Is Daily Fantasy Sports Gambling?
In August of 2015, Forbes published an article highlighting the fast-growing daily fantasy sports (DFS) industry. The rise of fantasy sports and most specifically fantasy football has been truly remarkable. In recent years, fantasy football has absolutely exploded with over 30 million Americans playing fantasy football annually. Fueled by over one billion dollars in venture capital and powered by the internet, fantasy football has been rapidly evolving. It is this evolution that has, in many ways, shaped the controversy surrounding daily fantasy sports sites.
Traditional Fantasy Sports:
Traditional fantasy football gives players a chance to serve as team owners/managers and compete in a “league” of friends. The fantasy season begins with a “draft” process where each participant is permitted to select players for their team. In the standard league, each “owner” is required to fill a team roster. Each week of the football season, owners are matched up against an opposing owner. Points are then allocated based on various athletic achievements made by the players on their team. The winner of the weekly matchup is the team with the most points. The challenges continue until a winner is declared at the end of the football season.
In 2006, Congress passed the Internet Gambling Prohibition and Enforcement Act. At the time, Fantasy Sports were played as traditional season-long competitions with very low financial stakes. As a result, the legislation’s definitions section carved out an exception, which permitted fantasy sports. This was largely based on the theory that fantasy success involves a requisite level of skill, distinguishing the activity from gambling. However, this legislative carve out was established prior to the rise of daily fantasy.
Daily Fantasy Sports (DFS):
Much like traditional fantasy sports, daily fantasy games allow participants to act as team owners who select individual athletes for their teams. Daily match ups however, have much shorter durations; ‘daily’ fantasy events take place over a period of less than one week, often occurring over a single day. Additionally, entry fees for these contests can exceed $10,000. Thanks to hundreds of millions in advertising money, these daily fantasy matches have become extraordinarily popular.
Controversy Surrounding DFS:
In recent months, the world of Daily Fantasy Sports has been riddled with controversy and legal concerns. From Money Laundering Concerns to a highly publicized Insider Scandal, DFS has presented a growing list of potential issues. Amid these growing concerns, regulators have begun to consider whether the evolved ‘daily fantasy’ constitutes unlawful gambling, ineligible for legislative carve out. Most notably, on November 10, 2015 the New York State Attorney General issued a cease-and-desist order to FanDuel and DraftKings, ordering them to stop taking entries in New York.
The story is evolving quickly. On December 11, 2015, New York Supreme Court Justice Manuel Mendez granted Attorney General Eric Schneiderman’s request for a preliminary injunction against FanDuel and DraftKings. A challenge to the preliminary injunction was immediately filed and later that same day, appellate Justice Paul G. Feinman granted a stay on the injunction. This stay will allow the two sites to continue to operate in New York, at least until the first week of January 2016 (when they will appear in front of a full panel of judges).
DFS: Skill or Chance?
Attorney General Schneiderman’s argument identifies the key question facing the court: does daily fantasy include a “material degree” of chance/luck so as to constitute a game of chance rather than a game of skill? Some insiders, like NFL legend Joe Namath, poker professional Andy Frankenberger and television host John Oliver, think the answer is clear – daily fantasy is gambling. Proponents of this viewpoint point to the impact DFS has on gambling addicts and instances where a single athlete’s strategic decision (outside of the fantasy player’s control) has a costly impact on fantasy outcomes.
On the other hand, there are skilled players who spend their entire day ‘working’ on their rosters with great success thanks to carefully crafted predictive algorithms and data modeling. And the group of successful fantasy professionals is very small relative to the overall fantasy user base; for instance, in the first half of the 2015 Major League Baseball (MLB) season, 1.3% of the fantasy players took home 91% of the DFS profits, suggesting skilled players are incredibly advantaged. In an interview with Fortune, DraftKings lawyer, David Boies, demonstrated confidence in the legal merits of his client’s position noting the level of skill necessary to succeed in daily fantasy.
Yet a win in court may still have negative implications on the daily fantasy industry. As University of Georgia Professor, Jeffrey Dofman points out in an opinion piece for Forbes “Potentially, [DraftKings and FanDuel] could prove their games are legal at the same time as they kill their business model. Providing clear statistical evidence of the skill involved in these games might also serve to educate the general public how little chance they have of actually winning.” Moreover, subsequent legislative action could restrict or further regulate the daily fantasy industry.
No one can say definitively what will happen in the coming months but one thing is for sure, the stakes are high. The ultimate conclusion to the New York State litigation will likely have far reaching implications across the country. Thus for the time being, the controversy surrounding daily fantasy will undoubtedly remain a hot topic at the intersection of law, business, sports, and politics.