Thursday, October 31, 2013

A Quick Discussion of Aspects Regarding Pari-Mutuel Wagering

Pari-mutuel wagering in its application manifests certain peculiarities associated with the psychology of wagerers.  A quick article on this topic was presented by William Shanklin in  We'll quickly discuss a couple of these peculiarities.

The first is that favorites tend to be bet less than their realistic chance of winning and longshots tend to be be more than their realistic chance of winning.  The reason for this is simple.  A longshot will pay more than what a favorite will pay.  So for a bettor, wagering $2 to win on a favorite at even money is less sexy than wagering $2 to win on a longshot paying 30 to 1.  It is similar to the phenomenon where people tend to buy lottery tickets when the jackpot gets high.  Bigger potential payouts generate more wagering interest.

The other relates to the relationship between field size and overall wagering interest.  Typically when the number of entries in a race falls under 8, the wagering on that race tends to diminish.  That is why racing secretaries try to have races with 8 (or more) entries to maximize wagering handle.  Another related concept is the concept of partition dependence.  This term means that people tend to think some event is more likely to occur if it is partitioned in smaller intervals. 

To describe, let's use an example of how many games the Dallas Cowboys will win this NFL season.  If you had just two intervals, 0 to 7 games and 8 to 16 games, wagering on this offering would be less than if you had the following intervals:  0 to 4 games, 5 to 8 games, 9 to 11 games and 12 to 16 games.  As you can see, this also tends to illuminate the concept that more entries in a wagering offering is better. 

There is a point made in the article that coupled entries attract less wagering interest than if each entry was wagered on separately.  This does not mean that coupled entries don't have utility.  In's pari-mutuel fantasy sports contests, coupled entries are used often as a Field/Other entry, in addition to large fields of players, giving players the ability to select any player, not just those specifically named.  This functionality, even though a coupled entry, does tend to increase field size/more partitions, which is typically a positive with regard to wagering handle per race.

Monday, October 21, 2013

Daily Fantasy Sports Contests Continue Rise in Popularity

The daily fantasy sport contest format continues to grow in both customers as well as companies providing the product.  With the growth of this product also came the claims from various quarters that these games weren't legal or at the least took advantage of some "loophole."  These barbs were typically provided by competitors not providing these games, or online gaming providers shut out of the US market, or typical naysayers who didn't like fantasy sports in the first place and had some other axe to grind or ulterior motive.

Regardless, the daily fantasy sports game market is growing such that revenues from this segment is on the order of one-third of the yearly $1.6 billion spent on fantasy sports - not insignificant money.  An article that tries again to stir the pot and create the appearance of uncertainty of the legality of daily fantasy sports games can be found here

Daily fantasy games have threats, but in my view they are not from the legal front, but from the competitive front.  The threats come in two ways.  The first is from the current large fantasy operators like CBS, Fox, ESPN, Yahoo, etc.  These operators currently focus on the season-long contests but don't have any barriers to keep them from offering daily games.  Once they do, the current leaders in this segment may lose significant market share and quite possibly be run out of the market.  The current daily game operators should keep looking over their shoulder because the big boys could enter this market whenever they want.

The other competitive front is from new entrants with an even newer and superior short-term fantasy sports game.  Current daily games generally have prize to entry fee ratios somewhat less than 2 to 1. So for a $10 entry fee game, the winner will win somewhere around $18, where the game operator keeps $2 for their expenses and profit.  The new daily game contest format can offer games that have prize to entry fee ratios as high as 100 to 1, or for a $10 entry fee game, could offer a prize as high as $1,000.  Since this game concept is patented, it can't be copied and the current daily game operators will have no easy counter to this superior product.  If you were a customer and for $10 could play two $5 games, each game having a chance to win up to $500, what game would you think they would play?  Right, a no brainer.

The daily game segment will continue to grow and is on the cusp of some very disruptive change.