November 22, 2015

FanDuel and DraftKings

The daily fantasy sports sites FanDuel and DraftKings (and similar, less advertised sites) have quickly become big business. It is a business threatened by regulations having to do with gambling. Is playing fantasy sports with these new companies gambling or not; are the games games of skill or of chance? The answer is clearly yes, and the legality of these games may vary from one jurisdiction to another depending upon how gambling is defined. The question to be answered is almost always how much skill versus luck is required for a player to win.

FanDuel and DraftKings logos
Let’s step back for a moment regarding the skill/chance balance and look at the games more abstractly. Because outcomes are based on the performance of real players in particular circumstances, there is clearly an element of chance involved. A .300 batter gets a hit roughly one time out of three, but he can also have a drought that lasts for weeks. By the same token, teams are picked by players, and there is clearly skill in knowing what players to pick.

Without trying to calculate the ratio of skill to chance involved in these games—this is impossible to do precisely anyway—it is useful to consider somewhat analogous activities. Consider the New York Stock Exchange. Skill is clearly involved in picking stocks, but chance has a significant role in whether or not one makes a profit. The rapidly expanding hamburger chain that looks like a smart investment today could become the source of an E-coli outbreak tomorrow. Despite the enormous uncertainty involved in investing in stocks, playing the stock market—note carefully that idiom—is not considered gambling, not in the way playing the slots is construed as gambling, at any rate.

Now consider horse racing. Enormous skill is required to train thoroughbreds. Jockeys are also highly skilled. A horse race is not simply about what horse is fastest; strategy, tactics, and dumb luck ultimately determine the winner. Moreover, a person choosing a horse to be the winner of a race has a good deal of knowledge at his or her disposal—how many and what races the horse has won, how successful the jockey has been, etc. Yet playing the game of selecting equine winners—betting on a horse—despite the skill that may be required to be a winner, is considered gambling.

Are daily fantasy sports contests more like playing the stock market or like playing the horses? In fact, how is playing the stock market any different from playing the ponies? I cannot distinguish these three activities from one another. They are very much alike, particularly with regard to that fact that, in each case, the professionals who make a career of playing the game tend to be the people who make all the money. (Well, maybe the people who run the games make most of the money!)

Perhaps there is a bigger question to be answered than whether FanDuel and DraftKings are gambling enterprises.

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