It's a Fantasy

G2E looks behind the curtain at DFS

The Global Gaming Expo is always a good event to gauge what’s going on in the industry. This year was no different. And judging by the buzz, fantasy sports are the hot item. There were no less than five conference sessions on the topic, and at least one offered some fireworks as speakers sparred over the issue.

In case you’re not familiar with fantasy sports, its genesis was the old “rotisserie” leagues where participants picked their dream teams for a season, they played in leagues with their friends and worked their way through trades and injuries to compete for a winning team.

But today’s fantasy sports are not your father’s rotisserie leagues. Rather than being season-long competitions, they’ve morphed into daily and weekly contests. They’ve coined their own acronym, DFS, for daily fantasy sports.

Fantasy sports are clearly a game of skill (unless I would play, and then it would be purely chance). It’s data-crunching at its best for those who play, and it appeals to traders. And it enjoys a carve-out from the Unlawful Internet Gambling Enforcement Act (UIGEA), since the National Football League deemed it acceptable in that lobbying process.

In fact, many professional sports leagues and teams are now partnering with one of the two leading providers of the activity, DraftKings and FanDuel. And these companies certainly got on the radar of the everyday consumer of football in the opening week of the NFL when their advertising was ubiquitous. In fact, the Wall Street Journal reported that both providers had large rounds of funding from the likes of media giants like ESPN, Time Warner and Comcast with substantial ad campaigns ($250 million each) as part of the deal. So those barrages shouldn’t come as a surprise.

With that brief primer, most of the debate at G2E was related to: 1) “Should fantasy sports be considered sports betting?” and 2) “Is there a need (or not) for regulation?”

Whether daily fantasy sports constitutes gambling or not seems to be a matter of opinion, legal or otherwise. A broad consensus is that the DFS certainly has the look and feel of gambling. Proponents are quick to point out that gambling has prize, chance and consideration, and that DFS is clearly a game of skill.

This discussion of whether or not to regulate is an interesting one, but may become moot as politicians begin to call for regulation. After the flood of ads during the opening week of NFL, U.S. Rep. Frank Pallone, a Democrat from New Jersey who supports legalized sports betting, used the opportunity to note the contrast.

Sports betting is illegal but, as he noted at an International Center for Sports Security conference, “What it has essentially done is carve out a way for the leagues and teams to do sports betting or gambling where they are the only ones that make any money. That is why they are for the fantasy sports, because they are making the money.

“They don’t want the state to make the money. They say that sports betting is immoral and it causes all kinds of problems for their players, but they don’t hesitate to get their players involved in all kinds of fantasy sports.” Pallone has called for congressional hearings to explore the relationship between the leagues and fantasy sports.

On the state level, several states have called for regulation of fantasy sports. Five states currently have laws which block daily fantasy sports: Arizona, Iowa, Louisiana, Montana and Washington. Maryland and Kansas have legalized.

At least 10 states have begun to look at regulatory bills: California, Illinois, Indiana, Iowa, Kansas, Louisiana, Massachusetts, Michigan, Montana, Pennsylvania, Texas and Washington. How these all sort out remains to be seen, but given how high-profile the industry has gotten recently, that list is sure to grow.

Having watched the iGaming industry since 1995, we do tend to be prone to scandals. I’ve thought for a few years now that the same will happen to daily fantasy sports. One college student blowing through his student loan was certainly a good possibility to come to light. Or given the lukewarm age verifications on DFS sites, an underage player racking up a good debt on a family credit card was another good option.

But, actually, while the topic was being bandied about at G2E in Las Vegas, DFS staff were undoubtedly creating PR positions on a scandal that broke over that following weekend. In essence, reports said that a DraftKings staffer used information not available to the public to win $350,000 on the FanDuel site. The move was likened to “insider trading” by the media.

Simultaneously, the New York Times editorial board issued an op-ed titled, “Rein In Online Fantasy Sports Gambling.” They said, “The allure of profits from gambling clouds otherwise rational minds. Giving people more ways to bet on the outcomes of sports is sure to threaten the integrity of sports and create more gambling addicts, especially among young people who are already more likely to engage in risky behaviors.”

There was no mention of the scandal, so one can only imagine what the Times would have done had they held that editorial another 24 hours or so.

Watch this space closely. Eilers Research estimates that daily games will generate around $2.6 billion in entry fees this year and grow 41 percent annually, reaching $14.4 billion in 2020. So regulation likely won’t be far behind.

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Sue Schneider is one of the pioneers of iGaming. She is the founder of the iGaming North America conference and is also editor of Gaming Law Review and Economics.

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