Every day, sports fans can wager sums large and small on their personally selected online “fantasy” teams, competing against other fans for prize money. It’s a model that has catapulted Boston fantasy sports startup DraftKings to a valuation of more than $1 billion as investors, including the Kraft Group, Major League Baseball, and the National Hockey League, have poured in $375 million in capital. DraftKings and its archrival, FanDuel, have engaged in an advertising war for market share, and now it’s impossible to watch a National Football League game without seeing testimonials of players who have won big money on fantasy sports.
The ubiquitous marketing — $31 million in TV ads during the first week of the NFL season alone — has exposed the online fantasy sports business for what it really is: unregulated gambling that’s in need of greater oversight. It’s no small irony that the Commonwealth has obsessed about casinos for a decade, and yet a startup that collects fees and distributes winnings (albeit with sophisticated technology) has taken root and flourished for four years without a bit of regulatory attention.
Now public officials are starting to pay attention, especially after it was revealed that a DraftKings employee won $350,000 playing a recent FanDuel fantasy football contest. The New York attorney general promptly launched an investigation into the matter. US Representative Frank Pallone, a New Jersey Democrat, has called for a congressional hearing on fantasy sports. “Daily fantasy sports is functioning in a Wild West void within the legal structure,” Pallone said this week. Attorney General Maura Healey had been thinking through the issue of fantasy sports after DraftKings approached her last month. Today, she announced her office will look into the episode and initiate a meeting with DraftKings and FanDuel to inquire about what consumer protections they have in place for players. On the larger question of how fantasy sports should be regulated, Healey is being more cautious. The AG wants to better understand how the industry operates before regulating via “knee-jerk reaction.” “We want to be thoughtful about this,” a spokesperson for Healey said.
The online fantasy sports industry has enjoyed an exemption from sports betting restrictions because the activity was specifically deemed as a game of skill under the Unlawful Internet Gambling Enforcement Act of 2006. Players — a staggering 30 million Americans — do not bet on the outcome of games, but instead on the results of the fantasy teams they assemble. Skill certainly is involved, just as it often is in traditional regulated gambling, like blackjack or horseracing. But, of course, there’s an endless amount of chance.
And fantasy sports has changed in recent years, too, in ways that increase the role of chance. When the exemption was written, many fantasy leagues were season-long affairs, making them more skills-based; daily wagers, which are much more susceptible to random day-to-day variation in a player’s performance, were less common. Daily fantasy sports is seen as particularly addictive, just like traditional regulated gambling. One possible solution requires federal action — Congress could just close the loophole, or tighten it to preclude daily fantasy sports. But fantasy sports games shouldn’t be banned — they just need regulation, as the “insider” gaming episode makes clear.
What’s more, daily fantasy sports, unchecked, will enjoy an unfair advantage over other forms of gambling, and may drain revenue from the coffers of the Lottery. That is why some lawmakers want to get the Commonwealth into the fantasy sports game. State Senator Mike Rush has introduced a bill that would allow the state lottery to launch a fantasy sports platform. “Whether fantasy sports are considered to be ‘games of skill’ as opposed to ‘games of chance’ is something the legal community should address. Whatever it is called, we know that it is a thriving, billion-dollar industry,” said Rush in a statement. “I think we should be ahead of the curve as online gaming and fantasy sports become more and more popular.”
Sure, but a regulatory framework ought to be developed first. The fantasy sports industry, as gambling, needs to be treated like other forms of gambling in which there are clear rules, and the state gets a cut.