In 1979, Daniel Okrent unknowingly commenced a fantasy sports revolution with his invention of “rotisserie baseball.” Founded as a medium for self-proclaimed baseball “know-it-alls” to competitively test their convictions via head-to-head contests, rotisserie baseball has evolved into the fantasy sports industry which encompasses all major sports in season-long competitions. Daily fantasy sports (DFS), a newer variation of traditional fantasy sports, rids users of season long commitments by offering the excitement via daily competitions where users draft a team of sports stars in attempts to win monetary pay-outs. The updated format of daily fantasy sports has grown the industry exponentially over the last half decade. FanDuel and DraftKings are the largest DFS businesses, and have recently come under fire by states which contend that the industry is nothing more than illegal gambling. I tend to agree with Chris Christie’s assertion from the CNBC Republican debate earlier this month that, “people play, who cares.”
Government scrutiny of DFS websites began with an alleged insider information scandal involving Ethan Haskell, a DraftKings employee who raked in $350,000 after winning a competition on rival FanDuel’s website. Haskell allegedly utilized company statistics to compare how many fantasy users were drafting each football player to give himself a competitive edge. While the companies have regulations in place which prevent employees with inside information from playing on their own sites, at the time, no regulation was placed on participating in contests on competitor sites. Although this case has little to do with the recent anti-DFS movement across states which wish to ban (or regulate) the sites because they are “gambling,” this situation is what originally attracted government attention to DFS websites.
Earlier this week, following the lead of states such as Nevada, New York Attorney General Eric Schneiderman issued a cease and desist order against FanDuel and DraftKings. Schneiderman brought the case under section 225 of the New York Penal Code which states, “a person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control.” Schneiderman’s contention is that winning a daily sports contest is so unlikely that it is merely a better-disguised form of gambling: “it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion dollar scheme intended to evade the law and fleece sports fans across the country.” He clearly marked his stance: “not in New York and not on my watch.” Thus, the critical question in this case persists: is succeeding in daily fantasy sports a matter of luck or skill?
This decision regarding luck versus skill in DFS will be left to the New York Supreme Court for decision after FanDuel and DraftKings filed lawsuits seeking injunctions against the Attorney General’s order. Upon filing the lawsuit, DraftKings released the following statement, “Today, we have taken decisive legal action to prevent a unilateral, misinformed and legally misguided attempt by the New York Attorney General to act as “judge, jury and executioner” for daily fantasy sports in New York.” Because federal law as stated in the Unlawful Internet Gambling and Enforcement Act of 2006 has a similar stipulation requiring skill rather than luck to control outcomes, this case will set an important precedent for the DFS industry.
DFS competitions are based on only one day of sports statistics and are inherently more unpredictable than traditional formats, however DFS requires skill nonetheless. Primary evidence for this claim lies in the aforementioned argument against Ethan Haskell. The argument that insider information regarding which players were being drafted enabled Haskell to outperform his competitors would insinuate that DFS are a game of skill. If DFS were truly a game of luck then the knowledge obtained from company data would be moot – and not provide any advantage over the competition.
Chris Grove, editor of legalsportsreport.com, states that this issue of skill versus luck is “fundamentally a matter of opinion,” however it is undeniable that states are eager to instigate a money grab. The realization that DFS are becoming increasingly profitable has influenced states to bring forth lawsuits or legislation. While the lawsuits may be intended to completely ban gambling, it is likely that agreements between states and DFS businesses will be made subjecting the industry to regulation. Already, at least 12 states (including Georgia) are considering lawsuits or legislation concerning DFS. Daily fantasy sports went largely unexamined by states until large-scale television advertisement campaigns provoked exorbitant participation and extensive profit. States are now standing behind an “anti-gaming” countenance in order to tap into the DFS revenue stream by making DFS a taxable industry in order to increase state revenues. This is a smart move for states. Proverbially killing two birds with one stone, states can oppose gambling while raising state revenue.
Fantasy sports have become commonplace extensions of professional, and even collegiate, sporting events in which owners have a more intimate relation with the sport and develop a connection with the game. States would be ignorant to not consider legislating an industry which could easily boost state revenues. However if action must be taken, regulating, rather than banning, the DFS industry should be the course of action, because these games truly require skill – which is hard for me to admit considering that the combined record of my three fantasy football teams is 12 wins and 15 losses.
Photo Credit: media.syracuse.com