(*) MASTER NOTES: Will daily game players stay engaged?

There has been a good deal of talk here about daily fantasy baseball. At its core, is it just gambling? Is it really legal? And does it have the legs to last?

Well, the game operators certainly hope it lasts. During the first six months of this year, industry leader FanDuel took in nearly $150 MILLION in entry fees. (There are seven zeroes in that number.) And even after giving away nearly $130 million in prizes, they cleared more than $11 million.

That was in six months. And that was just one company.

The next two largest companies behind them—DraftStreet and DraftKings—just merged. There is an incredible amount of money moving around here.

Regarding the gambling and legality issue, daily games narrowly fit into the approved definition of a legal non-gambling game. Prizes are determined in advance, not based on the number of participants. Performance is based on the knowledge and skill of the participant. And results are based on the outcomes of multiple real-life games. Those are the criteria.

Daily games meet the litmus test even though the variability of outcomes is arguably larger than in season-long games. The balance between skill and luck does shift more towards luck, at least on a nightly basis, but there is clearly skill involved to win at these games. It's not just the turn of a friendly card.

Still, many people do liken it to poker, at least in relation to the need for multiple games in order to assess true skill. Anyone can win or lose on any given night. Anyone can win or lose in any given hand of poker. But true skill emerges when played over many nights, or many hands.

So it's all blue skies ahead, right? It's legal, it's profitable and it's growing.

Not so fast.

I am curious about the long-term psychological engagement of daily game players, and thus, its long-term viability. Ironically, it's skill—the very element that makes this game legal—that might be its ultimate undoing.

You see, poker succeeds—and always will succeed—because there is the underlying expectation that the cards are random. We know that there are expert players, but the game is still driven by the expectation of randomness.

Daily fantasy is different. Because the underlying expectation is that this is a skill game, those who play expect to get better the more they learn about the game, the players and the strategies. But there is one more important element: time.

The learning curve isn't necessarily steep, but it can be hugely labor-intensive. As a result, daily game players have naturally stratified into casual players and hard-core players, those whom Todd Zola calls "grinders." That's an apt description.

You can sit down at a poker table and play a bunch of hands, winning a few of them and coming away in the black. But you don't have to spend two hours researching the cards in advance.

Daily game grinders put in a lot of time and effort in advance and may enter many teams on a given night. It's possible they may enter all those teams in a single contest, thus increasing their payout if they win. The casual player, well, he's the guy who will likely be handing over his money.

He's also the guy that these daily game operators rely on to make it all work. The game companies only survive on the sheer volume of participants.

I don't know what the exact percentages are, but I would suspect that maybe 10-20% of participants are grinders, maybe another 20-25% play regularly enough to stay engaged, and the remaining 50% serve to feed the pot.

Even if it's only 40%, or 30% casual players, how likely are they to keep coming back once they realize that the path to real profit lies in a labor-intensive daily effort?

The casual poker player keeps coming back because he expects the randomness of the cards to keep his odds of winning at an acceptable level. The daily fantasy gamer doesn't have that expectation. It's a skill game and he has to work—work hard—to keep his odds at an acceptable level.

At what point will he realize that it's not worth the effort?

Apparently the game operators do recognize that their survival requires them to keep casual players engaged, but the bottom line is still dollars and cents. This may not be gambling, but cash is still the key motivator—a paradox if ever there was one. This means that losing players will either have to start spending more and more time preparing for each night's games, or eventually give up.

Needless to say, the game operators are hoping to breed more grinders. And hoping that the promise of ever-increasing cash payouts will continue to draw in the casual players.

It's a tenuous balance; it might work, but it might not.

August salaries for the monthly game will be posted this Monday at ShandlerPark.com.

Follow @RonShandler

 

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