Multi-entry tournaments a catch-22 for daily fantasy sports

If you live in the United States, you can't escape the buzz around daily fantasy sports (DFS). Market leaders DraftKings and FanDuel spent all summer ramping up for the NFL season and are spending millions of dollars to acquire new depositing customers.

DraftKings, in fact, ranks fourth in TV advertising spend over the last seven days, with an estimated $16 million. That number puts the company just behind GEICO and just ahead of Ford. A big part of that ad budget has been spent pumping up the site's $10 million Millionaire Maker that will run the first week of the NFL season. The event costs $20 to enter, will feature a $2 million first-place prize, and the site expects to draw a whopping 572,500 entries.

Both DraftKings and FanDuel have been making individual deals with professional sports franchises, though DraftKings has been making the biggest waves, with $300 million in funding from investors and an exclusive marketing deal with sports broadcasting giant ESPN.

DFS operators are now looking to expand beyond the shores of the U.S. In mid-August, DraftKings received a U.K. gambling license, and now Amaya is getting in on the action after acquiring DFS operator Victiv.

The marketing behind these sites is simple: Pick your players, win huge prizes. And no doubt, there have been some average Joes who have come out on top and won some serious cash in massive multiplayer guaranteed prize pool (GPP) tournaments. But the reality for the vast majority of players is that the average sports fan has less of a chance to win in DFS than a home game hero has at a poker table with Phil Ivey.

Never has this been clearer than in a $3 MLB Moonshot event hosted by DraftKings on Aug. 20, 2015. Brandon Anderson, playing under the username banders234, claimed first through fifth and had 13 of the top 14 spots, sucking up $45,667.67, or more than 31% of the prize pool. There were 55,485 entries in the tournament.

"Full disclosure, I used fantasycruncher's import feature to put in my lineups, so yes I used a script (probably obvious)," Anderson wrote on the popular DFS forum RotoGrinders. "I had 480 lineups with 4 stacks. WAS, MIN, NYY and CHC (120 each). Normally what happened tonight would never work out like that."

Except that it has. The massive score wasn't the first for Anderson, who finished second through fifth in the same tournament on June 20, a night that featured a $60,000 guarantee with 22,988 entries.

Anderson, however, is not alone in loading up on lineups in the huge multi-entry GPP events. Twenty-four players had 100 or more entries in the Aug. 20 tournament, totaling 4,270 entries, while 14,719 players entered just once.

Make no mistake, professional DFS bettors are using advanced software to help them decide which players to pick, and in many cases, automatically enter hundreds of lineups in DFS contests. None of the major DFS operators ban the practice, and some in fact make it easier by making salary information (the price you must pay against your "salary cap" to pick a player) available for download in spreadsheet form. Why would they want to ban the practice when Anderson's entries in this tournament alone resulted in more than $185 in rake?

So how did the players with the most entries in this tournament do overall? The ROI of the players who entered 100 or more lineups on Aug. 20 was a whopping 322%. Of course, Anderson's haul makes a comparison of high-volume grinders with the folks who entered just one lineup a bit unfair; removing him from the equation results in a -22.2% ROI for the rest of the group. That's not great, but compare it to the bankroll-busting -57.1% generated by those who entered just one lineup.

In theory, you'd expect a number of $3 players to bink a result and post an ROI much higher than someone who paid $1,440 in entries. But just two players who entered only one lineup (out of 14,719) managed to do that, with one winning $233.33 and the other winning $100.

DFS often draws comparisons to poker, in large part because many of the top players are current or former online poker pros. The difference, however, is that poker pros stay away from low-stakes tables and tournaments because they're not worth their time. But in multi-entry GPP tournaments, while one person might be playing a $3 tournament, there are others playing a $1,000 tournament. They're all playing for the same prizes, but they're not on an equal footing.

It's a catch-22 for operators. The Aug. 20 MLB Moonshot on DraftKings drew 23,028 unique players, thanks in large part to the $145,000 guaranteed prize pool, which included a $12,000 first-place prize. The idea of winning a five-figure prize with a $3 entry is a bit intoxicating. But that prize pool doesn't happen without the players who use software to enter dozens, if not hundreds, of lineups. More than 16.7% (9,301) of the entries in the tournament came from the 149 individuals who submitted 25 or more entries. It just doesn't feel right to have 16.7% of the entries come from 0.65% of the players.

If this particular tournament had limited players to just one entry, and you assume that all the players who entered would have still done so, the prize pool would have been just over $60,000 and first place likely would have been around $5,000. That's still a great return for a $3 investment, but the smaller prize might not be enough incentive for some players. If some of them stayed away, it would make the prize pool even smaller, and the smaller prizes might trigger a downward spiral in terms of traffic and market share.

However, allowing players to submit multiple entries allows those who have written scripts and spent hours and hours analyzing the data to run roughshod over the field. Seeing one player claim 13 of the top 14 spots in a contest is going to clue in some of the recreational players that they're outmatched and it's not worth spending any more money to chase the dream of the big payday.

FanDuel, no doubt, is well aware of this. In its first few years of operation as a DFS site, the company heavily marketed the fact that several of its high-volume players were able to make a living off the site. The marketing message is somewhat different in a recent ad: "More money to more winners than any other site."

Of course, not all DFS contests allow multiple entries. There are plenty of 50/50 tournaments where the top half of the field cashes, loads of heads-up tournaments where you only need to beat one player to win, and smaller field tournaments with 10-20 players that pay out the top 10-20% of the players in the field. But those contests aren't the ones drawing players in, and there's nothing stopping DFS pros from entering single lineups into dozens and dozens of these contests as well.

Right now, operators are in a race for acquisition and aren't worried about retention. But if they want their new players to stick around for the long term, they need to protect inexperienced players from the DFS pros, and the best way to do that is by ending the practice of multi-entry tournaments.

NOTE: The original version of this story stated that DraftKings had received $250 million in funding, and not $300 million.