Posted by: Mike Cornelius | October 18, 2015

The Fantasy Of Regulating Fantasy Sports

A few years ago, On Sports and Life happened into a local barbeque restaurant one late summer evening to pick up a takeout order for dinner. The popular Portsmouth eatery had operated for years out of a tiny hole-in-the-wall location that necessitated a large percentage of its business be orders to go. Mojo’s had recently moved to far more spacious surroundings which featured a lengthy bar and seating for fifty or more in the dining area, all overseen by multiple large screen televisions, usually tuned to sporting events. Old habits die hard though, so I had called ahead and was in the new location just long enough for the hostess to go back to the kitchen for my meal.

While waiting it was obvious that a group of close to twenty men and women had commandeered a section of the dining area, moving tables and chairs around to form a long rectangle around which they sat. Some were munching on chicken or ribs, and almost everyone had a beer in front of them, but it was quickly apparent that this was no group outing for a tasty meal. As a young man at the head of the table called on members of the group in turn, one by one they announced the name of an NFL quarterback, receiver or running back. On this night the dining room at Mojo’s had been transformed into Draft Central for a local fantasy football league.

By some estimates more than 30 million Americans play fantasy football, in which participants “draft” a roster of players at the scoring positions, and then compete against others based on how those players perform in actual NFL contests. Over the years variations of that basic concept have spread the fantasy sports concept to essentially all other major sports as well; though just as in our actual games, fantasy football based on the NFL remains the most popular fantasy sport.

Most of those millions of participants play just like the group in the barbeque house. Their competition runs over a full season, with various means of replacing players from week to week. It is played among friends or coworkers for relatively small stakes, as much social activity as money-making enterprise. But combine the enormous and constantly growing popularity of the concept with the ubiquitous nature of the Internet, the human desire for ever more immediate gratification and the awareness of human gullibility recognized since the days of P.T. Barnum, the result is online fantasy sports gambling. It’s an industry that didn’t exist just a few years ago and is now led by the websites FanDuel and DraftKings, both of which have paper valuations in excess of a billion dollars.

The websites allow players to expand their competition from the neighborhood to the world. They offer one week or for some sports even daily “leagues,” removing the burden of having to wait an entire season to determine if one is a winner. And with investments in the hundreds of millions of dollars from major companies including NBC, Fox and Comcast and individual billionaires like Robert Kraft and Jerry Jones, they entice players to sign up and send in their money with the promise of potential paydays running into seven figures.

Both FanDuel and DraftKings have also entered into lucrative marketing agreements with sports leagues and teams that have heretofore taken a dim view of betting on their games. FanDuel has deals with the NBA and 16 NFL teams. DraftKings’ marketing partners include ESPN, Major League Baseball, NASCAR, Madison Square Garden, and numerous individual franchises in the NFL, NBA, NHL and MLB. All of which means, as fans of virtually every televised sport knows, that it has become virtually impossible to watch any game without seeing an ad for one or both of the websites at virtually every commercial break. The most frequently aired spot for the Boston-based DraftKings is particularly grating. It features an excitable young man wearing a baseball cap backwards who anxiously waits and watches as his tiny investment turns into a giant payday.

Now both companies have been besieged by a media storm, set off by a New York Times investigation that revealed a DraftKings employee had mistakenly released data on the selection rates for NFL players prior to games being played. This data is important because in order to win a fantasy player needs at least some members of his “team” to be players who aren’t on thousands of other rosters. The Times story further revealed that the DraftKings employee with this information went on to win $350,000 playing that week on the FanDuel website. In addition, the publicity generated by the tidal wave of advertising has renewed debate about whether fantasy sports is a game of skill or just good old-fashioned gambling, an activity supposedly illegal in this country since the passage of the 2006 Unlawful Internet Gambling Enforcement Act.

Fantasy sports were exempted from the 2006 legislation on the grounds that they were games of skill. But there are elements of skill in poker, chemin de fer baccarat, and blackjack, all of which are played at casinos all over the globe and all of which are universally regarded as gambling. The exemption under which FanDuel and DraftKings operate is a testament to good lobbying, not good sense.

Most players who log in to either of the two websites, make their deposits and pick their teams, do so in the same spirit as those in the barbeque restaurant’s dining room. They are spending discretionary money on entertainment. But there are certainly those for whom fantasy sports are very real. Essentially professional players, these participants use computer algorithms to update hundreds or even thousands of teams at a time. They would have genuine cause for concern if this unregulated industry is not presenting them with a level playing field.

In the wake of the Times investigation there have been the usual calls for congressional hearings and reports of investigations opened by the FBI and various states. Nevada, the one state with the biggest stake in opposing online gambling, has banned FanDuel and DraftKings unless the companies apply for and obtain a state gambling license.

But the notion that these websites are going away is absurd, and even the likelihood of any kind of formal regulation is remote, given that Congress generally can’t agree on what time it is. Of course this is online gambling, but given the number of participants, that particular barn door is swinging in the breeze. Most players don’t care about a potentially rigged field, because they know they are never going to be cashing one of those checks featured in the inescapable commercials. Beyond that surely FanDuel and DraftKings know that it’s in their own interest to take steps to demonstrate that they are regulating themselves, so that professional players will remain loyal. These websites need those high rollers just as much as their Las Vegas brethren. As for Congress, maybe it can help out by passing a law against wearing baseball caps backwards.

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Responses

  1. Excellent piece. I think they better get a handle on this it seems to be getting out of hand very quickly. Chuck


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