Saturday, September 19, 2015

DraftKings and FanDuel

You've probably seen a lot of commercials recently for gambling sites like DraftKings and FanDuel. They include testimonials like the one above where an ordinary guy won $2.1 million dollars. When you add it all up, it seems like people have won impossible amounts of money from these sites. One commercial I saw said the site has given out over $2 Billion in winnings! How is that possible?

In this article, I will attempt to explain what I think is going on here.

I recently created an account on DraftKings by depositing $25. (Side note: As a special offer, they said they would match this deposit and double it to $50, but that turned out to be a bait and switch offer. I would have to play a lot on the site and gradually earn the $25 in credits, which would take me a pretty long time and hardly be worth the effort.)

Initially, I was drawn to the prospect of winning $1 Million in one of these big contests. I wanted to be like the guy in the commercial, hugging all of his friends after his team presumably stopped some opposing player from gaining a yard on the final play of the game. I quickly realized that these games are a waste of time, because they are a lot like entering the NCAA pool. You pay a small amount to enter (say $5) and compete against a million other people. It only takes about an hour after the games start for you to realize that you are not going to be winning this lottery.

But then I noticed something interesting. They have these smaller games you can play, where it is much easier to win. There is a golf game, for example, where there are 36 people who enter each game, and if you finish in the top 12 you get double your money back. I'm actually pretty knowledgeable about golf and won this game a few times. (My initial investment of $25 is actually back up to $23 now.) Alert the IRS!

So what is my point? Well, in total I've actually lost about $30 on these games and won $28. So the site can say that I have $28 in "winnings". Now imagine the guy with $20,000 in his account who wins and loses an average of $3,000 each week. He might break even over the course of the year, but his "winnings" are $150,000. Multiple that by half a million people and these numbers stack up pretty quickly. Is it surprising that a site can give out over $1 Billion in "winnings"? Hardly. But what they don't tell you is what the net winnings are . Of course, the site takes a small percentage every time someone loses and someone else wins.

Is it possible that the guy shown above won $2.1 Million? If he has an account with $100K in it and wins $20,000 per week, he could reach this staggering total after about 2 years. But it doesn't mean he has any more money in his account than when he started.


Post a Comment

<< Home