For the past couple decades, sports gambling has mostly been conducted illegally underground. Adam Silver, the commissioner of the NBA, stated in the New York Times that “some estimate that nearly $400 billion is illegally wagered on sports each year.” This has created a stigma that all sports betting leads to addiction and money troubles. Thus, instead of allowing the black market to ruin its reputation and reap all the rewards, why wouldn’t companies get involved and innovate the market away from traditional gambling? Insert daily fantasy teams. As opposed to normal betting where luck is a major factor in the outcome, daily fantasy sports require knowledge of the sport and skill to apply that knowledge. With skill, however, comes cheating and finding loopholes to reap the massive rewards of winning one of these competitions. The mere fact that large amounts of money are in play every day, ethical failures, such as insider trading and fraudulent behavior, are becoming more prevalent. These daily fantasy sites, such as Draft Kings and FanDuel, have been able to avoid legal scrutiny under the guise that it requires skill and not strictly chance.
In essence, humans have a primal need to express their intelligence in a skillful way. In the words of writer Ben McGrath, “The gamification of fandom is alluring because it provides an application for the things you’ve learned—or think you’ve learned—in the course of wasting so much time that could have been spent reading Proust, or playing with your kids, or donating blood.” It’s becoming more a part of our culture by the day so we, as young enlightened thinkers, need to decide for ourselves the implications of the industry on our lives and plan accordingly.
Due to the explosion of popularity among citizens, there seems to be an incentive to regulate this relatively new industry of daily fantasy sports. Just as the Securities and Exchange commission regulates the stock market, some agency must also monitor daily fantasy teams. Like the stock market, most of the life-altering money in daily fantasy sports is made by the privileged 1 percent. It’s almost become a game of too much skill since many successful users have started creating a portfolio of teams with different combinations of players, similar to portfolios of stocks. Therefore, players with more experience tend to reap the benefits of the system, while exploiting casual or beginner players. There also exists the problem of Insider Trading that is all too familiar in the stock market. Last year, a Draft Kings employee leaked customer data the same week he won $350,000 in a FanDuel fantasy NFL contest. Although he was found not guilty due to lack of evidence, it still raises the uncertainty of an unregulated market.
In this unregulated market, there exist only a few providers of daily fantasy services. Draft Kings and FanDuel are each valued over $1 billion dollars while its competition doesn’t come anywhere close. These powerhouses that have received large sums of investment money make it extremely difficult for smaller companies to enter the market. Therefore, the lack of competition inevitably hurts the consumer’s chance of receiving fair entry fees and having an equal shot at the grand prize.
As a result, many state legislatures have drafted bills that would allow more oversight and control over the industry. For example, New Jersey has outlined a bill that would require daily fantasy sports operators to obtain proper licensing as well as pay a ‘permit fee’ to operate within the state, maintain their servers in Atlantic City, and impose an age requirement of 21 on contest entries. Massachusetts addressed the portfolio issue by proposing a limit on the amount a player could deposit monthly to $1,000. This would loosen the grip the ‘1 percent’ has on the majority of the users since it has structured guidelines in place.
In response to potential regulation, daily fantasy sports companies have proposed constructing a self-regulation body that would police the nascent industry and impose guidelines such as ethics policies. These firms suggest that the best way to address the situation should not be through federal or state officials, but could best be handled by private efforts. By showing an effort to self-monitor, these companies have acknowledged that regulation is inevitable and that they’d rather have control over business practices.
Although these companies have better knowledge of the ins and outs of the industry, self-regulation of daily fantasy sports allows companies to disregard public wellbeing and instead focus on what’s in their best business interest. Thus, regulation should be done by the state government in order to protect public wellbeing. Massachusetts, where Draft King’s headquarters are located, has been a major advocate for the legalization of daily fantasy sports. The Governor of Massachusetts, Charlie Baker, recently signed a comprehensive economic development bill, in which fantasy sports legalization was included. The bill allows fantasy sports operators to offer contests with cash prizes, legally, through July 31,2018. It also establishes a definition for “fantasy contest” and creates a fantasy sports commission whose sole purpose is to conduct research on Fantasy sports. This will help the public become more aware of its societal implications and not rely so heavily on the association with normal gambling. Moreover, the commission will be able to analyze what type of tax system should be enforced in the coming years. These specialists on the commission will embark on a unique task of actualizing the possibility of massive amounts of money for state governments in tax revenue. Baker went on to say, “It’s a new enterprise, it’s a new business, it’s a new way of engaging people in these games of skill.” Although it’s too early to visualize the implications of this legislation, it’s my belief that state government, following Massachusetts approach, would be the best agent to regulate the industry.