How Fantasy Gambling Can Become Even More Competitive on the Blockchain

Fantasy football has grown into a $7 billion industry and gave birth to the wider fantasy gambling industry where participants assemble a virtual team based on the performance of actual football players. But it’s not all just about football. There are now many online gambling websites leveraging the concept of skilled-based gambling, such as FootballCoin, Skrilla, and Fund Fantasy, and combining it with blockchain technology in an attempt to make the market more competitive. Can the blockchain take the industry to a whole new level? Or is this a gamble in itself?

The Current State of The Online Fantasy Gambling Industry

The jury is still out whether or not the industry should be classified as “gambling.” Supporters claim that it requires skill rather than luck, and opponents say that falls under the definition of gambling where money is bet on an uncertain outcome.

Either way, fantasy gambling is currently legal in most countries with close to 60 million players in the US and Canada alone.

How does it work?

The premise is quite simple. The first step is to enter a league and put up the buy-in if you’re playing for cash prizes.

Once you’re in a league, a draft will be held where you pick players from a roster to create your fantasy dream team. Each player’s on-field performance during the week’s (real life) games will then determine how many points you earn. The end goal is to get the most points to stand a chance of winning a cash prize at the end of the season, or earn the respect of your peers in a free league.

Who are the players?

Fantasy gambling started out with small gatherings in living rooms and bars among friends and family. With the invention of the Internet, however, the industry has become much more widespread where you are now able to compete against literally anybody.

Most people will start off in private leagues with friends and family. This is usually by invitation only and can be for free or played for small cash prizes.

Public leagues are essentially open to anyone. This is where you will have to compete against the Internet population as a whole and, as such, your chances of winning will be significantly slimmer, for two reasons:

  • Instead of having the odds of maybe 1 in 10 (10%), in a private league this will now increase to say 1 in 10,000 (0.01%).
  • It’s a knowledge game, and the more of the ins and outs you know about a specific sport and team, the better you are likely to do. As such, in a public league there will be more “experts” than in a relatively small private group of friends and family.

The nature of the industry is more skilled-based than luck-based, meaning that the House (in this case the gambling platforms) don’t have a real stake in the game, other than charging a fee (whether that’s to participants or ad companies) to facilitate a playing field. As such, the gambling platforms themselves are not considered to be competitors to players.

The revenue stream for gambling sites

The gambling platforms have two main revenue streams; fees and ad revenue.

  • Fees will vary from charging participants to create their own custom leagues on the platform to entry fees for taking part in competitions with a cash prize.
  • Ad revenue is particularly important to free sites, where most (if not all) of their revenue will come from renting out ad space.

This can be a quite substantial amount of capital.

Revenue from fantasy gambling is expected to hit $77 billion per year by 2025.

Arguably the biggest fantasy football sites at the moment are FanDuel, DraftKings, Yahoo Sports, and CBS Sports, each with their own fee structure.

It was reported that Yahoo Sports made around $120 million from fantasy sports in 2013 while FanDuel and DraftKings made a combined $3 billion in 2015.

Some of the revenue is used as payouts to players while the platforms themselves keep a cut as well.

Who are the biggest winners?

Payout per platform will vary. We can take a look at some of the biggest players in the industry to see where the money goes.

CBS Sports has some of the lowest payout rates in the industry.

The columns below shows the fees that participants have to pay to enter each specific league, the maximum number of teams in individual leagues, total distributable prize pot, and then how it gets distributed among the winners and the gambling site.

League Entry fee ($) Teams per league Total prize pot ($) 1st Place ($) Platform keeps ($) Payout (% of entry fees)
Gold 39.99 12 479.88 200 279.88 58%
Platinum 99.99 12 1199.88 600 599.88 50%
Diamond 249.99 12 2999.88 1,600 1,399.88 47%
Double Diamond 499.99 12 5999.88 3,500 2,499.88 42%

Taking into consideration that you could achieve a potential ROI of between 500% and 700%, the downside risk is almost negligible, especially in the lower tier leagues.

Yahoo Sports has one of the better payouts in the industry:

League Entry fee ($) Teams per league Total prize pot ($) 1st Place ($) 2nd Place ($) 3rd Place ($) Platform keeps ($) Payout (% of entry fees)
Pro20 20 10 200 100 60 20 20 10%
Pro50 50 10 500 250 150 50 50 10%
Pro100 100 10 1000 500 300 100 100 10%
Pro250 250 10 2500 1250 750 250 250 10%
Pro500 500 10 5000 2500 1500 500 500 10%

Your chances of winning here are much higher, with payouts going to first, second, and third place positions. And again, the risk is relatively low if you compare it to a potential ROI of between 500% (1st place) and 100% (3rd place).

FanDuel and DraftKings both also have payout rates of around 90%.

Fantasy gambling is not just a game

Whether you see fantasy betting as gambling or not, there are still risks attached to it.

The risk of losing your money – Even though many people would say that the industry is more skilled-based than luck-based, the risk of losing your money is still everpresent.

Centralized gaming platforms – The problem with centralized platforms is that they provide a single point of failure that becomes a lucrative target for cybercriminals, especially in a $7 billion industry. This central point of failure can provide access to millions of user accounts stored on a centralized server.

Insider trading – Back in 2015, it was reported that an employee of DraftKings published data revealing which players were picked by the combined pool of participants. This means the employees have advanced information on who is likely to be the best players based on “the wisdom of the masses” and can use it to their advantage on other sites.

Even if the industry doesn’t strictly fall under the definition of gambling, the risks of fantasy gaming are still very real and not something that can be ignored.

How did Fantasy Football become mainstream?

One of fantasy football’s biggest appeals is that it is directly related to sports. Sports bring people together to socialize but it also brings out the natural competitive instincts in us.

It is this social competitiveness that attracts people to fantasy leagues. And the potential audience is big.

In America, 64% of the population watches NFL football on a regular basis. That’s 208 million people out of the county’s population of 325 million.

Furthermore, fantasy football is easy to get started with and can even be played for free, so initially there’s nothing to lose.

And finally, participating in a fantasy league can greatly enhance the viewing pleasure from watching the actual games as you see how your players are performing in real life.

So, from the onset fantasy football has a very large potential audience, but there are a number of factors that enabled the industry to capitalize on the market.

Push Factors

(Source: Business Insider)

Advent of the internet

In 1989, the fantasy football industry was only about half a million strong. But between 1989 and 2003 that number increased to 15.2 million, a 3,000% increase in just 14 years. This is because of the Internet boom in the late 90’s that made fantasy football accessible to more people. It meant that leagues moved from dining room tables to the Internet. Computers also meant that a wider variety of scoring options were available that made the game more exciting. And more participants meant potentially bigger prizes that only added to the industry’s allure.

Smartphones brought new gambling opportunities

Between 2007 and 2008 we see another huge spike, from 19.4 million players to 29.9 million players. That’s an additional 10.5 million players in a single year. The Reason? Smartphones.

Smartphones meant that you can now play fantasy sports wherever you are by simply downloading the gaming app. Mobile adoption also meant that more people had access to the Internet on a regular basis, thereby increasing user rates.

Daily fantasy sports reduced long-term commitment

Another dramatic spike in player numbers occurred between 2014 and 2015, from 41.5 million to 56.8 million. Again, more than an additional 10 million users in one short year.

This time it was because of the breakout of Daily Fantasy Sports (or DFS). DFS allows you to shorten your commitment to one day, instead of staying with your virtual team for the entire season. Players could now pick their team in the morning and winners are announced by the end of the day.

You now have the chance to win big (or lose big) every single day, instead of having to wait until the end of the season.

The industry is not without its injuries

As with any booming industry, there will be a few hiccups and growing pains.

Mobile adoption. More and more players prefer to access their leagues through mobile applications, since it’s quicker and more convenient. That means actual website traffic is declining, which is not ideal for ad revenue. Gambling sites quickly had to move to mobile-friendly versions or risk being left behind.

Legal problems. Sports betting in America is mostly illegal. DFS doesn’t necessarily fall under this legislature, but in 2015 US government agencies launched an investigation into the legality of the industry.

FanDuel and DraftKings (that own about 90% of the market) coughed up millions of dollars in legal fees to fight the legislature and they eventually won, but it did mean the industry took a bit of a hit in regards to their user base. Between 2015 and 2016, the player growth was only 600,000 (compared to the 10 million in the previous year).

Centralized servers. Conventional web servers will often fail during surge events. We see this from e-retailers during Black Friday for example, as the network struggles with the increased traffic.

In 2012, Yahoo’s fantasy football servers crashed right at the start of the football season and the same thing happened to the ESPN servers at the beginning of the 2016/2017 season.

Scalability is of course achievable but it comes at a huge price and can be a delicate process, as explained by ScaleArc:

“The application-to-database connection is fragile, because applications have to directly tie into the database and the coding of the app must match the database infrastructure. For example, if the database has multiple database servers that can all respond to an inbound request, the application needs to know which type of server to send its request to. While those changes can ensure a better response time, the work isn’t trivial – a programmer must go through 100s of 1000s of lines of code to program how to handle reads vs. writes – and it can lead to errors.”

The blockchain could turn the fantasy of a better ecosystem into a reality

There are a number of blockchain-based gambling projects already up and running, the more prominent ones including FootballCoin, Skrilla, and Fund Fantasy.

The application of the blockchain to real world markets have been tested in numerous industries and its theoretical disruption capabilities are widely accepted.  However, can the concept of these projects effectively be applied to truly disrupt the fantasy gambling market?

What is the value-add to Blockchain-based gambling?

Fantasy football relies heavily on statistics and how players perform on a weekly basis. The performance will dictate how many points are awarded to a user’s virtual team.  If the data that gets fed into the system is inaccurate or manipulated, the eventual scoring will also be inaccurate.

The biggest possible value-add that the blockchain can bring to the table is near-perfect data integrity. This is will eradicate the scandals of trust and make it impossible for gambling platforms to be deceitful.

Blockchain will eradicate the scandals of trust and make it impossible for gambling platforms to be deceitful. Sounds like now you really have a chance to win! Click To Tweet

A trustless environment

Smart contracts facilitate automation where there’s too much reliance placed on human trust. This includes scoring rules and scoring calculations. Not even the gambling websites will be able to tamper with it once a smart contract has been activated.

A fair environment

The blockchain facilitates true p2p markets where players can actually see that there are no behind-the-scenes meddling from the gambling platform. And having your account balances locked up in tokens also provide an extra layer of security in case of security breaches.

A smoother fund transfer environment

Fantasy gambling on the blockchain also mitigates the risks with regards to funding distribution including:

  • The timely transfer of your winnings
  • No third-party involvement, therefore reduced fees
  • No hidden terms so you will get all your expected winnings back without issue

What do these blockchain-based gambling sites need to get right in order to gain the trust of users?

NoLimitCoin did an interesting case study comparing FanDuel and DraftKings to showcase how the blockchain can improve problem areas, and what the benefits of a blockchain-based solution are over traditional centralized platforms.

Reduced fees

Unlike fiat systems, digital tokens do not need intermediaries to ensure the accurate transfer of funds over a network. This enables blockchain networks to reduce fees by more than 50% in some instances.

Streamlined verification

Blockchain networks run on cryptocurrencies and do not directly rely on fiat monetary systems. As such, it is not bound by the restrictive legislation and regulations that can so often bind the traditional markets with miles of red tape and bureaucracy. The direct result is a much simpler verification process, and it’s open to people that live in areas where conventional fantasy sport platforms are banned.

Increased withdrawals and payouts

Transactions on a blockchain network are confirmed by a consensus algorithm that relies on the agreement of several network nodes. Transaction processing is not reliant on a single, centralized platform.

Therefore transactions are more secure, immutable, and, as scalability mitigates the risk of backlogs, payouts are bound to be processed much faster.

Another huge benefit that was not included but can’t be overlooked is the security advantages of a decentralized network compared to centralized platforms.

Fantasy gambling sites not only process millions of funds on a daily basis but they also store large volumes of private user data. In order to successfully breach a decentralized network of servers, attackers will have to know exactly where each piece of this information is held at any one point in order to cause any damage. This is much harder (even impossible) on a network that relies on distributed nodes to store data and process transactions.

It’s not all smooth sailing

The blockchain, in theory, seems like the perfect solution but it comes with its own set of challenges. These challenges are not necessarily confined to fantasy football but to the blockchain as a whole.

Extra effort will be required from users for certain steps. Blockchain fantasy football will require users to purchase digital tokens to start playing. These tokens will have to be purchased from crypto exchanges (which can be a lengthy process in itself). Users will then have to download a specific crypto wallet, transfer, store, and manage the funds themselves.  

Cryptocurrencies are at the moment also extremely volatile, much more so than traditional fiat currencies. Your token can lose more than half of its buying power in a matter of days, and buying digital tokens can sometimes feel like a gamble.

Another issue is scalability. Theoretically, this is possible but Ethereum, one of the most popular blockchains for cryptocurrency projects, only has an average of around 10 transactions per second.

In comparison, Visa processes an average 1,667 transactions per second, and PayPal 193.

Further obstacles include user trust of the technology, lack of user education, and uncertainty in regards to regulations throughout various parts of the world.

How current projects stack up

The projects listed below showcase how varied the blockchain fantasy gaming industry can be, and it doesn’t just have to be based on traditional sports to be competitive.

FootballCoin

FootballCoin aims to bring the advantages of the blockchain and cryptocurrencies to the multibillion dollar fantasy football manager industry (note – the project is based on European football, arguably the most popular sport on the planet).

Users step into the role as real-life football managers based on real-life player performances. Players can be bought and traded based on their actual performance during the week.  Stadiums are also up for grabs.

It is the first blockchain-based fantasy league for European football with its own cryptocurrency (XFC token) which can be used in-game to buy players, stadiums, or even traded via p2p outside of the game.

The token cap of 1 billion sounds a lot, but all of it has already been allocated which places a limit on new players being able to join the platform. It’s hard to see how they will grow and increase the value of the XFC token past the initial stages.

Skrilla

Skrilla, based on eSports (competitive video gaming) allowing spectators to place bets on an industry of close to 2.6 billion players.

The platform is fully licensed and regulated, closing in on an untapped market which is expected to grow to $23 billion by 2020.

The SKR token is a utility token for the Skrilla network that allows holders to enter contests, place bets, and receive winnings on the platform. It fills the gap left by more conventional fantasy gambling networks that focus on traditional sports.

It’s currently only available in Australia which presents a very limited market.

Fund Fantasy

Fund Fantasy, a financial fantasy gaming platform with simulated investment contests where players step into the shoes of fund managers to move up in rank and win prizes.

Fantasy Gaming doesn’t always have to be about sports, and Fund Fantasy offers a unique feel to it. No other platform like this exists where users can “practice” to invest and win cryptocurrencies along the way.

It features fair investing contests where players choose between a range of assets and commodities to build a winning portfolio, and winners are paid out in digital tokens called FUNDZ.

You can practice cryptocurrency investing by building a portfolio and competing in live tournaments against real players @Fund_Fantasy Click To Tweet

For a blockchain-based project, it still has relatively high service fees (commissions) of 10% which can stifle adoption growth.

Conclusion

It is evident that there are working alternatives to traditional fantasy gambling platforms, with blockchain-based solutions providing safer, cheaper, more secure, and frictionless experiences.

That being said, we are still a long way from blockchain projects removing traditional fantasy gaming websites.

It’s a well-established, $7 billion dollar industry with 60 million participants in North America and Canada alone.

On the other hand, blockchain solutions are still relatively unknown. The thing about fantasy gaming is that the more participants there are, the better. So for blockchain-based gaming solutions to gain any real traction, they need to first concentrate on their active user bases.

It’s no use if just a couple of thousand here or there makes the jump to the new platforms, there needs to be a serious shift in participation.

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