The Big Dog Bash: The Worst Contest In Fantasy Football History
If you’ve spent any time on fantasy football Twitter over the last week, you’ve likely seen this tweet.
Nick Ercolano paints a compelling picture. Imagine a high-stakes NFT entry fantasy football league, “with a grand prize so awesome it’s going to blow your brains to fucking smithereens.”
I was immediately intrigued. As a lover of both crypto and fantasy football, anything that combines my two favorite hobbies is going to grab my attention.
In his video, Nick highlights impressive prizes like equity in his company (BDGE), tickets to the NCAA championship game, tickets to the NBA playoffs, and even season tickets for your favorite team.
On top of that, the entire contest will be documented by Nick and his team. That presents an awesome opportunity for participants to potentially gain publicity through the event, and to interact with other notable content creators and fantasy players who may be partaking. Somewhat similar to the Scott Fish Bowl, this contest appears to offer a truly engaging and unique community experience.
I was hooked. Sweet prizes all tied in with a strong community and a unique NFT experience. I immediately went to bigdogbash.com to whitelist my main Metamask wallet, before I noticed something.
The Rake
Note: These estimates are based on an Ethereum price of $1,200, which has been the approximate average price of ETH in the 5 days since the Big Dog Bash was announced.
The price to mint a Big Dog Bash NFT (AKA, The Bash Pass) is 0.3 ETH, or, roughly $360 according to current Ethereum prices. Since there are roughly 1,100 paying participants (~10% of the NFTs go to the team, influencers, etc.), the Big Dog Bash will provide Nick and his company with approximately 330 Ethereum, which is roughly $396,000 in USD terms.
So, the prizes must be massive, right? I thought that too, but when I checked the list of prizes, I was greeted with a slap in the face.
The Big Dog Bash is only giving away $29,000 of ‘guaranteed’ prizes in year 1. And it appears almost none of those prizes are cash, they are company equity or shopping sprees (from these retailers) that are roughly equivalent in USD value to the $29,000 listed above. And Nick himself stated that his company has never accepted outside investment and thus, doesn’t have a valuation.
The Bash Pass NFT that’s needed to participate provides 3 years’ worth of entries, which means that those playing in the league will have the opportunity to earn about $87,000 in prizes, on top of the monthly, weekly, and daily prizes Nick and his team will be giving out (remember those NBA playoff tickets?).
Let’s estimate that Nick and his team are giving away ~$100,000 of prizes over the 3 years the Big Dog Bash is guaranteed to run.
That means the rake of the Big Dog Bash is approximately 75% over a 3-year time horizon based on current ETH prices.
How would that rake compare to other notable games of skill?
Even if we were maximally generous and say the rake is only 50% over the full 3 years, it’s still so high that it’s actually impossible for any fantasy player, even the best in the world, to have a positive expectation long-term.
Winning one of the 100, 12-man leagues in the Big Dog Bash provides users with a first-place prize of $50… That’s a -86% ROI for WINNING your league in the Big Dog Bash in year 1.
For a contest whose goal is “to be the most engaging, anticipated, [and] documented high stakes fantasy football league in the world,” it seems a bit egregious they would charge the highest rake in fantasy football history. And it also seems ridiculous they would market themselves as a “high stakes” league when the prizes are extremely low stakes relative to the amount of money they will take in.
I felt the need to point that out to my followers, given the massive traction this contest was getting on Twitter and my general disdain for -EV gambling.
Nick’s response was as follows:
Despite claiming I was “way off base,” Nick himself admits the rake in this contest is approaching 80% based on the 3 years of grand prizes and BDGE’s expenses.
I don’t doubt Nick’s list of expenses is legitimate, but at the very least, this is arguably the least efficient way that has ever been devised to run a fantasy football contest.
When I asked Nick during his 7/6 Q & A why he was charging the highest rake in fantasy football history (to my knowledge) his response was:
“Jake, this is the problem that you don’t understand. You probably work for a company that has not built a brand. You probably don’t understand the value of building a brand, buddy. We are not a DFS company. We are not Fanduel. We are not fucking DraftKings. People don’t give a fuck about those companies. They probably don’t give a fuck about your company either. They don’t care about just getting money. We have spent the last 7 years building a brand, building an audience, and building fans that want to be in our competition. Ok? We are giving ourselves flexibility, and we are giving ourselves leverage. There is more than just the grand prizes that we are giving out. We are giving out daily, weekly, monthly prizes as well, along with all our other expenses… I do not care about rake. This is a business we are running over here.”
Nick openly admits he is charging an insane rake in order to benefit his own brand. A rake that isn’t transparent, and guarantees its -EV for every single person in the world to participate in the contest.
Still, I admit his point has merit. If people want to pay the insane rake to participate in his contest and build Nick’s brand, they are more than welcome to do so.
But why would 35% go to taxes when DraftKings, Underdog, and other gambling companies don’t pay taxes on the prize pools they collect? This is likely because companies are required to pay taxes on items they sell (like NFTs), but I was curious on the details, so I asked Nick in the Q & A he did on 7/6. That brings us to the next issue I have with this contest.
Risk of Insolvency
7/13 Update: Thanks to this article, Nick has updated his tax strategy and is converting the Ethereum from the mint to USD immediately. The risks highlighted in this section have been put to rest. And I respect Nick and BDGE for clarifying their tax strategy.
When I saw 35% went to taxes, I assumed Nick and BDGE would market sell all of their Ethereum on the day of the NFT mint (August 10th), in order to maximize their financial stability to ensure contest payouts throughout the next 3 years. That is, after all, what almost any responsible crypto project would do in this exact scenario.
That assumption turned out to be incorrect. Here’s what Nick said about BDGE’s tax strategy:
“We will have to convert 35% when tax time comes, my guy. I was just saying [referencing an earlier question] that we are not converting all of it. We are not just taking the money and immediately converting it. But we will have to pay taxes on the money that we make from the mint. What is wrong with you, dude? Are you a fucking narc?”
With that plan, Nick and his company risk the complete insolvency of the approximately $396,000 they will collect for the Big Dog Bash.
Why?
Because, based on my current understanding of US tax law, they will owe taxes on the USD value of the Ethereum they collect on mint day (~$396,000). And the tax bill on that ~$396,000 remains the same even if the value of the Ethereum plummets after mint day.
Some examples that illustrate what I mean:
A 35% tax bill on the approximately $396,000 they receive on mint day is about $138,600 that will be owed come tax time in April. If the value of Nick’s Ethereum were to halve, to, say $198,000 by tax time, then Nick would only have $59,400 left over to pay development and legal costs and issue prizes for the next 3 years.
If Nick’s Ethereum were to drop 75%, he would owe $138,600 in taxes on crypto which is only worth $99,000. See the potential for complete disaster?
Personally, I think this is extremely unlikely. The crypto markets have likely found a bottom, and I would be shocked if we saw $200 ETH ever again.
But, it’s possible I’m wrong, and that Nick and BDGE could find themselves in the red with the tax strategy they explained in their Q & A.
Here is what The Big Dog Bash’s website has to say about the risk of an ETH crash post-mint:
Nick and his team have committed to issuing at least $18,000 of “grand prizes” in each of the 3 years the contest runs. In theory, Nick and his company would be forced to backstop these prizes with their own money in the event the contest prize pool were to become insolvent due to Nick’s tax strategy. But given these prizes are mostly company equity (0 upfront cost to them) or shopping sprees in the low to mid 4 digits, it’s reasonable to assume Nick and BDGE would easily be able to provide a financial backstop in the worst-case scenario.
But, what if that assumption is incorrect? What if Nick and his company couldn’t backstop these potential losses, and every participant in the contest suffers as a result of this incredibly risky tax strategy?
I’m obviously unaware of Nick and BDGE’s financial situation outside of the Big Dog Bash, but these are extremely important questions to ask when somebody is requesting nearly half a million dollars from the fantasy football community.
In my opinion, the participants in this contest should all be well aware of the non-zero chance of contest insolvency due to Nick’s reckless tax strategy.
Furthermore, it appears fairly ridiculous to not take more prudent steps to secure a longer runway for the funds generated from this NFT mint by selling the Ethereum for USD immediately, as opposed to when taxes are due. Nick is essentially utilizing his brand to take a leveraged long on ETH, which hasn’t been wise in recent months.
The decision to place funds into a fantasy football contest that lacks the traditional transparency and prudence of other fantasy contests is entirely up to the users themselves. And I want to make clear I hold no ill will towards those who choose to participate. I just want them to understand the risks involved, and I think the Big Dog Bash website does a poor job outlining those exact risks.
The chance to gamble for equity in Nick’s company (among other things) is an idea that I honestly think is very cool and unique, but it also introduces its own set of problems related to legality and taxes. This brings us to my final gripe with the Big Dog Bash.
Legal Concerns and Tax Implications
I don’t know anything about the legality and tax implications of a contest like the one Nick is running. So, I decided to reach out to a tax attorney (who preferred to remain anonymous) in order to discuss the legal risks and tax implications of gambling for private company equity.
Here’s what they had to say:
“Without access to information on BDGE as a company (at least beyond what was provided by Nick Ercolano in his FAQ video), it’s difficult to pinpoint the myriad of issues that can arise from this type of arrangement. There are potential tax issues for both the company and the individual receiving the BDGE shares... Has the company received some sort of valuation? This could impact all parties involved, especially if BDGE does continue to grow (or if something happens to the crypto market — another discussion for another day). Are there buyback rights? Have the proper disclosures been made? All of these questions add up to a risky proposition.
Perhaps (I hope) these issues have been fully addressed with counsel of some sort…which could explain the unusually high rake for a competition of this size.”
And when I noted that Nick himself admitted the company has no valuation, the attorney responded with this:
“That makes it even worse…From a legality standpoint, it doesn’t impact anything today. But say BDGE blows up and the stock recipient wants to cash in on his portion of the company. How will they calculate that value and the potential cap gains?”
And it’s crucial to note that as of the time this article was released, Nick and BDGE address 0 legal concerns (outside of basic contest eligibility) on their FAQ page. Isn’t that the purpose of a disclaimer section?
Winning the Big Dog Bash and accepting company equity has the potential to be a tax and/or legal nightmare for the winner. That’s a big deal. And I can’t stress enough that Nick and BDGE do not address these concerns at all in their FAQ.
And, Nick appears to suggest in this tweet that the consulting and lawyer fees required to establish these disclaimers will be performed with the money gained from the mint (August 10th). That means, potentially, that Nick and BDGE are completely unaware of the legality and tax implications of their own contest before it even runs. And that they won’t be able to answer the legal and tax questions users have until AFTER they collect the participants’ money.
For those who believe that speculation is misplaced, ask yourself this:
If Nick and BDGE did their legal due diligence prior to the launch of the Big Dog Bash, why are there no legal disclaimers (outside of basic contest eligibility) on the official Big Dog Bash site?
Personally, I think playing it fast and loose with both legal and tax disclaimers is a net negative to those participating, as they can’t fully understand the risks of this contest until Nick and BDGE provide those disclaimers.
At the same time, I also believe current government crypto, tax, and gambling regulations are beyond overbearing. Let free markets be free!
But regardless of what you think of existing regulations, the reality is we live in a world where they need to be followed. And we have no certainty that Nick and his team are doing that, based on their borderline nonexistent legal and tax disclaimers from the official contest site.
That potentially puts the entire contest at risk.
Should the fantasy community promote a contest with this type of legal risk profile that could have actual minors participating?
That’s a question everyone in the community should ask themselves.
It Gets Worse (Post-Publish Update)
The entire contest might just be illegal.
A credible source from a licensed fantasy operator (who requested to remain anonymous) reached out to me to say the following:
“I can tell you fairly easily that hosting a for profit fantasy league with this many entrants, like BDGE is doing, is supposed to only be done by licensed fantasy operators. So you’re assumption that it seems shady is correct. I highly doubt any states actually go after the company or anything like that because it’s such a small contest in the grand scheme of things and no state will want to waste their time with it, but it’s almost certainly illegal and doesn’t hold any of the consumer protection measures required for fantasy contests.”
This is huge. There is no evidence Nick and BDGE have gone through any of the necessary legal channels to make sure their contest can run in all 50 states. Remember, fantasy gambling regulations differ by state. In some states, it appears users can’t play at all if money is involved. And yet, in Nick’s own words, “we don’t have any restrictions on being in the Bash.”
7/13 Update: Nick and BDGE noted they have begun discussions with the proper legal channels to determine if their contest is legal to run. The legality of the Big Dog Bash remains up in the air as of this update.
What I Like About The Big Dog Bash
I’ve spent this entire article criticizing the Big Dog Bash, but, I do think there are some elements of this contest that are actually really cool.
Running a contest like the Big Dog Bash and documenting the entire thing is a very cool idea. I find it promising that Nick and his company want to promote the users in the contest through their own videos. It’s fun!
Providing NFTs with actual utility in a fantasy football setting is awesome. More companies should be exploring contests like this. I am a big fan of NFTs with an actual use case.
Some of the prizes in this contest seem really fun, especially the game tickets. I love going to sporting events live, and sure most of the people participating in the Big Dog Bash do as well.
The community Nick and BDGE are fostering seems both devoted and loyal, and that’s certainly something I can respect as a content creator myself.
I can give Nick and BDGE credit for guaranteeing their relatively minuscule prize pool in the event they are unable to sell all 1200 Bash Passes. They are taking on some risk, even with the egregious rake.
If the rake was closer to 20%, and if Nick and BDGE appeared more responsible with both their legal and tax due diligence, I would likely be participating myself. I did almost whitelist my main wallet, after all!
Disclaimers
Outside of the basic rake calculation, every view expressed in this article is merely a matter of personal opinion. I simply derived my analysis from the marketing materials Nick and BDGE provided. I invite everyone who is considering participating in the Big Dog Bash to do their own research, and to draw their own conclusions.