## Free Play at CoinRoster Fantasy Sports

My friends are promoting their fantasy sports site, based on bitcoin, called CoinRoster.

As a special promotion, they are giving away 0.02 bitcoins worth of free play to any new user that signs up using a link from my page!

The bitcoins can be used to play on CoinRoster, but they can’t be withdrawn until they have been played 20 times, which in this case is 0.40 bitcoins worth of play.

For those of you who are unfamiliar with bitcoins, at the time of writing these 0.02 bitcoins are worth about \$40 Canadian dollars or \$25 US dollars.

I’d say the best games they currently offer are about Golf. They have a weekly golf fantasy game and also have a daily hockey game. In the summer they tell me they’ll have a baseball game going and in the fall they will do NFL.

## Toronto Maple Leafs First Round Odds

Friends of mine have made a bitcoin fantasy sports website called CoinRoster and there are a lot of opportunities for a sharp sports bettor to make profits. The challenge is their site doesn’t have that much liquidity, but over time I hope they can gain more traction.

CoinRoster posted a pari-mutuel pool on how many games the Toronto Maple Leafs will win in their first round series against the Washington Capitals. The way I began determining the odds was to consult the series betting odds at William Hill. I see the Caps are 1.25 to win the series against the leafs. These odds imply a % chance of 80% (1/1.25). This means there is a 20% chance of the Leafs winning the series, and expressed as a decimal, these odds are 5.00.

With this information in mind, I looked at the market at CoinRoster for how many games the Leafs will win the first round. I noticed that the odds for 4 games (which would mean the Leafs win the series) was currently 57.00. The sum of any other number of games (zero, one, two, and three) should also be the inverse of the odds to win four games (since the Leafs will either win or lose the series) and we already know this number (according to William Hill) should be about 1.25 (80% chance).

So if the current pool is 0.00836 btc, then 0.001672 btc should be bet on four games and the balance should be divided between the other four options (zero, one, two, three). Obviously, the market doesn’t think the Leafs will win the first round.

## More Bitcoin Gambling Sites to Review

Bitcoin gambling is still in its infancy, and there are many new innovative competitors emerging. Below is a review of three bitcoin gambling platforms that provide betting on events.

Bitbet.us

Bitbet.us offers pari-mutuel markets on a range of topics including politics, sports, entertainment, and bitcoins. Like many other bitcoin betting sites, users do not open an account with the site in order to make a bet. With the nature of bitcoin, users send their bet to a bitcoin address of the site, and if the bet is a winner, profits are then sent back to the same address. This enables users to remain anonymous.

Another interesting aspect of bitbet.us is they allow users to create and settle their own markets. Bitbet.us provides users with brief guidance with how to propose markets. I’m not sure their system is working very well as only 21 markets are currently listed on the site. I think bitbet.us would have a better platform if they created a easier system to post markets, and posted their own standardized markets in order to give users more choices since the marginal cost of posting and settling a contract could be low.

Another problem I noticed with bitbet.us is many of their listed contracts close in the distant future such as months in advance. Having markets that close in the distant future (longer than a few days) is a problem for a pari-mutuel market because there is no incentive to bet early. Sophisticated users will wait until the final moments of a market to place their bets because they will gain the information of the market (how much is bet on what) and from the underlying event. For example, a sharp better will take the market action into account before placing a bet by looking at the odds and amounts on each outcome to see whether the pool odds reflect alternative market odds or handicapping odds.  A sharp better will also use the current information of the market to place their bets.

To use a market on bitbet.us as an example of the problem with their market structure, let’s consider the market currently posted of “Francois Fillon wins the 2017 French presidential elections”. The market closes in three months and will be settled shortly afterwards following the election results. There is no reason why a better would place a bet this early in the market!  The early better only gives themselves a disadvantage. bitbet.us would do a better job if they created and closed the market each week, and then settled this “serial” of contracts at the same time. What amazes me is that there is already 6.98 btc bet on this market, and with a 2% rake from the pool, bitbet.us has a profit of 0.14 btc locked in.

Based on site stats, bitbet.us has collected over \$600,000 worth of rake in the past two years of its existence.

Fairlay

Fairlay is a bitcoin binary option market. Its the closest thing to InTrade still available. The market displays odds on particular binary outcomes. For example, if a question is asked such as “will Emma Stone win best actress at the Oscars”, the outcome is either yes or no, and the current odds are displayed as 2.10. Users can toggle the odds format they want to display between decimal, american, and fractional. Fairlay also offers markets on a wide variety of topics such as sports, entertainment, entertainment, bitcoins, etc.  I can tell that they’ve made some effort to create markets automatically so there is some consistency in the way contracts are listed.

I noticed there are a bunch of markets on Fairlay without any volume, but there are still some market makers posting prices. Making markets on Fairlay can be profitable, especially where there are alternative venues with the same market structure (such as being able to place a bet on the oscars on William Hill and then comparing those odds at whats listed at Fairlay). I’m generally impressed by the Fairlay system. One of the early challenges with InTrade was latency. With new technology and programming methods, many of the latency issues are easier to overcome today.

Fairlay charges a 2% on winning bets and no fees on certain markets. They also list denominations in mBTC.

BetMoose

BetMoose is mostly a pari-mutuel marketplace, but there are a limited number of fixed price markets available. BetMoose users are also able to create their own markets.

The most innovative thing that BetMoose does is provide a time weighted factor to pari-mutuel bets. This is an attempt to encourage early betting. Their formula = 1 + (0.005 * # of hours between the current time and the bet deadline). As you can see, their formula provides a linear incentive, and does not account for the log-normal value of time. To provide a more accurate time weighted incentive, they should apply a log normal function. But kudos to BetMoose for even thinking of this. Its something that I’ve proposed and I’m calling it a dynamic rake.

Each of the sites discussed has its own pros and cons. I think one thing that the entire group of sites could do better is standardize their contracts. Its a good idea to have users post and resolve their own markets, but the value that a site can provide is minimized and I think it creates a more disorganized user experience. It would be better from the average user’s perspective to be able to easily view and manage a number of consistent markets. These standardized markets should be posted by the site so they are standardized over time periods. This way, its easier for users to compare and make more bets over time without having to worry about the particulars of each contract or market.

Although Fairlay is probably the best of the three, BitBet.us and BetMoose can improve their user interface. I also wonder why none of these sites has an open API. High volume betters really appreciate an open API that they can use to manage their markets in their own dashboard since they are managing a book for trades/bets over multiple platforms.

## US Fantasy is Making Progress

Vic Salerno has been making steady progress with his pari-mutuel fantasy sports platform. He is reporting steady growth thru the NFL season and is also expanding the service to offer a wider range of bets. USF is also applying the pari-mutuel model to teams, not just players. Pick a group of teams to score an amount of points. If you’re watching college football or NFL all day, you can plarlay your bets using a pari-mutuel fantasy pool with USF.  There are some drawbacks for players to this type of wagering, but I expect USF to continue marching forward.

The pari-mutuel fantasy format is has another unique advantage of fitting in well with regulatory frameworks of many US states. If USF can gain acceptance with more US states, it would represent a huge growth opportunity. The first mover benefits for USF will end up being a huge advantage. The network effects caused by the most liquid pool is pronounced for par-mutuel betting.

USF’s model can be easily copied online, and the market is currently wide open for a bitcoin fantasy sports site to offer this product.

#### Businessman sees growth in pari-mutuel based fantasy sports

Vic Salerno’s bid to fill the gap created by the absence of daily fantasy sports play in Nevada has grown exponentially during the football season and is making even greater strides outside the state. Salerno, president of USFantasy and a 38-year veteran of the gaming industry, said handle has grown roughly 10 percent a week through the National Football League season.

## Dynamic Pari-Mutuel Rake

Recently, Bob Dancer posted a blog that briefly reviews US Fantasy, which is a pari-mutuel based fantasy sports product currently being offered in Nevada. Bob Dancer touches on two major areas where US Fantasy should improve. First, there is no app and no ability for bettors to place wagers online. This is a major drawback for players. Much of the growth of sports book handle over the past few years is due to the increased access that players have by using mobile apps. But this is also a fairly straight forward downside to overcome. It just takes some commitment of time and resources by US Fantasy.

The second area where Bob Dancer thinks US Fantasy can improve is in the basic structure of the games. He notes because US Fantasy uses a pari-mutuel format, there is no reason to bet early. It is in the player’s best interest to wait as long as possible to place bets. Waiting longer gives the player two major bits of info. By betting late, the player gets to see more of the pool structure. The better can see the latest wagering odds. By betting late, the player also gets to use the latest information on the event.  This could come in the form of scratches, lineup changes, weather, etc, that can impact the outcome of the event.

I think Bob Dancer makes two good points and his comments got me thinking more about how the pari-mutuel DFS model and pool wagering in general can be improved, especially with new technologies that are available.

Essentially, a pari-mutuel pool works by awarding a pool of wagers to the bettors who bet on the wining outcome. Odds are determined by the amount bet on each outcome and payoffs are determined the same way. Typically, operators charge a fixed rake for running the pool. I describe pari-mutuel pools in more detail in a previous post. For example, consider a football game.  There are two teams, team x and team y. \$4 is bet on team x, and \$6 is bet on team y. The implied odds of team x is 4/10 = 40% or 2.50 decimal odds. The implied odds of team y is 6/10 = 60% or 1.66 decimal odds. If team x wins, then the \$10 pool will get distributed proportionately to everyone who bet on team x and visa versa for team y.

Pari-mutuel pools are typically used for horse racing. This betting format takes away all the risk from the pool operator since a fixed rake is charged on the overall pool and the odds are set by the pool itself. It works well for obscure events where the outcome is difficult to handicap. The pari-mutuel betting format is not so great for bettors who have access to fixed odds alternatives. Pari-mutuel pool bettors don’t know the payoff/odds they receive until after the pool has closed. This makes it a little riskier for them and discourages them from betting early. The format can be gamed by sharps who can handicap the pool odds or who have access to an alternative pool or fixed price book.

For the reasons outlined above, pari-mutuel pools have not caught on with many sports bettors. Most sports bettors prefer to use bookies where they can receive fixed price odds. And since there are so many alternative bookies available today, especially online, a liquid secondary market exists on so many sporting events, bettors can know for sure whether they are getting a good price or not.

So how can we use new technologies to improve pari-mutuel pools?  Specifically, is there a way to level the playing field between sharps and squares to generate overall greater liquidity while also taking advantage of the beneficial aspects of betting pools?

According to Bob Dancer, there is a benefit to betting as late as possible in a pari-mutuel pool. Sharp bettors will wait till the last possible second to place their bets. They will scan alternative markets to determine the best odds for a particular outcome and calculate what the impact on the pool will be at a certain amount of wagering. Sharp bettors will find opportunities where a certain outcome is cheap in the pool and will place enough money in the pool for that outcome to gain an advantage. Square bettors are disadvantaged because they might not be able to spend the same time handicapping events and placing their bets at specific times.

I propose a system that will level the playing field between sharps and squares that will also grow the overall pool.  I call the system a “dynamic rake”. A dynamic rake will provide inducements to both sharps and squares which will level the playing field between both types of bettors while at the same time increasing the total amount wagered.

A dynamically raked pool will still have a fixed rake like any other pari-mutuel pool. What changes is the way players are rewarded for their bets and the information provided to participants. A dynamically raked pool will reward early bettors with more player’s club/cashback/credits. The earlier a bet is made, the more points it will receive. If a pool has a 10% rake, players who bet early might get a 20% bonus on their bets. This bonus will induce bettors to bet earlier. The points that are awarded can be determined by an algorithm and tweaked to suit the particular market. The pool operator’s experience will help them tweak the formula to an optimal amount so that the advantage between early betting and late betting is decreased or eliminated. The points could be awarded based on time, but also based on the amount that has been bet in the pool. The operator could determine the amount of points to award based on the amount the pool has received in wagers to certain limits. Once thresholds are met, the operator would be indifferent to inducing any more early bets as the minimum amounts will have been met.

In addition to awarding points based on time or amount in the pool, the pari-mutuel pool can also give pool participants more information concurrently. This will further induce sharp bettors. The pool operator could make it known the amounts bet on each outcome. This will help bettors determine how much certain wagers will impact the pool odds. The operators could also give betters an API that they could use to automatically place wagers. This will help sharps bet at the very last minute with the most up to date information.

What I believe a dynamic rake pool will accomplish by inducing early betting and helping sharp bettors, is increase the pool handle and increase the efficiency of the pool. This will enable the operator to make a higher overall rake and also make the odds closer to their optimal level.

Why aren’t dynamic rake methods used more commonly? I believe there are three reasons. First, regulations prevent pool operators from getting too creative. Most jurisdictions around the world put too many restrictions on wagering, and so stifle competition and innovation. Second, the growth of fixed price and betting exchanges has turned the industry’s attention away from pari-mutuel wagering. There is lot’s more growth left in legal sports betting, exchange betting, and DFS formats. Pari-mutuel pools are seen by the industry as an old horse racing format. Third many sports books, DFS operators, and betting exchanges have not become very sophisticated in their player rating systems. There is lot’s of room to grow in the way players are rated and rewarded but because the overall pie is still growing, more resources is being put into marketing and new player acquisition than into player retention.

## FanDuel & DraftKings Turn Two Bloated Companies Into One

#### A merger borne of weakness

FANTASY sports have become so pervasive in America that it is often increasingly unclear whether fans care which real-life team wins. The games, in which players speculate on athletics by building teams of virtual players whose performances track those of their real-world counterparts, have blossomed from the informal “rotisserie” leagues of the early 1980s into a massive entertainment industry, with 57m participants and some \$1.5bn in revenues per year.

## DraftKings & FanDuel, Fundamental Flaws Explained

Mainstream daily fantasy sports (DFS) operators such as DraftKings and FanDuel are fundamentally flawed. To understand how and why they won’t change, requires us to understand the history of DFS and how we got to where we are today. Once we understand where we’ve been, and the problems associated with current business models, we can better predict where DFS will go in the future.

DFS grew out of traditional fantasy sports. Back in the days before the internet, sports fans played fantasy sports using pens and paper. Contestants would typically draft teams of fantasy players “in person”; and the contest between friends would be played out over the course of a season. Sometimes they played for stakes, but more often, the contest was just for bragging rights. After the widespread adoption of spreadsheet software such as Lotus Notes and then Excel, it became easier to play fantasy sports in general and then online in particular. Eventually Yahoo! Sports became the most popular place to run a fantasy sports league. Up until this point, fantasy sports leagues were played over the course of a season, DFS had not yet been discovered by the year 2000.

At the same time as fantasy sports was developing online, other forms of gambling, such as poker, were also moving to the internet. Online poker exploded with the “Moneymaker Effect” and the poker industry thrived in the early 2000’s. As poker play grew online, the federal government in the United States decided to ban it domestically by passing the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). This law banned online poker and banished leading operators such as PokerStars.  But curiously, the law excluded fantasy sports from the ban. The fantasy sports exclusion was based on the idea that fantasy sports was not explicitly a gambling game, and at the time was being played between friends. The law therefore categorized fantasy sports as a game of skill and therefore not gambling and subject to the prohibitions of UIGEA.

While it was easy to argue in favor of excluding fantasy sports from the online gambling ban in 2006 since most fantasy sports were not played for stakes at the time, and there were no DFS operators in existence when the law was passed, the development of DFS fundamentally changed the nature of fantasy sports. In hindsight, its somewhat silly to assume that DFS isn’t gambling. DFS is no more a game of skill as poker is or traditional sports betting is. The skills required to be good at fantasy sports are the same skills that make players successful at poker and sports betting. Someone with no prior knowledge of fantasy sports should surely view DFS as gambling if we define gambling as a playing a game for stakes. But the exclusion of fantasy sports in UIGEA was seized upon by DFS operators as a way they could operate in the United States so long as their games were considered a game of skill under the definitions in the law. DFS operators had found a loophole and they would attempt to exploit it.

This brings us to the point where game design becomes important. If DFS operators made their games too similar to sports betting, it would be easier for regulators to quash the legal argument that DFS is a game of skill and therefore deserves to be excluded from the prohibitions of the UIGEA. But if DFS operators could obscure the legal judgement enough to confuse regulators and the courts, by making their games esoteric enough to support the idea that DFS is a “game of skill” and not gambling, they figured it might be possible to carve out their legal justification. So that’s what they did. Leading DFS operators designed games that weren’t a direct corollary to sport betting. DFS points would be awarded by goals scored, touchdowns, and pass receptions, and not on direct game outcomes. DFS players also gravitated to these games because they also obscured the math enough to make them difficult for average players to statistically understand. The DFS games offered by DraftKings and FanDuel were obscure enough that the “average Joe” could still win from time to time, and this is essential to a good gambling game that relies on a pool outcome. The same is true of poker.  It has to be possible for a fish to win from time to time to keep them coming back.

So with a business model in place, and a legal justification, DFS companies such as DraftKings and FanDuel raised a ton of money from investors and started to exploit the opportunity. Legal Sports Report estimates that over \$1 billion USD was raised by DFS operators since 2012, and the pace of funding rose dramatically since 2014. Its estimated that DraftKings and FanDuel raised more than 90% of the total \$1 billion raised. With a war chest of almost \$1 billion dollars, how would it be spent?  Marketing. Huge sums were spent by DraftKings and FanDuel on sports sponsorships, broadcast advertising, affiliate fees, etc, in order to attract new players.

But as advertising money was being spent, a dangerous legal tide was rising. As the public and governments began to notice the growth of DFS, they began to wonder, is DFS gambling?  Eventually, state by state, they realized that it is. But rather than simply ban DFS, state regulators have been persuaded that if the UIGEA allows fantasy sports, but prohibits other forms of online wagering, why not allow DFS in their state and collect the associated tax revenues? While some states have now created regulatory structures for DFS, others have taken the idea a step further. If DFS is going to be allowed, why isn’t sports betting similarly allowed?

In the meantime, DFS operators have painted themselves into a strange corner. Their games are designed in a way that requires the house to set the player odds. As explained above, this was done to obscure the relationship of DFS from gambling, but also to obscure the skills players require to win. Now that the business model is entrenched, DFS operators are facing some sobering problems. Its now clear that high volume DFS players represent the vast majority of total volume. DFS operators have started banning certain players and limiting their access to bots. Marketing expenses are rising too fast and its becoming too expensive to recruit new fish for the high volume players to beat. The high volume players are out handicapping the DFS operator’s internal handicappers, and leaving the fish as the source of profits. Eventually, recreational players will move on from playing DFS if they can’t win occasionally.

What’s the solution? DFS operators such as DraftKings and FanDuel need to admit that DFS is gambling, and change their business models. This will mean sacrificing near-term revenue for profitability in the long run. But DraftKings and FanDuel will have a hard time doing this since investors are expecting a return on their billion dollar investment, and admitting the current legal justification is flawed will surely cause tremendous upheaval.

I think the most likely outcome is DraftKings and FanDuel will become increasingly marginalized in the United States. This is already happening in Nevada where DraftKings and FanDuel have chosen not to be regulated as a gambling company would, and so DFS companies that have been created in Nevada and who are free to admit that DFS is gambling are emerging. I also think traditional online sports betting operators need to consider offering DFS. Amaya Gaming has done this with StarsDraft.  I expect this trend to continue as the lines between DFS and sports betting are blurred.

## Fantasy Sports Reborn in Nevada

Nevada has approved the first fantasy sports operator in the state.  This is happy news for fantasy sports enthusiasts. An increasing number of US states have created regulatory structures for fantasy sports and the developments in Nevada are being watched closely by operators looking for a stable legal environment.

The approval in Nevada was provided to a company headed by Vic Salerno, a gaming pioneer who created Leroy’s kiosks, which was taken over by William Hill. Salerno is proposing a pari-mutuel system for fantasy sports, an innovative idea that shows how the mainstream DFS model is only one way daily fantasy sports might be played.

There are a few things that DFS companies such as DraftKings and FanDuel do terribly. One aspect they fail on is game design. Their games are designed so that the operator sets a price for each player that can be drafted by contestants. The problem with this system is the “house” needs to set a price. At a fundamental level, this creates a problem since using only one voice is never the best way to determine a fair price. An open market system is much better placed to make a determination of value because a market represents the weighted voices of all participants. This is what Salerno is attempting to do with his proposed game in Nevada. His idea is to set player prices using a pari-mutuel pool.

If the DFS operator sets rules such as how many points for each statistical measure (such as goals, assists, etc), but allows the pari-mutuel pool to set the price, the operator doesn’t need to arbitrarily set a price for each player. Instead, it will be up to the participants themselves, through their bets, to set player prices.

The outcome of the system proposed by Salerno will be more transparent for players, easier to manage for the operator (since the operator no longer needs to handicap), and will dramatically reduce the conflicts of interest inherent in the current price fixing DFS method used by DraftKings and Fan Duel.

The application in Nevada also highlights how nascent the DFS industry is. We have only scratched the surface in terms of game design and player experience. The DFS industry kind of got used to the methods used by DraftKings and Fan Duel and because of the regulatory uncertainty, there hasn’t been a lot of innovation. But as more jurisdictions open DFS to legal operators, we will hopefully see more innovation. I think this is something that regulators should pay attention to. If they make their regulatory system too rigid, it will discourage new innovation, but if regulators create environments where different concepts of DFS can exist, new game designs and a better player experience will prevail.

#### Fantasy sports betting gets OK from Nevada regulators

CARSON CITY – State gaming regulators gave approval Thursday to a proposal from long-time Las Vegas gaming veteran Vic Salerno that is expected to lead to the return of daily fantasy sports betting in Nevada as early as August.

## Regulatory Evolution of Fantasy Sports

#### Governor wants Nevada to take lead on daily fantasy sports issues

Before October, most states took a hands-off or wait-and-see approach in regard to legalities surrounding daily fantasy sports. Then Nevada pulled the plug in the industry and other states followed. Gov. Brian Sandoval now wants the Gaming Policy Committee to figure out the next steps for a business model that shows no signs of disappearing.