event which draws several hundred thousand entries. Players must pay $25 to enter, but have the chance to win a life-changing jackpot.

This last Sunday, an employee of DraftKings won second place in the NFL Sunday Million on FanDuel. This was worth $350,000. Later, he tweeted the “% Draft” statistics for his players.

Twitter followers noticed and a first-rate scandal ensured. People wondered if the DK employee had seen confidential player draft percentages at his place of work, then used these to make strategic choices in the NFL Sunday Million event. If this were done, the entrant could have avoided players with high-volumes of betting, thus finding players who might give him separation from the hundreds of thousands of other entrants (if those players did well).

DFS Bloggers and Pundits Erupt in Protest

The top industry websites (Rotogrinders, Legal Sports Report) reported those concerns and the Internet exploded with controversy. FanDuel and DraftKings released statements denying the player had any inside information.

Meanwhile, media pundits have written their opinions in the New York Times and Forbes. In several cases, they contended that something akin to insider trading took place. I find that an absurd proposition, but it was reported in the New York Times, so it has a profound impact.

What Is “% Draft” on DraftKings?

After contests finish on DraftKings, you’ll see a statistic which says “% Draft”. This is the percentage of the entries which drafted that particular player. For the sake of brevity in this article, I call that statistic “start percentage”. It might better be called “draft percentage”.

Let me given an example of how the stat works. Karlos Williams was at a whopping 49.9% at the “% Draft” stat last week on the $2 Million Millionaire Maker event last week. Of the 376,767 starting lineups which were entered in the contest, 49.9% of them started Karlos Williams.

At the same time, the Cincinnati Bengals Defense had a start percentage of only 2%. Only two percent of the contestants had the Bengals D going.

How Start Percentage Affects Outcomes

It has been noticed that the winners on the NFL Sunday Million event on FanDuel and the Millionaire Maker event on DraftKings do not follow the usual player trends. That is, they might start Rob Gronkowski and Julio Jones, but they also have a standard player who isn’t going to have a high “% Draft”. If that less-selected player is the one with the massively high score that week, then that team’s owner is likely to gain separation from the field.

The contention by those who are critical of the daily fantasy football services in this controversy is the employee at DraftKings used inside information from his place of work to get an unfair advantage at FanDuel.

FanDuel and DraftKings Joint Statement

FanDuel has given a denial that it allows employees to see its statistics. DraftKings has been less forthcoming, but that’s probably because the company is conducting an internal review before making a public (and legally binding) statement. In lieu of that, both services made the rare move issuing a joint statement. That’s the equivalent of Coke and Pepsi issuing a joint statement on their business practices.

The statement read:

Nothing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers. Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs. Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.

“However, we continue to review our internal controls to ensure they are as strong as they can be. We also plan to work with the entire fantasy sports industry on this specific issue so that fans everywhere can continue to enjoy and trust the games they love.

FanDuel began their statement differently: “While there has been recent attention on industry employees playing on FanDuel and DraftKings.”

That is probably the biggest revelation in all of this: that the industry’s two biggest rivals allow their employees to play on their rival’s platform. That is, DK and FD did until now. Both have temporarily suspended their employees from playing on rival sites, for the time being.

DraftKings Statement on Ethan Haskel

DrafKings issued a further statement about the specific case of Ethan Haskel. That statement read, “We want to set the record straight. For the last several days, DraftKings has been conducting a thorough investigation, including examining records of internal communications and access to our database, interviewing our employees, and sharing information regarding the incident with FanDuel. The evidence clearly shows that the employee in question did not receive the data on player utilization until 1:40 p.m. ET on Sunday, September 27. Lineups on FanDuel locked at 1:00 p.m. that day, at which point this employee (along with every other person playing in a FanDuel contest) could no longer edit his player selections.

Ethan Haskel, who used to work at Rotogrinders, called himself in an interview two months ago a “grinder”. That’s an industry term for someone who uses excessive esearch, copious notes, and statistical models on spreadsheets to win with good old-fashioned expertise. While there is always a certain luck to winning, having a massive database of stats helps find the best players for a situation. One would think having draft percentages would help.

Let’s dissect that question for a minute.

No Evidence He Knew % Draft Statistics

It should be noted all of this is in the arena of conjecture at the moment. No evidence suggests that the person who won 2nd place and the $350,000 knew the percentage start values on DraftKings.

What happened is the player values were tweeted out after the win by the owner. That is highly suspicious, because the winner is showing the statistics in a form of boast about their intuition and predictive abilities. It is not evidence they did something wrong, though, because those statistics are available post facto to everyone. It’s akin to post-game analysis of an NFL game on Sunday. While it would be a scandal to know that Devonta Freeman is going to score 3 touchdowns before kickoff happens, it’s no big deal to throw around those stats after those touchdown plays were broadcast to the world.

Still, for an industry which is beginning to receive criticism from many quarters, it’s bad timing. I suppose there’s never any good timing for a scandal, but FanDuel and DraftKings have been ramping up their advertisements in 2015 in order to gain an advantage over their rival. Their ads are omnipresent. Suddenly, politicians from Michigan to New York to Florida have begun discussing regulations, which is something the two services do not want. None of us want it, in fact.

Why Avoid Government Regulation?

The daily fantasy sports industry is legal under federal law, because of a carve-out for fantasy sports in the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA).

The UIGEA made it illegal to electronically transfer funds associated with forms of gambling which were made illegal under the 1961 Wire Act. That certainly involves sports gambling, while it involved online casinos and poker sites from December 31, 2006 until late in 2011, when Department of Justice policies changed. What the UIGEA did not make illegal were state lotteries, bets on horse racing, and fantasy sports. In 2006, 30 million Americans gambled on fantasy sports. In 2015, that number has grown to perhaps 50 million Americans. Many of them partake in real money daily fantasy sports contests.

The lawmakers in the US Congress who passed the UIGEA never counted on daily fantasy sports. It didn’t exist at the time. Thus, DraftKings and FanDuel have been able to grow their business models free of the constraints that hamper traditional sportsbooks and sports betting exchanges. Corporate America got on board as investors. The American sports leagues and their franchises signed corporate sponsorship deals with one or the other of the major services. DFS is accepted and legal, at least on the federal level. (5 US states ban it, while others are discussing doing the same.)

Why Fear the Federal Government?

The fear of the daily fantasy sports sites, as well as their investors, corporate partners, affiliates, and huge customer bases is that regulation is a wild card. Restrictions might be put in place which make it hard to grow anymore. Taxes might be imposed which hurt the profit margin. Or politicians being what they are, they might ban the whole industry on a whim. Going down the road to regulation is rolling the dice in a huge way. The risk is great and the reward is almost nonexistent.

That won’t stop the drumbeat. The media is starting to discuss the issue. The casino sports betting industry short-sightedly think tying their industry to DFS might help their legalization cause, so they often discuss the contradiction of legalizing DFS, while banning sports betting. The gaming industry and the advertising blitz are an enticement for more media coverage. Politicians read the clippings. Eventually, one is certain to make this his or her issue, because issues can get politicians lots of free press (see: Donald Trump and Mexico).

Player Values on DraftKings and FanDuel

The question people should be asking is whether knowing the DraftKings start percentages is going to be an advantage when fielding a starting lineup on FanDuel. It is my contention that it isn’t, even if someone did see the “% Draft” stat. Here’s why.

FanDuel and DraftKings – Salary Cap Number Comparison

If you start looking at the salary cap figures on DraftKings and FanDuel, you will see they are far different than what is generally being reported. I’ve said this before on several occasions, before this scandal happened: DraftKings offers better salary cap bargains than FanDuel.

That in itself make the DraftKings draft percentage statistics somewhat irrelevent, because it would throw off the percentages by a great amount. I bet, if DraftKings and FanDuel showed their draft percentages on players, they wouldn’t be as closely-linked as you might think.

Below is a basic comparison of quarterbacks on the two sites. This is for Week 5 contests. I’ve chosen the salary cap figures after entering the NFL Sunday Million on FanDuel and the Millionaire Maker on DraftKings.

Top 10 QBs on DraftKings

Aaron Rodgers – $7,900
Tom Brady – $7,800
Drew Brees – $7,200
Ben Roethlisberger – $7,200 (*)
Peyton Manning – $7,000
Russell Wilson – $6,900
Eli Manning – $6,800
Matt Ryan – $6,700
Carson Palmer – $6,600
Philip Rivers – $6,200

Top 10 QBs on FanDuel

Aaron Rodgers – $9,200
Tom Brady – $8,800
Drew Brees – $8,100
Peyton Manning – $8,200
Russell Wilson – $8,200
Eli Manning – $7,700
Matt Ryan – $8,300
Carson Palmer – $8,100
Philip Rivers – $7,500

(*) Roethlisberger and players declared “Out” are added to the DK list each week, for some reason.

Player Values at FD and DK

Philip Rivers isn’t a Top Ten quarterback on FanDuel. Joe Flacco ($7700), Tyrod Taylor ($7700), and Sam Bradford ($7500) all have equal or higher values. Ben Roethlisberger is nowhere to be seen. While only the most diehard Steelers homer would play Big Ben at this point, it illustrates the differences in how each game is presented.

Those are the values at the top of the rankings, though. If you drop down to the bottom of the rankings, where players search for value, you’ll find that the differences in prices are starker.

Keep in mind that the salary caps are different on the two sites. People will argue that the differences are thus minimal, because of that difference. I argue that $1000 to $1500 difference is significant, if not major, even accounting for the overall salary cap differences.

Finding Bargains on DraftKings

Let’s go back to the Steelers quarterback situation. Michael Vick costs $6,500 on FanDuel, but he only costs $5,100 on DraftKings. Vick’s value on FanDuel puts him square in the middle of the average NFL quarterbacks. On DraftKings, he is a bargain. He’ll naturally have a much higher start percentage on DraftKings.

The same goes for a number of other players. Brandon Wheedan, Blake Bortles, and Jameis Winston are all valued at $5,100 on DraftKings. On FanDuel, the player values are $6,900 for Blake Bortles, $6,400 for Brandon Wheedan, and $6,400 for Jameis Winston. That presents a much different dynamic when building a team under a salary cap.

On DraftKings, if you have a hunch any of those guys are likely to pop this weekend, you might skimp on QB. While I wouldn’t recommend that in most situations, it’s a legitimate strategy, because several $5000-range quarterbacks have been on 1st place teams on the NFL Sunday Million and Millionaire Maker events this year. (Namely, Marcus Mariota those first couple of weeks.)

Salary Cap Values More Homogenized on FanDuel

The same goes for players at the running back, wide receiver, and tight end positions. In my experience playing both, I’ve found that FanDuel tends to homogenize the player values somewhat. DraftKings produces a much wider range. That’s one of the main reasons I promote DK on this website so much: I believe smart competitors can find bargains easier on DraftKings.

For our purposes here, that argument is beside the point. What’s important to take away is that knowing the “start percentages” on DraftKings is not going to be an appreciable advantage when playing on FanDuel. The player values on the contests are different enough that the percentages are going to be much different.

The True Advantage of Working at DraftKings

I’ll tell ou the true advantage the DraftKings job gives Ethan Haskell: time to study the NFL. Most DFS contestants have days jobs they must perform. How many of them have ever wondered how good they might be at their hobby if they could devote 8 hours a day in the workplace to it?

Yes, it is suspicious that a DraftKings employee won a bunch of money on FanDuel. Yes, I thinks it’s best that employees be banned from such gaming, to avoid the appearance of impropriety. But I don’t think Ethan Haskell cheated to win his $350,000. He’s a grinder with more time to grind, that’s all.

1 Comment

  1. Flip Robitard

    I played on both DraftKings and FanDuel, and I’ve enjoyed my experiences at both sites. I probably prefer DraftKings a little more because of the extra sports they offer, but I’ve never seen a hint that either is a scam. For anyone who’s curious about playing for the first time, I suggest signing up without any worries or hesitation.

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