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Game of chance or game of skill?

Fantasy sports sites under scrutiny

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December 18th, 2015
fan with football
fan with football

If you’ve watched football on television this season, you have undoubtedly noticed the sudden proliferation of commercials for daily fantasy sports websites like FanDual and DraftKings. The ads promote fantasy sports as a fun and potentially lucrative pastime. FanDuel ads boast that it paid out over $2 billion dollars last year, adding, “anybody can play, anybody can succeed.”

Advertising budgets for these sites increased ten-fold in 2015. While aggressive advertising is drawing in many new customers, it is also drawing scrutiny from a variety of state and federal investigators. 

Multibillion-dollar industry

The daily fantasy sports industry is a multibillion-dollar-a-year industry, with NFL football ranking as the most popular fantasy sport by far. FanDual and DraftKings are the two biggest names in the industry, but there are others, including Yahoo Sports. 

According to the Fantasy Sports Trade Association (FSTA), nearly 57 million people played online games last year. The average player is male, 37 years old, and spends about $465 a year playing the games.  

To participate in fantasy sports, players pay an entrance fee (which can be as little as 25 cents) then assemble their own “fantasy” teams of real players. You might choose Tom Brady of the New England Patriots as your team’s quarterback and Clay Matthews of the Green Bay Packers for your inside linebacker. How well your fantasy team does is based on a statistical analysis of the professional players’ performance on the field. Some people play daily; others play over the course of a season.

Is it gambling?

Online gambling is against the law in the United States, and some people believe that fantasy sports is a form of gambling—albeit one that has, until now, managed to sidestep any kind of regulation by claiming that fantasy contests are games of skill, not of chance.

Josh Steiner, a 26-year-old associate producer in Washington, D.C., is a longtime fantasy sports player. He plays mostly on Yahoo Sports but has tried other sites as well. “I don’t think it’s gambling,” says Steiner. “There’s definitely some skill to it, which is why you have some people who win money the majority of the time and some people who win nothing. It takes skill to know the good players and to know how they might play against another team.”

New York Attorney General Eric T. Schneiderman takes a different view. In November, Schneiderman said that fantasy sports are gambling, effectively shutting down both FanDual and DraftKings in New York until the issue is resolved. “It is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” Schneiderman said.  

“We are very disappointed that New York Attorney General Schneiderman took such hasty action, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill,” said a spokesperson for DraftKings. “We strongly disagree...and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.” 

Regulating the games

Beyond the question of gambling, there is also the issue of transparency and fairness, brought to light when an employee of DraftKings gamed the system to make a $350,000 profit—the equivalent of insider trading.

Massachusetts Attorney General Maura Healey also took action against the sites, imposing restrictions that include banning minors from playing. “These regulations are a first of their kind for the daily fantasy sports industry,” Healey said. “And they focus on protecting minors, ensuring truthful advertising, bringing more transparency to the industry, and leveling the playing field for all consumers.”

Congress is expected to take up the issue in 2016 and U.S. Senator Robert Menendez (D-N.J.) recently sent a letter to the Federal Trade Commission asking them to investigate the fantasy sports industry. 

“There’s a lot of money at stake, and these sites are drawing in tons of players,” said Menendez. “These players should know they aren’t being duped. I think Congress needs to look into this and see whether by exempting fantasy sports from the Unlawful Internet Gambling Enforcement Act we’ve created a regulatory vacuum that leaves consumers out in the cold.”

Reflecting on all the legal attention daily fantasy games have received in recent months, Steiner says, “It’s crazy that people are spending so much time on fantasy sports. For Congress to be putting time and effort into this with everything else that’s going on right now isn’t right. I can see how people think it’s a problem, but we are trillions of dollars in debt. There are wars going on, there’s a refugee crisis, we have homeless people and hunger...and we’re wasting time and money on this?”

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