They say if you don’t recognize the sucker within the first 30 minutes…
An interesting report on the daily fantasy industry was just published by world-renowned management consulting firm McKinsey & Co., and its findings could be a blow to those (like congressman Frank Pallone) who are attempting to fight the legality of paid fantasy sports contests by claiming that such contests are games of chance, rather than games of skill.
The report could also be disheartening to those DFS regulars who remain convinced that they have a fair chance to turn a profit. If you’re involved with daily fantasy sports at any level, it’s worth a read.
The gist is that a very small number of players– 1.3%, to be exact– win the vast majority of the prize money– over 90%. Here’s more:
— The top 11 players paid, on average, $2 million in entry fees and profited $135,000 each. They accounted for 17 percent of all entry fees. The winningest player in our sample profited $400,000 on $3 million in entry fees.
— The rest of the top 1.3 percent of players paid, on average, $9,100 in entry fees and profited $2,400 each, for a 27 percent return on investment, which is extremely impressive. These contestants accounted for 23 percent of all entry fees and 77 percent of all profits.
— Five percent of players are the big fish; they lost $1,100 on entry fees of $3,600 on average.
–Eighty percent of players were the minnows; they lost $25 on entry fees of $49 on average.
Hence, the DFS economy depends heavily on retaining the big fish. They had a staggering loss rate of 31 percent of what they paid in entry fees and accounted for 75 percent of all losses. Each minnow loses less than $10 per month and may happily continue to play forever, but each big fish loses more than $4,000 per year. The entire DFS economy depends on these few players.
The chief concern here is that casual players will lose interest in Daily Fantasy games because it is so difficult to make money. To that end, the final section of the report is entitled “Potential Fixes” and offers a few suggestions on how to fix the problem, such as changing the way players are priced in salary cap leagues, limiting entries on certain games, or even dropping the salary cap model altogether. As I said, the entire thing is worth a read.