Not Gambling? Seriously.

The following piece was published at back on April 17, 2015. That was before the Fanduel/DraftKings legal implosion the following fall. And it was before last week’s Supreme Court decision leaving the legalization of sports betting to the states. The gambling landscape is changing. This article might be one of my greatest forecasting achievements. Maybe.

When it comes to daily fantasy sports (DFS), there is no question that these games are completely legal.

They meet the litmus test of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). That act provided a firm definition for what constitutes a legal fantasy sports game. Slap the big “APPROVED” stamp on your forehead if…

…your game sets a fixed cash prize in advance of signups (the prize is not based on how many entries you get).

…winning is determined by the relative knowledge and skill of the participants and based on the statistical results of players in multiple games.

…winning is not determined by team results or by the performance of one player.

By these rules, DFS is legal. But just because it meets a legal test doesn’t mean that it also meets the logical test of what constitutes gambling. And make no mistake—in nearly every logical sense, daily fantasy sports is gambling.

DFS games didn’t exist until 2009. Had they been there in 2006, odds are that the verbiage in that definition might be a little different. That second clause might have read something like, “based on the statistical results of players in multiple games over the duration of a full season or tournament of play.”

What’s more, the UIGEA’s definition as it is written is still far from black-or-white. The phrase “relative knowledge and skill of the participants” is incredibly grey. You can make the argument that success in many casino games can be driven by the “relative knowledge and skill of the participants.” Poker for sure. Knowing to hold at 18 in blackjack also requires something as grey as “relative knowledge and skill.”

And frankly, even the legality issue is grey. There are at least five states whose laws trump the UIGEA—you can’t play fantasy games for money in Arizona, Iowa, Louisiana, Montana or Washington—which means that you can’t paint this issue with a broad brush.

MLB just signed a multi-year deal that makes DraftKings MLB’s “official daily fantasy game.” I find this particularly hypocritical given that, in March 2013, MLB Advanced Media CEO Robert Bowman called daily games “akin to a flip of the coin, which is the definition of gambling.”

And even though MLB is now fully in bed with DFS, they’ve just barred players from participating in these games for the same reason Pete Rose has been sentenced to life imprisonment.

“Major League Baseball and the players’ association have agreed to a deal that forbids players from playing in daily fantasy baseball games that involve a prize, but still allows them to endorse these companies…. commissioner Rob Manfred said that although he considered daily fantasy different from gambling, playing fantasy for prizes became part of Rule 21, which prohibits players from gambling.”

It’s the epitome of sending mixed messages when a player can endorse a product so long as he doesn’t use it himself.

Legally defined or not, DFS is gambling because even full-season fantasy is gambling if there are entry fees and cash prizes. Risk money to win more money; it’s gambling, seriously. What makes DFS more insidious are the short-term payoffs and incentive for escalating engagement and investment. The low cost of entry and promise of immediate gratification can create a powerful compulsion to embrace riskier and riskier behavior. In the deep end of the user pool populated by millions of guppies, oftentimes the game has hardly anything to do with skill at all. It’s only about the cash.

Others think likewise:

The perception in the general public is also that this is a gambling game. Why else would we even be having this conversation?

Two weekends ago, I was at a friend’s house watching the NCAA Final Four. His 27-year-old son and a few of his friends were watching the games with us. It was the first time I had met his son, and he did not know who I was. At one point, there was this brief conversation between the son and one of his friends:

Son: If Duke wins, I’m up a thousand bucks.

Friend: That’s great. You playing FanDuel?

Son: Nah, I go straight to a bookie.

I hope that Ray Murphy won’t mind me retelling his story, but Ray’s wife recently decided to drop $20 to enter a $1 million DFS golf contest. When he reminded her that she didn’t know anything about golf, her response was, “but it’s a million dollars.” She won $60.

And I see many of my good friends tweeting about their DFS lineups into the wee hours, often hanging on 9th inning at-bats like a craps player praying for a good dice roll. “C’mon man, just poke one through the middle and win daddy those five bills.”

DFS operators are selling their game as an alternative to full-season play but their major selling point focuses on the cash. FanDuel hypes “Over $2 million in prizes every day.” DraftKings hypes “Over $1 BILLION guaranteed in prizes this year.”

That’s potentially scary for the Fantasy Sports Trade Association (FSTA). They have been working hard to make sure DFS operators stay far away from gambling-related terms and sales messages. Don’t talk about your miniscule rake. Don’t talk in terms of vig, overlay or hedge. That’s not because those elements of the game aren’t real. It’s because they need to keep DFS under the radar, beneath the often-denied but still ever-present fear that some ambitious legislator might see them for what they really are. The slightest scent of gambling could very well draw the wolves. FSTA continues to soft-pedal the risk while employing their lobbyists en masse.

You see, if you ask any DFS operator whether their game is gambling, they don’t respond by carefully explaining the elements of the competition. The first thing they do is start waving the UIGEA flag. Their game is legal because the UIGEA says it is. That’s great protection now, but time moves on and we “should not assume that past law is precedent.”

DFS has awakened the gambling gene that I suppose has been simmering underneath the surface for many fantasy leaguers for decades. Let’s face it; most of us have always played for money. However, given the 6-month time frame, that payoff became somewhat secondary to all the effort we put in during the season. When October rolled around, though, most of us considered the payoff well-earned. It wasn’t perceived as gambling because we busted our collective butts for six months to earn that cash.

I have a tough time considering DFS winnings on any given night as well-earned, at least not in a traditional fantasy sports sense. Yes, a bunch of effort may have gone into that night’s picks, but the error bar is so wide on one night’s games that it’s tough to see the skill within the luck. Over time? Yes. Build the critical mass of events and skill will eventually show itself. But in one night? No.

Now, after all this, you might be surprised to learn that I don’t hate DFS. I’ve played it, it’s fun, but I don’t have the time to play it often enough to increase my bankroll to the point where it’s worth the effort. (No season-long commitment? Sure, if you just want to be a feeder.)

So, no I don’t hate it. What I hate is all the posturing about what it is and is not. Daily fantasy sports is gambling no matter what an outdated government ruling told us a decade ago. Let’s stop hiding behind semantics and just deal with the truth. That will allow us to stop denying reality and perhaps start figuring out if there is a way to make an honest game of this.

One way is to support the efforts of some of the major sports leagues that are pushing to relax the rules regarding gambling in general. It used to be that organizations in power were pretty ethical when it came to gambling, the threats of addiction and attempts to protect us from ourselves. Those efforts now lag well behind the potential for profit. So if sports gambling starts entering the mainstream, all this UIGEA flag-waving nonsense will become moot.

And honestly, there could be a good deal of momentum behind that. If the marketplace demands something and there is enough money to be made for everyone who wants a piece of the action, then there’s little that can stop it.

Long live the marketplace.

One thought on “Not Gambling? Seriously.

  1. Jamie Marcum

    “Risk money to win more money; it’s gambling, seriously.”

    Not to play a devils advocate, because I agree with most of what you are saying but the statement above reminds me of my 401K as well. I actually feel more in control and have a better ROI on my DFS results than I do my 401K because of my percieved “knowledge” of baseball. Either way the outcome is based on results of an individual, or a company of individuals. It’s ALL either Gambling or not, our Portfolio managers, 401K managers etc. also do the posturing. Most successful investors as well as DFS players have a strategy, a system and/or an alogorithm to facilitate their success.

Comments are closed.