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Introduction to Information Systems
CHAPTER OUTLINE LEARNING OBJECTIVES
1.1 Why Should I Study Information Systems? 1.1 Identify the reasons why being an informed user of information

systems is important in today’s world.

1.2 Overview of Computer-Based Information 1.2 Describe the various types of computer-based information Systems systems in an organization.

1.3 How Does IT Impact Organizations? 1.3 Discuss ways in which information technology can affect

managers and nonmanagerial workers.

1.4 Importance of Information Systems to 1.4 Identify positive and negative societal effects of the increased Society use of information technology.

Opening Case

CHAPTER 1

FanDuel and DraftKings

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FanDuel ( www.fanduel.com ), founded in 2009, and DraftKings (www

.draftkings.com), founded in 2012, operate web-based daily fantasy sports (DFS) games. The two companies began operations by taking advantage of an exclusion in the 2006 Unlawful Internet Gambling En­ forcement Act. This statute bans credit card issuers and banks from working with poker and sports-betting websites, effectively prevent­ ing U.S. customers from participating in those industries. The federal statute, however, exempts fantasy sports because they are considered games of skill, not luck. To maintain legal status, the operator of a fan­ tasy sports business must follow four rules: (1) publish prize amounts before the games begin, (2) make prize amounts independent of the number of players in the game, (3) level the playing field by allowing anyone in a league to draft any player they want, and (4) disregard point spreads and game scores.

FanDuel and DraftKings deliver simple and fast fantasy betting. After paying an entry fee, players become eligible to win daily cash pay­ outs based on the statistical performance of athletes in games played that day. Traditional fantasy sports often frustrate players because the

experience lasts for an entire season. If a player drafts a bad team, then he or she is stuck with that team for several months. Serious fantasy league players also analyze large amounts of statistics, roster changes, and injury reports. Many casual players do not have time for such anal­ yses. In contrast to these leagues, FanDuel and DraftKings allow cus­ tomers to play for just a day, a weekend, or a week.

The companies allow players to participate for free or bet up to $5,000 to draft a team of players in the National Football League (NFL), the National Basketball Association (NBA), Major League Base­ ball (MLB), and the National Hockey League (NHL). Players can com­ pete head-to-head against another individual or in a league with up to 125,000 teams. The winner is the one with the best player statistics, which translate into fantasy points. The companies take an average of 9 percent of each prize.

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FanDuel and DraftKings spend millions of dollars on com­ puting power from Amazon Web Services and other cloud computing providers. Cloud computing (discussed in Technology Guide 3) enables the companies to manage, as only one example, the increase in web traffic just before Sunday’s NFL kickoff. At that time, the firms must manage hundreds of thousands of simultaneous users, who make a

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2 CHAPTER 1 Introduction to Information Systems

myriad of roster changes per hour. The companies also provide mil­ lions of live scoring updates per minute during games, meaning that they must manage almost 10 terabytes of network traffic during game day. (A terabyte equals 1 trillion bytes.)

Professional sports have noted that FanDuel and DraftKings, with their easy-to-use apps, appeal to young and mobile sports fans. Fur­ thermore, these fans have money at stake, so they are more inclined to watch games on television than they otherwise would. An increase in viewers leads to an increase in advertising rates for the teams. In fact, in 2015, FanDuel signed multiyear sponsorship agreements with 15 NFL teams. These deals generally include stadium signage, radio and digital advertising, and other promotions. Interestingly, the NBA owns an equity stake in FanDuel.

The two companies had tremendous success. In 2015, they processed a combined $3 billion in player-entry fees and realized a combined revenue of $280 million. By the fall of 2016, the companies claimed to have almost 60 million players in the United States.

Despite their success, FanDuel and DraftKings faced serious prob­ lems. Their first problem is that they can operate only as long as the federal government and state governments allowed them to do so. At the federal level, the government could close the fantasy loophole in the 2006 statute at any time. At the state level, each state can decide that DFS constitutes gambling and prohibit DFS in that state.

Significantly, the federal statute does not give daily fantasy sports businesses immunity from state laws. In November 2015, New York Attorney General Eric Schneiderman sent cease-and-desist letters to both companies, declaring that their games constituted illegal gam­ bling under state law and ordering both to stop accepting bets from New York residents.

Shortly thereafter, the two companies agreed on a strategy to push for legislation clarifying daily fantasy sport’s legality in each state. On June 18, 2016, the DFS bill passed the New York state leg­ islature and on August 3, New York Governor Andrew Cuomo signed it into law. FanDuel and DraftKings immediately began allowing New York residents to play again.

Their second problem involves litigation. Three federal grand ju­ ries—in Boston, New York, and Tampa, Florida—have notified one or both companies that they are under criminal investigation. Further­ more, a class-action lawsuit, consolidated in Massachusetts, alleges conspiracy, fraud, negligence, and other claims. The lawsuit repre­ sents losing DFS players from 25 states and the District of Columbia.

Their third problem is that industry analysts estimate that 60 per­ cent of the firms’ revenue comes from approximately 15,000 high- volume players wagering at least $10,000 per year. Some 50 players who are analytics-driven professionals each wager at least $1 million per year. These figures underscore the fact that the vast majority of DFS players lose.

As of the fall of 2016, FanDuel and DraftKings are conducting expensive state-by-state campaigns seeking regulatory and legal clarity on the gambling issue. To be permitted to operate in various states, the two companies had to make needed improvements in their

operations. Specifically, they now provide areas for players of all skill levels, particularly to make beginning players feel comfortable and welcome. Both companies’ employees are prohibited from competing on rival sites. The firms have created tiers of players so that beginning players can avoid playing against professional players. Along these lines, FanDuel introduced “Experienced Player Indicators” and Draft­ Kings introduced “Experienced Player Badges.”