Fantasy sports leagues, rated by Inc. Magazine as the third most profitable industry in America are big business. During the latest football offseason FanDuel and DraftKings, leaders in the daily fantasy football business, increased their war chests by adding millions of dollars in investments – FanDuel from investors like Comcast, NBC and KKR and DraftKings from Fox Sports and several investment funds.  Each is now worth over $1 billion.  Their advertisements permeate the football marketplace and promise big prizes to the winners. During the first week of September alone DraftKings spent $23.6 million on television commercials. 

Photo by: fox61.com

Photo by: fox61.com

The explosion of these daily fantasy leagues came after Congress passed the Unlawful Internet Gambling and Enforcement Act of 2006 to clamp down on online poker.  At the same time the lawmakers carved out specific exemptions for fantasy sports leagues and horse racing. Given the tremendous growth of the industry and some recently revealed practices, this exemption is now being questioned. 

Do the daily fantasy football leagues constitute gambling? The NFL and other sports leagues have traditionally been opposed to gambling on the basis that they are protecting the integrity of their games. Thus, it seems surprising that ads for these online daily fantasy sports leagues appear on many sports websites. However, given the big money generated by fantasy sports, it appears that the NFL and others have quietly changed their stance. The major sports leagues have investments or partnerships with the daily fantasy leagues. Sports teams do as well.  Currently 28 of the 32 NFL teams have investments or a partnership with a daily fantasy football company. 

It seems the sports leagues and teams have accepted the stance of the fantasy sports business that success in the daily fantasy leagues depends on skill. Legally, gambling is in part, defined as games of chance that are played for money, just like slot machines. Thus the argument is that skill, as opposed to luck, is what separates these online fantasy games from gambling. The top winners spend hours upon hours working hard to research the statistical metrics on players in order to gain the knowledge that gives them an advantage over others. Some have even quit their jobs in order to migrate to the fantasy sports realm as their new, full-time occupation. In an interview, one fantasy player claimed that “[i]t’s just like investing, but instead of stocks you’re trading in athletes”. Apparently the hard work pays off as the results indicate that skill does increase the chance of winning.

On the other hand there is plenty of reason to be skeptical that these fantasy leagues are games of skill as opposed to luck. Undoubtedly the players who do massive amounts of research and use statistics, equations, charts, and graphs are more talented than the other players and should be able to do better than the average player. 

Photo by: betstories.com  “Only the top 1.3 percent of players finished in the green during the three months measured by the Sport Business Journal. An unrelated survey of more than 1,400 fantasy sports players conducted by Krejcik of Eilers Research this summer found that 70 percent of participants have lost money.” While making it seem like a high number of people are winning in these daily competitions, “over time nearly all of the prize money flows to a tiny elite equipped with elaborate statistical modeling and automated tools that can manage hundreds of entries at once and identify the weakest opponents.” ( Bloomberg )

Photo by: betstories.com

“Only the top 1.3 percent of players finished in the green during the three months measured by the Sport Business Journal. An unrelated survey of more than 1,400 fantasy sports players conducted by Krejcik of Eilers Research this summer found that 70 percent of participants have lost money.” While making it seem like a high number of people are winning in these daily competitions, “over time nearly all of the prize money flows to a tiny elite equipped with elaborate statistical modeling and automated tools that can manage hundreds of entries at once and identify the weakest opponents.” (Bloomberg)

This is no different than casino gambling. A person who has studied the games of poker and black jack will perform better than the average player in those same casino games. However, even a novice playing black jack may be lucky enough to be dealt an ace and a ten, thereby beating other players (and, of course, the dealer) who may be more savvy when it comes to playing black jack. In the same way, a novice in the realm of daily fantasy sports may select a combination of players who happen to outperform everyone’s expectations and thus take the prize money away from those who have studied and analyzed statistics all day everyday. Just like in poker, “sharks” or players with superior knowledge exist in fantasy football and, therefore, most novices usually lose. Poker is still designated as gambling, however, despite the fact that some players are more knowledgeable and consistently perform better. While there is a clear element of luck involved in both games, the daily fantasy football leagues have somehow been able to skirt being designated as an online gambling service. It is significant that many of the users of the prior online gambling services - shut down by the Unlawful Internet Gambling and Enforcement Act of 2006 - have simply turned to daily fantasy sports for their gambling fixes.

Beyond the concerns about whether or not luck is involved in sites like FanDuel and DraftKings, people are starting to take notice of the effect that a lack of regulation has on the industry. Recently, an employee of DraftKings was found to have been involved in a type of “insider trading” scandal. It has been widely reported that employees of both FanDuel and DraftKings have been taking financial advantage of their ability to access information. In accordance with the stock trading metaphor, it would seem that employees are benefiting from Wall Street like insider trading. Recently, a DraftKings manager admitted to inadvertently releasing NFL game information early. That same manager reportedly won around $350,000 from rival fantasy sports site FanDuel. This scandal creates a lot of questions regarding the future of this currently unregulated industry. The release of a joint statement telling the public that “[n]othing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers,” really does nothing to ease suspicions about these companies and the industry in general. It also does not help that a DraftKings’ spokesman admitted that employees of both sites have previously won big jackpots playing the game on each other’s websites. This reinforces the validity of questioning whether these really are games of skill in which the employees merely have the upper hand or whether the employees are trading inside information to gain an advantage over the other players.

It is important that we take the time to reassess this industry and the exemption that it has under the Unlawful Internet Gambling and Enforcement Act of 2006. Whether or not we agree with daily fantasy sports being classified as online gambling, we must at least ask whether this industry should be regulated, left alone, or outlawed. I, for one, believe that the industry should be regulated in the interest of those who participate in the leagues to prevent potential corruption and protect the integrity not only of the fantasy game but of the sport itself. I, for one, would not outlaw the daily fantasy leagues which enhance fan interest and enjoyment.  I do, however, advocate for regulation in the interest of those who participate in the fantasy leagues in order to prevent potential corruption and protect the integrity not only of the fantasy game but of the sport itself.