Daily fantasy sports and the case for legal online gambling

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If daily online fantasy sports contests are legal, why aren’t online poker or other casino-type gambling games?

I’m not against the idea of playing fantasy sports for money, I just wish legislators, with some enabling from the major sports leagues and the fantasy sports sites themselves, would stop kidding themselves (and us) that it is not online gambling.

Gambling is defined as when two or more parties stake a sum of money on an uncertain outcome. Once the outcome is determined, the party who predicted correctly collects the total of the funds at risk.

The contest can be one of skill or chance. Two people can wager on which one can make 10 basketball shots in a row or how many red M&Ms they’ll find in a factory-sealed package.

Fantasy sports originally were contested on a season-long basis, usually among groups of friends, and friendly wagering often was involved. Sites like DraftKings and FanDuel brought the scale of the Internet into play, and introduced daily contests allowing contestants to play against others one-on-one or against thousands at a time. The rules work with any sport. In baseball, for example, contestants choose a line-up of pitchers and position players. As games progress through the day, points are awarded on the basis of the performance of the ballplayers–hits, home runs, RBIs, strikeouts and such. The fantasy contestant whose line-up totals the most points wins.

What makes the game challenging is the “salary cap” that fantasy players must hold to. Top performing players “cost” more, preventing contestants from loading up on superstars and forcing them to strategically evaluate and balance their choices.

Daily fantasy sports has become popular. An estimated 3 million to 4 million play each day. DraftKings claims 2 million registered members, an increase from 200,000 last year, according to the Washington Post. Daily fantasy accounted for $492 million in annual spending as of early 2013, according to the New York Times.

Because it spurs interest in games outside home markets, thereby increasing the value of national television contracts, the major sports leagues have taken an interest. In 2013, Major League Baseball purchased an undisclosed minority stake in DraftKings. Disney, owner of ESPN and the National Hockey League’s Anaheim Mighty Ducks, invested $250 million in the site in April. The National Basketball Association holds a 2.5 percent stake in FanDuel.

By any definition, daily fantasy sports is gambling. Real money is at stake, from as little as $1 to $10,000. The terms can be winner-take-all or, in a large player field, a set number of top finishers.

The only people who deny that daily fantasy sports is gambling are the sites themselves, their investors and the U.S. Congress, which created a carve-out for fantasy sports in the Unlawful Internet Gambling Enforcement Act (UIGEA). Otherwise, all other online games where groups of players risk actual money, like poker, are illegal. UIGEA notwithstanding, five states define fantasy sports as gambling and have banned it.

The daily fantasy sports industry argues that the UIGEA carve-out is legitimate because fantasy sports games require skill. But, as noted above, skill is not a defining aspect of gambling. Poker depends predominantly on skill. Roulette, on the other hand, is all luck.

And while the Fantasy Sports Trade Association falls over itself explaining the skills needed to win at fantasy sports, such as keeping track of injuries, coaching styles, weather patterns and home and away statistics (all true), it leaves out the most important part, which pertains specifically any form of successful gambling – the ability to identify and exploit statistical correlations.

Here’s a strategy hint for all would-be daily fantasy players: for all practical purposes, fantasy sports is a parlay wager. In a parlay, a gambler bets on two or more outcomes. If they all occur, the player wins the bet. When casual gamblers bet a parlay, they usually pick outcomes that are independent and isolated. In a baseball parley, that might mean choosing the Mets and Nationals to win their respective games. This bet can be expressed simply as x + y.

Professional gamblers look for statistical correlations between two events. That is, if the first outcome in the parley occurs, the probability of the other outcome increases greatly. A skilled sports parley can be expressed as “if x, then y.” To be more concrete, the first thing a daily fantasy sports player should do each day is look for games that have high over/under lines. That is, the games in which handicappers believe a large number of runs will be scored. (Hat tip to poker guru Ed Miller, who offers more thoughts on this podcast.)

I doubt opponents of online gambling would argue with any of this. It’s only a matter of time before the anti-gambling side takes notice. But with the pro sports establishment and major media outlets behind it, online fantasy sports may already have enough momentum to escape prohibition.

To be frank, that would allow us to look at fantasy sports as a laboratory for online gambling. Opponents say online gambling would only spread addiction, entice children to burn through their parents’ credit card lines and, in the case of sports betting, breed corruption. Recent efforts have been aimed at getting Congress to rewrite the Wire Act to prohibit intrastate online gambling.

Yet despite the popularity of daily fantasy sports, it does not seem to have become a social problem. I have seen no breathless news stories of families rendered destitute by a profligate fantasy sports player. While we hear a lot about keeping children safe online, fantasy sports sites have not been listed among the threats. The honesty of the contests has not been called into question. Companies that run fantasy sports sites are publicly traded. Congress seems comfortable with the sport leagues doing business with them.

In other words, it’s turned out that at least one type of online wagering game is enjoyed responsibly by millions of Americans. Its example makes a strong case for allowing states to make their own decisions about online gambling, scrapping UIGEA and, in general, giving Americans greater freedom to play other wagering games, including poker, online.

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