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USFantasy Looks To Carve Into Daily Fantasy Landscape Via Alternate Route

November 15, 2016
The daily fantasy sports landscape has been changing so rapidly, it's unclear how it will all settle.

By the time you read this, a merger between the two industry leaders, FanDuel and DraftKings, may have been announced -- or not.

If there is consolidation throughout the daily fantasy sports industry, the difficulty these DFS companies have in turning a profit means there's no guarantee it'll be around as we know it today when the 2017 NFL season rolls around.

Still in the face of all that, another iteration of daily fantasy sports has emerged. What makes this one different is it could very well be a form of gambling that includes elements of sports wagering yet avoids running afoul of the Professional and Amateur Sports Protecting Act, the federal law prohibiting even state governments from offering sports gambling.

USFantasy is the new DFS venture, and for the first half of the current NFL season, it was offered only in some Nevada casinos. However, it could wind up in casinos and racetracks around the country, both in compliance with state laws and without tripping over PASPA.

As a reminder, PASPA is what kept Delaware from offering single-event sports gambling in 2009 (the state is limited to offering parlays) and subsequently, the same law was used to block New Jersey's attempts during the last few years to put sports gambling in casinos and race tracks. 

So far, PASPA has not been applied to halt daily fantasy sports, whose contests are based on multiple athletes in multiple events. Daily fantasy, an internet-based fantasy sports hybrid, is currently offered in about 40 states (depending on the DFS website).

Oddly, one of the states where the major DFS companies do not operate is Nevada, because regulators there wanted the DFS companies to get a license. DFS companies essentially said, "No thanks," because to do so would have been a tacit admission daily fantasy is gambling -- and the DFS companies are steadfast in insisting their product is contests of skill.

USFantasy went through the Nevada regulatory process and was licensed in June. It works much like horserace betting.

Let's take quarterbacks, for example.

USFantasy establishes a pool of, say, the 10 top quarterbacks and offers opening odds on which will score the most fantasy points.

Bettors bet into the odds for win, place and show (plus exacta and other exotic bets) and thereby establish a pari-mutuel prize pool with the odds shifting to reflect the wagering.

The football games are played, and the players accumulate fantasy points based on yards and touchdowns. After play is complete, you have a finish similar to a horse race with the top three quarterbacks paying off for win, place and show, exactas and so on.

For the NFL's Week Eight, in the contest for top quarterbacks, the leader was Oakland's Derek Carr, who paid $25.20 to win (on a $2 win bet); Arizona's Carson Palmer was the second finisher (place paid $51.40) and New England's Tom Brady was the third finisher paying $5.60 to show. The Carr-Palmer exacta paid $881.

In all, there were 10 contests grouping various positions and when the NFL games were played. 

In the early stages of the business, USFantasy was exclusively available at brick-and-mortar facilities, mostly casinos. By the midpoint of the NFL season, USFantasy was in about 40 casinos, including some big ones such as Caesars Palace, the Flamingo, Cosmopolitan, the Palms and Red Rock. The casino lineup indicates two major gaming companies, Caesars Entertainment and Station Casinos, are offering the contests. In coming weeks, USFantasy hopes to be in 60 Nevada locations. 

However, USFantasy is also looking to break out of its Nevada niche. Top company executive Vic Salerno said a deal is imminent in Colorado with a racetrack there and its more than a dozen off-track betting sites.

Also in the offing is a phone app that will allow mobile player participation where USFantasy is approved.

Unlike DraftKings and FanDuel, which are run by relatively youthful tech-oriented management teams, the new fantasy company is being led by old-school gaming operators.

The company president is Salerno, a recent inductee in the American Gaming Association's Gaming Hall of Fame. He has about four decades' worth of experience and is a legend throughout the legal bookmaking universe. USFantasy's CEO is a former gaming regulator in New Jersey, Bob Kocienski, and COO Michael Knapp has worked for more than 35 years in casinos and racetracks, including Del Mar Racetrack in California.

Unlike the daily fantasy companies who went on an advertising blitz in 2015 -- seemingly ignoring the fact some attorneys general and regulators might object to this new daily fantasy thing as well as some large gaming companies getting irritated -- 

USFantasy has been carefully introducing itself to gaming interests.

"That's how we have wanted to go about this," Salerno said. "Our goal is to provide entertaining legal daily fantasy content to as many casinos and racetracks as possible around the country and in a way that the contests are completely transparent. And secondary to that, we'd like to be able to help the horseracing industry as much as possible. We invite regulation and we want to pay out taxes."

Salerno pointed out that unlike the current daily fantasy companies whose staffs are in central headquarters (DraftKings in Boston and FanDuel in New York), the nature of USFantasy, with a local brick-and-mortar component, means it will provide some jobs throughout whatever jurisdiction it's allowed to operate.

So how soon will USFantasy be in a casino or racetrack near you?

That's difficult to say, mainly because of issues involving licensing in various jurisdictions and forging partnerships with casinos and racetracks.

However, USFantasy already has a foothold with Caesars Entertainment, the largest casino company in the world, and Salerno says his company has held discussions with every major race organization in the country, including The Stronach Group, the parent company of the Maryland Jockey Club. 

At least one Stronach racetrack, Santa Anita in California, has been offering a free-play fantasy football game to customers, so the concept of including other sports as part of the racetrack experience is at least being tested.

To be clear, the handle -- the amount of money wagered -- on USFantasy is relatively modest right now. Salerno says the game is getting some marketing push in Las Vegas, with signage on the famous Vegas Strip. And anyone who is curious can take a peek on usfantasy.com.

The takeout on USFantasy (the fee charged to operate the contests) averages about 12 percent.

Considering fees on the major DFS websites have risen to 13-15 percent this year on the most popular contests, USFantasy is certainly a competitive wagering proposition.

Without doubt, USFantasy has a long road to travel, but with its conservative approach of seeking regulatory approval and partnering with established gaming companies, this could be a case where the deliberate but careful tortoise wins the race in the long run.

Issue 227: November 2016