Fantasy sports is a flourishing industry, with anywhere from 50 to 75 million people playing each year. So naturally, it may be the government’s next target.
Representative Frank Pallone (D-NJ) wrote a letter last week to the Committee on Energy and Commerce (of which he serves as the ranking member) requesting that the committee hold hearings on the legality of fantasy sports. Pallone wants the Committee to “examine the relationship between fantasy sports and gambling.”
Pallone is off-base here, and not because he cited an Esquire article called “The Side of Gronk You Don’t See” and a tweet by Chuck Todd in his formal congressional letter (interesting as that was). Federal law has specifically exempted fantasy sports from typical betting rules because they involve skill. You have to choose your lineup of players each week, relying on recent news, projections, injury reports, and sports knowledge.
But it’s true there is also a significant element of luck. It’s hard to predict which players will suddenly have a breakout week and which players will be a bust.
The new daily fantasy sports craze is what is starting to get the attention of lawmakers. American Express estimates that more than 70 percent of people playing fantasy sports wager money, but this used to be confined to small buy-ins or betting pools with friends or co-workers.
Now, companies like DraftKings and FanDuel (you’ve seen the commercials) are attempting to turn fantasy football this fall into a huge money maker. It’s worked so far – both companies are valued at over $1 billion. They have struck partnerships with many major NFL teams and spent hundreds of millions on a massive advertising blitz to attract users.
The problem with these so-called “daily fantasy” companies (users can choose new lineups and place new bets every week rather than a season-long league-based game) is that the winners you see on those commercials are most likely statistical experts entering hundreds of lineups every week.
“Analysis from Rotogrinders conducted for Bloomberg shows that the top 100 ranked players enter 330 winning lineups per day, and the top 10 players combine to win an average of 873 times daily,” reported Joshua Brustein and Ira Boudway in Bloomberg Businessweek. “The remaining field of approximately 20,000 players tracked by Rotogrinders wins just 13 times per day, on average.”
But is the solution government control or simply better information? If the daily fantasy model is truly unsustainable, these companies will run out of money on their own as new users see the light and stop joining. We all know that the “house always wins” in casinos too, but that doesn’t mean Congress needs to step in.
Fantasy sports have significantly benefitted the game of football. The NFL renewed its $1.5 billion contract with DirecTV to offer special channels focusing on football stats. Why? Because fantasy football encourages people to watch more football games besides the one with their favorite team. “People are watching a lot more football, making those out-of-town games more valuable to the league than ever,” said Chris Isidore in CNNMoney.
According to research from IJReview, Rep. Pallone is actually a supporter of legalized gambling. “Making sports betting legal in New Jersey would not only help to stem the criminal activity associated with sports gambling, it would also pump much needed revenue into to our state by taking the gambling out of the shadows and regulating this billion dollar industry,” said Pallone in a 2013 press release.
Perhaps the congressman’s strategy is to classify fantasy football as gambling in order to help generate the necessary outrage against gambling laws? That would make his letter a type of reverse psychology.
Either way, the government should hesitate before stepping in to regulate fantasy football and consider whether any intervention is really justified.