FANALYTICS: Carrot Harvest

Over the course of this season, I have written several articles about how this industry is changing.

In the beginning, Rotisserie Baseball was created as a cerebral marathon driven by competition and camaraderie, with a token carrot at the end of the quest. Admittedly, that carrot might be more than token on occasion, but the focus was always on the game and not the carrot. That focus has changed over time with daily fantasy contests accelerating our cravings for the carrot.

That changing focus has also made winning secondary to managing the garden, which some might consider flying in the face of pure competition.

But maybe there are ways to grow those carrots in a manner such that we can stay engaged in the game.

Will this current trend persist? Last month, I wrote about potential danger signs ahead. In the month since, there have been more fascinating and disturbing developments.

What has happened recently?

DraftKings (the industry's #2 day-game company), coming off last month's acquisition of competitor DraftStreet, just acquired another operator—StarStreet—along with $41 million in outside financing. That makes nearly $75 million in funding since last November.

Major media companies that had been reluctant to jump on the one-day-game bandwagon have started to leap. Sports Illustrated and USA Today just introduced their own daily fantasy games, in time for football season.

The Fantasy Sports Trade Association just hired lobbyists to keep an eye on potential new legislation that would ban online gambling. While fantasy games have already been deemed legal, they have been tied to online gambling in the past. As such, the association remains vigilant in keeping an eye on upcoming legislation.

Finally, Major League Baseball just lifted its restrictions on "signage and activations for daily fantasy gaming."

What??

MLB is okay with daily fantasy baseball? Really? REALLY? What massive hypocrisy! In March 2013, MLB Advanced Media CEO Robert Bowman called daily games "akin to a flip of the coin, which is the definition of gambling."

Okay, it's been over a year. Something must have changed since then, right? Something must have changed to cause MLB to make a decision that essentially reverses the MLBAM CEO's definition of gambling.

Has MLB changed its rules about gambling? No. In fact, the 25th anniversary of the banning of Pete Rose has come and gone without any movement to back-track that decision. Gambling is still bad.

Has the government changed its stance on what constitutes a legal fantasy game? No. Federal law has determined that our games are legal, at least according to the Unlawful Internet Gambling Enforcement Act of 2006. However, state law does take precedence. In fact, there are a handful of states that still ban fantasy sports outright, and Kansas just reinstated their restrictions!

That leaves MLB with an interesting conundrum. From Marc Edelman's article:

"In a limited number of states including Arizona, pay-to-enter, play-for-cash contests that involve any element of chance whatsoever are illegal. There, all forms of daily fantasy sports clearly violate the law... It's odd to think that soon baseball fans could be able to view ads for daily fantasy sports at Chase Field. But if the fans at the ballpark enter into those contests, they will have technically committed a misdemeanor."

Quite a paradox for MLB, huh?

So what has really changed in the past year to cause MLB to suddenly embrace daily fantasy games?

The only thing that has changed has been the revelation about how much money is changing hands. Industry leader FanDuel's revenue projections are particularly awe-inspiring. They took in $159 million in entry fees in 2013 that yielded $14.3 million in revenue. Through six months of 2014, they'd already taken in $141 million, cleared $11.6 million, and football season hasn't even started yet. They are projecting revenue of more than $40 million this year.

FanDuel is just one company. It's the oldest daily game operator and they've only been in business for about five years.

For MLB, it appears that the carrots are now too big to pass up, even if there are still grey areas in the question of legality. Even if it forces them to toe the line on gambling. They have to have a stake in this massive, ever-growing garden, even if there is the possibility of a future drought. (Twenty-five years ago, how often did we hear that Pete Rose's transgression was not so much gambling but not giving MLB a cut of his winnings?)

The carrots have gotten too multitudinous to be ignored.

Ah, carrots. The odd thing for me is that everyone seems to be side-stepping this core issue when it comes to gambling and fantasy sports.

You see, the federal law may define the issue as one of skill versus chance. Yes, most fantasy sports are skill-based games. But really, the fundamental core of the issue with gambling is not skill, or chance, or any myriad of arcane rules that attempt to fit a particular game into a specific mold.

It's all about the carrots. It's always been all about the carrots. I'm not sure why the government ignores this most obvious point.

But I have my own litmus test for what constitutes gambling.

Take any game and ask two simple questions. If the answer to the two questions is NO, then it is gambling:

1. Would anyone play the game if not for the promise of carrots?

2. Would you be able to construct a successful, sustainable business model around offering a version of the game that did not have carrots?

I look at the daily fantasy games and can't help but think that there is nothing there if not for the carrots. I wouldn't take the time every night to research and construct a roster if there wasn't the promise of some potential for monetary gain. I might do it on a lark if I had nothing else to do on a particular night, but you can't build a sustainable business model around that type of casual play.

I have been playing season-long fantasy forever and enjoy the game in its own right whether there are carrots or not. In fact, bragging rights are "carrot" enough for me in many of these leagues. The game model is engaging and challenging, and stands on its own without outside incentive.

That was my goal when I designed the monthly game.

I envisioned a format that fed into our shorter attention spans but still was driven by the game. This competition would maintain the day-to-day league dynamic of a full-season fantasy experience, but condense it into six, neatly-packaged one-month bites. But most of all, I wanted it to stand on its own as an engaging fantasy format and a sustainable business model that did not necessarily need carrots.

But as it turned out, 70% of the participants were just looking for carrots.

More accurately, 70.3% of survey respondents said that at least 50% of their motivation for playing the one-month game was the carrots. Nearly 20% said the carrots were 100% of their motivation. They didn't care about whether I used 8 or 10 stat categories, or whether the $300 roster budget was reasonable, or how I calculated player salaries.

They did care if the rake was too high or the first place payouts were too low, regardless of how many teams in each league shared in the pot. They also cared about finding a way to figure out the system, gaming it if necessary, and coming away with more carrots.

So, as we wind down to the final one-month game this weekend, I am trying to figure out where to take this.

One side of me wants to forge ahead. I want to keep building it up and finding the elusive balance between entry fees, prizes and profitability. Hundreds have been playing the game every month so the seeds have been planted for future growth.

The other side of me wants to get out of the gambling business.

For nearly 26 years, I ran an information support company where customers paid for the right to access high-quality, exclusive intelligence to help them win a cerebral game. I looked around me last winter and concluded that a similar model would not work for a company offering the actual game experience.

But why not? You plunk down your hard-earned pennies to attend a live ballgame and don't expect to come home with more money than you left with. Jeff Barton of Scoresheet Baseball has been in business almost as long as I have; he offers simulation leagues where thousands pay to play and don't expect to come home with anything more than a trophy or a certificate. You pay for the privilege of having an experience, either as a spectator or an active participant.

On the other hand, having some skin in the game keeps people engaged. The carrots pretty much ensure that participants pay attention. But the game itself might not even matter.

I'd rather design a great game that stands on its own. The only carrot would be the sheer joy of wanting to play again. Is that a reasonable goal for a sustainable business? I'll be spending this winter trying to figure that out.

Take your last shot at the monthly game in September. Deadline is Monday, Labor Day. Details are here.


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  For more information about the terms used in this article, see our Glossary Primer.