How daily fantasy players are winning

DFS provider DraftKings reported $30 million in revenue in 2014, while FanDuel reported $57.2 million. Eddie Lluisma/Getty Images

With million-dollar prizes, the legal daily fantasy sports market -- the micro-version of traditional season-long fantasy games -- has exploded.

DraftKings and competitor FanDuel, the two most prominent daily fantasy operators, boasted giant revenue increases in 2014. DraftKings reported $30 million in revenue, up from $4 million in 2013. FanDuel reported $57.2 million in revenue last year and has attracted $370 million in entry fees in the last three months alone.

The money is attracting a growing community of sharks who have immersed themselves in America's increasingly popular and lucrative pastime. The sharks are disciplined, share strategy and are multiplying. Plus, they have math on their side. The novice player, well, you're screwed.

When matched up against an inferior player, shark Drew Dinkmeyer estimates the more-skilled player will win 70 percent of the time.

"You add that up well over time and increase the sample size, and the number is going to get much higher," Dinkmeyer said. A 31-year-old former investment analyst, Dinkmeyer left his job in finance in 2013 to play daily fantasy. At the time, he estimated there were only 50 elite daily fantasy players. Now, he believes that number has grown to somewhere around 200. Shark Alvin Zeidenfeld is in the pool and says he's constantly bouncing lineup combinations and game theories off other high-level players.

Up until the last couple of years, Zeidenfeld was a pen-and-paper guy. He'd dedicate Moleskine notebooks to each sport, filling the pages with daily breakdowns of the 200 or so players active on an NBA night. The three-to-four-hour process resulted in a list of the five or six best players at each position. He's since refined his method to 40 minutes using an Excel sheet. The sharks, you see, are getting more efficient and expanding their reach.

Zeidenfeld's NBA model is based on fantasy points per minute. He adjusts for increased playing time, pointing to rising Miami Heat center Hassan Whiteside as an example. "His average minutes per game is 17 or 18, but he's probably going to play around 20 to 30 minutes," Zeidenfeld explained. He also adjusts for opponents' strengths and weaknesses, adding that, "A point guard that averages a fantasy point a minute against the league will probably average 1.1 against the Lakers."

Ultimately, when points and minute projections are complete, it comes down to fantasy points per dollar, based on the player's fantasy salary in that day's contest.

"The NBA is very quantitative and very easy to project," Zeidenfeld said.

Baseball is not, however, and it requires an entirely different approach. In basketball, there are hundreds of opportunities to score fantasy points. In baseball, there are three to four.

"Instead of stacking up points like I do in basketball, in baseball it's about stacking a team with as much percentage advantage over the mean as I possibly can," Zeidenfeld said. "The law of large numbers will eventually take over. The same thing kind of happens in daily fantasy baseball. If you're stacking advantages every single day and you're better at stacking advantages over the course of the season, if you're better at stacking advantages every single day, the math will take over and the law of large numbers will take over and you'll see your win rate follow it."

Dinkmeyer is so confident in his daily fantasy skills that he took time to learn sports he didn't follow. He knew very little about soccer, before he began playing daily fantasy during the 2014 World Cup. He now feels like he can be competitive. "I still, certainly, don't understand all the nuances of soccer," Dinkmeyer said, "but I understand it enough to play daily fantasy, and the same thing goes for the NHL. [To learn a new game], you have to start on the macro level and assess the game as a whole and figure out how the game is scored and if it makes sense to correlate your plays or not do that. And from there, you start to dig in on individual players."

Dinkmeyer changed his game when the daily fantasy sports industry began shifting away from cash games and toward larger tournaments with bigger prizes. His ability to adapt is just one of his many skills.

He had always excelled at cash games, fantasy contests that pay smaller shares of the prize pool to more players. That format rewards lineups featuring players with lower standard deviation; guys who are consistent, but not necessarily dynamic. In his words, Dinkmeyer's cash-game lineups had higher floors, but lower ceilings. He was successful, but the bigger payouts were in the larger tournaments. They required a different approach.

"For me, I tend to evaluate through a prism of high probabilities and high floors as opposed to ceilings or unusual events," Dinkmeyer said. "Over time as the industry shifted a big part of attention to these large-scale tournaments and bigger prize pools, I've had to adapt to try to look through another lens to try to view the game more through game theory, but also trying to look through individual players through the lens of ceilings."

The change in strategy paid off. In December, Dinkmeyer topped 100,000 contestants to win $1 million in a fantasy football contest by DraftKings.

Dinkmeyer is 31 and lives in Florida. He relies on daily fantasy sports for his income. Like Zeidenfeld, he's a sponsored pro at DraftKings and is launching a new daily fantasy community site, DailyRoto.com, next week.

Zeidenfeld is a 41-year-old Californian who is financially independent thanks to savvy investing. Daily fantasy is a passion for Zeidenfeld, a former high school basketball coach. He does not depend on it for income. He began playing daily fantasy sports in 2011, after the Department of Justice shut down several prominent online poker sites. He's a co-host on "Rotogrinders," a Sirius XM fantasy show.

Zeidenfeld and Dinkmeyer downplay their math skills. A communications major, Zeidenfeld tested out of math in high school and didn't take any math courses in college. Dinkmeyer says his mathematical background is "very average" compared to that of his competition. But both know the math is on their side. Said Zeidenfeld, "When you look at it over time, the players that are better at building a lineup every single day ... the math is going to be the math, and it's not going to be debatable."

Some states do debate the math, though, and believe too much luck is involved for fantasy games to be considered a game of skill that can be played for money. According to Legal Sports Report, 14 states still block at least one form of fantasy sports. To begin 2015, all forms of daily fantasy for money were blocked in Arizona, Louisiana, Montana and Washington. The grassroots movement Fantasy Sports Freedom is pushing to eliminate restrictions on fantasy games, and several states are considering amending fantasy laws.

The Unlawful Internet Gaming Enforcement Act of 2006, which targeted online gambling, includes a carve-out for fantasy sports. It stipulates that online fantasy sports are legal if they meet three conditions:

"(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

"(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

"(III) No winning outcome is based--

"(aa) on the score, point spread, or any performance or performances of any single real-world team or any combination of such teams; or

"(bb) solely on any single performance of an individual athlete in any single real-world sports or other event."

The UIGEA was passed before daily fantasy's rise to prominence, and some have questioned the daily version's legality. But the professional sports leagues, who backed the fantasy sports carve-out, are convinced the daily version meets the stipulations. The NFL, NBA, NHL and Major League Baseball are all actively participating in daily fantasy sports.

Last year, Major League Baseball hired an independent math expert to study the skill element of daily fantasy.

"They run simulations based on luck and based on skill," MLB business and media president Bob Bowman said. "Skill wins way more often than luck. Someone with knowledge invariably beat someone without knowledge."

Of course, like most games, some luck is certainly involved in daily fantasy sports. For example, in August 2014 in Denver, a water main broke near Coors Field, causing a Cincinnati Reds-Colorado Rockies game to be canceled at the last minute. Anyone who had Rockies or Reds players in their lineups was out of luck. But over the long term, the players, professional sports leagues and majority of legal minds believe daily fantasy is a game of skill. And when you consider the complex formulas and math expertise sharks like Zeidenfeld and Dinkmeyer use, laws that still consider daily fantasy sports a game of chance seem pretty out of touch.

"Aces can get cracked on any day, even though you're 80 percent advantage to win, all-in preflop," Zeidenfeld said. "You can even lose twice in a row, but if you do it a million times, you're probably getting pretty close to that 80 percent number. The law of large numbers will take over. The same thing happens in daily fantasy."