Really nice piece on DFS and its long term outlook. Something to think about for all the guys here that have made the leap and are investing time into DFS.
http://www.legalsportsreport.com/191...ns-from-poker/
The Achilles heel: Attrition rates and the skill gap problem
Here’s the truth about poker:
- It is not reasonable to expect that bad players (fish) will continue to enjoy losing large sums of money into perpetuity.
- The money is not so much earned by good players making expert plays as it isgiven away by bad players making mistakes.
- In order for a professional player to continue playing in significant volume – this includes players who multi-table cash games and play tournaments in volume, thus producing both rake-generating events and liquidity for the poker room operator – the player must have an edge over the opposition that is greater than the size of the rake.
- Over time, the skill level of the regular players rises, as do the number of players with professional-level skills.
- As fish get wiped out and exit the game, games become tougher; the threshold for a professional player rises, and the marginal pros also exit the game as they can no longer beat the rake.
- As the games get tougher, more fish get wiped out, thus further raising the threshold for a professional player.
- As players get wiped out, rake (revenue) drops and liquidity suffers.
This is not really conjecture. Though the article I wrote back in October 2012 initiated the discussion of the skill gap problem (see the follow up pieces by Chris Grove and Steve Ruddock), the reality is that PartyGaming observed new player attrition rates rising from the very start of the poker boom in 2003 (as I wrotehere) all the way through the end of its existence (PartyGaming merged with Bwin in 2011 to become bwin.party), thus highlighting the increasing skill gap between new players and the existing player pool.
For DFS, the same, but different
DFS, unfortunately, has all of the problems of poker but without any of its intricacies.
DFS is almost a purely data-driven game. There’s no check-raising, or continuation betting, floating, or 3-bet pre-flop frequencies as there are in poker; even with tracking software in poker, you still have to figure out how to play the game.
Not so in DFS, where lineup optimizers are widely available, and a player can take a single optimal lineup and plug it into a zillion different contests on any given site on any given day.
The thing is, DFS simultaneously requires too much skill and not enough:
- DFS requires too much skill in that if you are a casual player not playing optimal lineups where everybody else is putting in volume entries with optimal lineups, you are going to get wiped out in short order.
- But at the same time, DFS requires not enough skill; once the fish playing sub-optimal lineups quit the game, the only people left will be people playing optimal lineups in volume.
And when there are not enough fish making mistakes and contests are dominated by people playing optimal lineups in volume, the edge in playing an optimal lineup in volume will eventually be less than the rake, which at FanDuel has generally aggregated in the 8%-10% range(spreadsheet courtesy of Chris Grove) at least through the end of 2014. And when that happens, eventually either the rake rate will have to be reduced – pinching revenue projections – or the volume players will quit playing, leading to both reduced entries and thus revenue, and also reduced liquidity.