Fantasy Sports, Real Benefits

by Marc Occhipinti

I began playing fantasy football five years ago, and it immediately became one of my favorite hobbies. I found it was the perfect blend between sports fandom and analytical skills, which were two things I possessed. The transition to daily fantasy sports (DFS) fascinated me. I questioned why season-long fantasy is universally legal, but the debate is ongoing about the legality of DFS. I frequently found myself reading articles and listening to podcasts about fantasy football. As a result, my career record, according to Yahoo, is 160-95 and using a binomial distribution, the probability of 160 or more wins in 255 games occurring solely by chance (50% chance of winning each game) is 0.0028%. Before looking at outside research, this led me to believe that effort, an understanding of the game, commitment, and overall skills correlate with success in fantasy sports. I felt that the slightly different styles of play of season-long and DFS were not significant enough to have disparate standards of legality. 

The questions arise of what impact the rise of daily fantasy sports is having on our society and if DFS should be legalized across the whole country from an ethical, economic, psychological, and social viewpoint. 

Background: Fantasy Sports and Gambling

Illegal sports gambling is a hundred-billion-dollar per year industry (Mantel). 80% of high school students have reported gambling in some way, and sports gambling is the most popular form among the 14-22 age group. 2-3% of gamblers meet criteria for a gambling problem, who are much more likely to steal, drink in excess, and engage in risky sexual activities (National Council on Problem Gambling). 

Fantasy sports have seen a seismic rise in popularity over the last decade. When fantasy sports came into inception in the 1960s, season-long fantasy sports with hand-kept score sheets was the only way to play, despite its tediousness. However, the internet has made accessibility much simpler. Fantasy sports have grown from existing as a supplement, to rooting for one’s hometown team, to a “cultural sensation” with a community of over 33.5 million members (Ottley 555-556). 

Traditional or season-long fantasy sports involve holding a draft at the beginning of the season. Each participant is given a spot in the draft order and each participant drafts a team of players from across the respective professional league.heir fantasy team is built up with players across different professional teams. The goal is to score the most fantasy points, a value comprised of different in-game statistics, such as hits and runs in baseball, or yards and touchdowns in football. Each player on a fantasy team racks up these statistics, and the object is to score more fantasy points each week than one’s opponent to register a win and give the opponent a loss. One can also pick up and drop players from their team each week for reasons like injury and lack of productivity (Ottley 556-558). Although people play with the same fantasy team for the whole season, the team often looks very different at the end of the year due to pickups and drops.

Daily fantasy sports (DFS) draws from the same fundamental basis as season-long fantasy sports. Each participant is given a salary cap, a set amount of metaphorical money with which to construct a fantasy lineup. The players projected to perform better are priced higher, forcing the participant to make budgeting decisions for players on which to splurge, and positions on which they must be frugal. Sites like FanDuel and DraftKings offer different kinds of contests with different entry fees and payouts. These include cash games, where participants can put up any amount of money and play against a single opponent to try to approximately double their money (The sites take about 10% from each game as revenue). Another type is tournament play, where a participant enters a larger field in an attempt to take home a bigger payout (Rathburn). 

The debate on whether DFS is a form of illegal sports gambling has seen different states take different sides. The scope of actual state legality is very murky. Fourteen states have legislation acknowledging its legality, while five states have legislation that bans DFS. This leaves 31 states with either contested legislation, legislation pending, or no legislation at all. FanDuel and DraftKings currently operate in 39 states based on their view of each state’s piece of legislation, or lack thereof (Rodenberg).

Ethics: Game of Skill or Chance?

From an ethical and legal perspective, the overarching question is whether DFS is a game of skill or a game of chance. Currently, due to the Tenth Amendment, states answer this question and harness all powers not claimed by the Federal Government. If states deem DFS a game of chance, it would be considered sports gambling, and be illegal. However, games of skill are typically seen as a different category from gambling, paving the way for the legality of DFS (Meehan 6-7).

So how can states distinguish a game of skill from a game of chance? “The Predominance Test, also known as the Dominant Factor Test” is a tool used by states with the goal of analyzing whether the main component of the game is based on skill or chance. Chance and skill are the only two variables in play in this analysis, so the result of a test where 51% or more of the outcome is determined by “a player’s own ability” will be considered a game of skill, whereas if 51% or more of the outcome is determined by outside, random factors, the game will be seen as a game of chance (Meehan 15-16). An independent analysis conducted by Jeffery Meehan, using the Predominance Test described, found daily fantasy sports to be a game of skill by an overwhelming margin. The results of his test found that the results of DFS contests are 80% skill, leaving just 20% up to chance. Contributing factors found to increase or decrease one’s aptitude at DFS include “daily market and player research, advanced game theory, and bankroll management”, along with the many similarities it shares with season-long fantasy sports, universally determined to be an acceptable form of sports wagering under the Unlawful Internet Gambling Enforcement Act of 2006 (Meehan 8, 35).

In many ways, fantasy sports parallel other business ventures. Many of the arguments against the legality of DFS are rooted in the idea that the risk of monetary loss is a contributing factor. Merriam-Webster defines the word “gamble” as “to bet on an uncertain outcome.” Under this definition, DFS constitutes gambling, but so does trading the stock market, investing in start-ups, and lending money to a person or firm. These three other examples are not perceived as negative because the bet to make money is made with sound reason and thought. The perception of gambling is different when banks issue a home equity loan considering a couple’s credit rating and ability to repay as opposed to a person playing number nine on a roulette wheel because it is his/her son’s age (Ervin). DFS falls more under the first category, where a player decides his lineup based on player trends, budget management, team matchups, and other factors. 

Economic: Who benefits financially from DFS? 

Another benefit of DFS is the revenue created for numerous sources as a result of its popularity. First, the two major players in the industry are DraftKings and FanDuel. These two companies bring in revenue from taking about a 10% cut out of each fantasy contest. Players are aware of this before they enter a contest, so this source of revenue is both practical and moral. This is a viable source of revenue, as the estimated revenue for the DFS industry in 2016 was $3.2 billion (Gouker). This industry has created numerous jobs, and has found a market willing to buy in. Another financial impact of DFS is with advertising. The bigger the popularity of DFS, the greater the spaces in which they will be inclined to advertise. From TV commercials to logos on jerseys, the possibilities for advertising revenue from TV stations, websites, sports teams, etc. are endless. The inherent effect of increasing interest in games that would seemingly not matter also plays a role. If a player is on a participant’s fantasy team, he will be more inclined to watch the player’s game than someone who does not play DFS. According to the Fantasy Sports Trade Association, once players begin to play DFS, they will watch 40% more sports games than before (Heitner). This increased viewership and ratings for professional sports games make ad spots for these games more desirable and lucrative. 

Another viable financial beneficiary from DFS is states themselves. New York took the opportunity after passing legislation allowing DFS to create a revenue stream out of DFS. New York placed a tax on gross revenue from leading DFS sites. In the first six months of the tax, it brought in $2.8 million for the state. Sites like FanDuel and DraftKings are willing to pay the tax because otherwise they would lose the opportunity to operate in the state of New York, a state which accounts for about 10% of the total revenue for the DFS industry (Gouker). This successful tax in New York could become a precedent that other states may follow. It provides another outlet for state revenue that is viable and beneficial.

Psychological: The Bridge Capabilities of DFS

Others argue that the rise of DFS will contribute to more problem gamblers in the future. Some people view DFS as a new and enticing trap for people who suffer from gambling addiction. One article equates a problem gambler discovering DFS to an alcoholic discovering a new and exciting bar that draws him in to rediscovering his drinking problems. The story is told of Joshua Adams, a gambling addict who lost $20,000 playing DFS. He moved into DFS after determining that the wait-for-the-reward status of season-long fantasy was not as invigorating and fast-paced daily games. The losses brought him to the verge of suicide, a dangerous consequence of DFS and outside illegal sports wagers (Bogdanich). 

While Mr. Adams’ story is alarming and draws sympathy toward the situation, evidence suggests that people with chronic gambling problems will most likely struggle with their addiction no matter what medium presents itself. Gambling addiction is a disease that takes over the addict’s body and mind, and while an addict should seek outside help, without it, there are psychological effects driving him/her toward gambling. A study shows gambling addicts release more dopamine, a body chemical frequently linked with the addiction to drugs as well as an increased desire for reward. High dopamine release was found to result in an increased excitement level and tendencies to gamble more riskily and severely. Another contributing factor for gambling addicts is the increased tendencies toward “cognitive distortions”. These are misinterpretations toward the probability of the desired outcome. For example, “the gambler’s fallacy” is a distortion that entails a change in mindset due to previous outcomes in a sequence. At a roulette table, this would occur if the wheel happens to land on four red numbers in a row, so the gambler would sense an increased chance of a black number turning up next, despite the real probability being the same for every spin (Clark et al.). These neurological impulses that occur more frequently and intensely in gambling addicts attest to how gambling addiction parallels drug or alcohol addiction on many fronts, and how gamblers will be driven to do so no matter what the medium.

Because DFS is inherently different than traditional forms of sports-gambling, it can serve as a responsible bridge to prevent gambling addiction from surfacing in the first place, especially within our youth. 20% of all teens (12-17) play some kind of fantasy sports (Subramanian). Many of these leagues include some kind of entry fee with prizes for top finishers. Daily fantasy sports can serve as attractive training wheels to real sports betting for youth. Playing a game for money with which they are already familiar can teach responsibility in wagering, especially with all of the elements of skill required to consistently win mentioned in the previous section. DFS is a good intermediary between season-long fantasy and traditional sports betting, as it introduces young adults to wagering while keeping the element of familiarity. The familiarity is important because putting money into a game one has played before is better than trying to make money off traditional sports wagering like against the spread, over/under, and moneyline wagers.

Social: A Communicative Culture

More often than not, fantasy sports are about more than just winning money. Fantasy sports have social benefits. A fantasy sports league drives conversation amongst friends and colleagues, whether it be in the workplace, at school, in league chat rooms, etc. Fantasy sports has worked its way into people’s lives in ways never thought imaginable. People love playing so much that leagues exist where the last place team must get a tattoo of the winner’s choosing, and another situation where one league member traded star running back LeSean McCoy to his boss in exchange not for another player, but for twenty hours of overtime (Berry 6, 92). This culture was even the premise for “The League”, a long-running FX television show centered on a fantasy football league among friends from high school. The show features the hilarious encounters of friends as they trash-talk, sabotage, and do everything they can to win the league. It takes over parts of their lives like funerals, romantic interests, and more, but at its core, it is evident that fantasy football is driving their friendships (“The League Plot”). This shows fantasy sports’ capability of bringing people together.

While these friendship-driving social benefits have typically been associated more with season-long fantasy than with DFS, DFS leaders FanDuel and DraftKings are trying to integrate the successes of season-long fantasy to their unique platforms. In 2016, both FanDuel and DraftKings unveiled season-long formats to their games, calling them Friends Mode and Leagues, respectively. FanDuel has since expanded it to name it Championship Leagues. This new mode allows players to start a league at the beginning of the season with friends and have the league operate the same way a season-long league does, with weekly matchups, win/loss records, and one ultimate champion. It keeps the DFS element by having there be no draft, and a person’s team each week is constructed in the typical DFS way, with a salary cap. This method of selecting a new team each week also allows for leagues to continue into the NFL playoffs. This is an impossibility of regular season-long fantasy, as not every NFL team makes the playoffs, so fantasy teams would be stuck with roster members whose seasons are over (Roberts). This evolving form of DFS is seeking to continue the communicative culture created by season-long fantasy, and these social benefits contribute to why DFS should be legalized nationwide.  

Solution: Nationwide Legality with Regulation Compromise

DFS should be legalized across all fifty states because of the legality as a game of skill under current statutes, economic benefits to many parties, the social culture created, and the potential to reduce problem gambling. However, how can nationwide legality come to fruition when the current scope of state legality is so complex?

The pathway that appears to most suit this issue is one similar to the model the U.S. has in place in the cigarette industry. The federal government should pass an addendum to the Unlawful Internet Gambling Enforcement Act of 2006, placing an exemption on DFS like the one present for season-long fantasy football. This would make the decision of legality much simpler for states and sites can operate in all fifty states with no questions of what is meant by a certain piece of legislation. As a compromise for allowing nationwide operations, the federal government should place a small tax on revenue generated by DFS sites. For the states, they should be allowed to add on to the federal tax whatever value they see fit, as state-by-state discretion is still important in this matter. While DFS should not be considered a necessary evil like cigarettes, this would parallel the system for cigarette taxation, as the Federal government taxes each pack $1.0066, while state taxes per pack range from $0.17 to $4.35 (Scarboro). 

This model would benefit all parties, as DFS sites would bring in more revenue by operating in every state, which is likely to runoff into more TV viewership of sports games and making ad spots more lucrative. In addition, both state and federal governments would receive a bump in tax revenue for the annual $3.2 billion industry, and fans in all states would get to play the skill-based, fun, and culture-creating game of DFS. Fantasy sports do not appear to be going away anytime soon, and embracing DFS instead of criticizing it is beneficial to our whole society. 

Works Cited

Berry, Matthew. Fantasy Life: The Outrageous, Uplifting, and Heartbreaking World of Fantasy Sports from the Guy Who’s Lived It. Riverhead Books, 2014. 

Bogdanich, Walt, and Jacqueline Williams. “For Addicts, Fantasy Sites Can Lead to Ruinous Path.” The New York Times, 22 Nov. 2015.

Clark, Luke, et al. “Pathological Choice: The Neuroscience of Gambling and Gambling Addiction.” The Journal of Neuroscience: The Official Journal of the Society for Neuroscience 33.45 (2013): 17617-23. Web.

Ervin, Eric. “What Fantasy Sports and Stock Picking Have in Common.” Forbes, 18 June 2017.

“Gamble.” Merriam-Webster.

Gouker, Dustin. “New York Daily Fantasy Sports Revenue Shows Importance Of Legalization.” Legal Sports Report, 3 Mar. 2017.

Mantel, Barbara. “Betting on Sports.” CQ Researcher, 28 Oct. 2016, pp. 889-912.

Meehan, Jeffrey C. “The Predominate Goliath: Why Pay-to-Play Daily Fantasy Sports are Games of Skill under the Dominant Factor Test.” Marquette Sports Law Review 26.1 (2015): 5-36.

Ottley, Jonah. “Fantasy Sports and Gambling: Drawing a Line in the Sand between Pete Rose’s Gambling and Daily-Play Fantasy Sports.” Northern Kentucky Law Review 42.3 (2015): 549-570.

Rathburn, Michael. “DFS Football 101: Beginner’s Guide.” RotoWire, 10 Dec. 2013.

Roberts, Daniel. “FanDuel doubles down on season-Long fantasy football.” Yahoo! Finance, 8 Aug. 2017.

Rodenberg, Ryan. “Daily Fantasy Sports State-by-State Tracker.” ESPN, ESPN Internet Ventures, 26 July 2017. 

Scarboro, Morgan. “How High Are Cigarette Taxes in Your State?” Tax Foundation, 19 Sept.  2017.

“Sports Gambling Facts and Statistics.” National Council on Problem Gambling, 2014.

Subramanian, Pras. “5 Surprising Stats About Fantasy Sports.” Yahoo! Finance, Yahoo!, 4 Sept. 2013

“The League Plot.” IMDb.