Daily Fantasy Sports and Gambling: Overview
Daily Fantasy Sports (DFS) is a modern evolution of traditional fantasy sports, enabling players to draft teams composed of real athletes for short competitions lasting a day or a week. This format allows participants to engage in numerous contests and adjust their lineups more frequently than in traditional fantasy leagues, where seasons span months. Companies like DraftKings and FanDuel, which emerged in the early 2010s, have become leading entities in the DFS market, significantly influencing the landscape of sports and gambling in the U.S. The rise of DFS has sparked debates regarding its classification as gambling, with critics arguing that it resembles games of chance and poses risks such as addiction, while supporters contend that success relies on skill and research.
The legal status of DFS varies by state, complicated by a history of restrictive gambling laws and the 2018 U.S. Supreme Court decision that allowed states to regulate sports gambling independently. As traditional sports betting gains traction, DFS companies are exploring partnerships with casinos and adapting to the changing legal environment. Despite ongoing challenges, DFS remains popular, with millions of participants across North America, presenting a dynamic intersection of sports, law, and consumer engagement.
Daily Fantasy Sports and Gambling: Overview
Introduction
Daily fantasy sports (DFS) emerged in the first decade of the twenty-first century, building upon the existing hobby of fantasy sports, in which participants compete by drafting fantasy teams of real-life athletes in a particular sport and earn points based on those athletes' actual achievements over the course of a season. Unlike regular fantasy sports, DFS shorten the length of such competitions to as little as a day or a week, enabling participants to engage in a larger number of competitions and adjust their fantasy lineups as a sport's season progresses. With the rise of major forces in the industry such as the companies FanDuel and DraftKings—founded in 2009 and 2012, respectively—DFS became both a cultural phenomenon and a profitable industry in the United States, and leading DFS companies soon began to form lucrative partnerships with athletic leagues and leaders in the professional sports industry.
Amid the rising popularity of DFS, the question of whether such competitions are a form of gambling and the implications of that question's potential answers became the subject of debate among many lawmakers, activists, and sports industry experts. Critics of DFS argued that such games are games of chance and should therefore be subject to the federal and state laws concerning gambling. Some individuals opposed to or skeptical of the burgeoning industry likewise characterized DFS as predatory and unfair to players, highlighted their potential contribution to gambling addictions, and called attention to the lack of consumer protections in place. Proponents of DFS, on the other hand, assert that they are not games of chance and that only skilled and experienced players can win. They likewise assert that experienced players win the bulk of DFS competitions not because the competitions are inherently unfair or predatory, but because experienced players have developed the analytical skills and sports knowledge necessary to succeed.
Understanding the Discussion
Daily fantasy sports (DFS): A form of fantasy sports in which players compete by pitting fantasy lineups of real-world athletes against each other over the course of short contests.
DraftKings: A daily fantasy sports company founded in 2012, one of the two largest such companies in the United States.
FanDuel: A daily fantasy sports company founded in 2009, one of the two largest such companies in the United States.
Games of chance: Games in which the outcome is determined primarily by random chance.
Games of skill: Games in which the outcome is determined primarily by the players' skills.
History
Historically, the legal status of sports gambling and related activities in the United States has been complex and shaped by numerous gray areas, exceptions, and conflicts between federal and state laws. The complexity of that issue deepened during the twentieth century, as concerns about the use of new technologies for gambling purposes, incidents in which athletes threw sporting events for the benefit of gamblers, and the increasing cultural and political influence of organized professional sports leagues intersected to shape government policy. Sports gambling was limited on the federal level by laws such as the Federal Wire Act of 1961, which prohibited interstate gambling, and was restricted further by the 1992 Professional and Amateur Sports Protection Act (PASPA), which allowed sports betting to continue only in states that opted in: the only one to do so fully was Nevada, with more limited forms in Delaware, Montana, and Oregon, but nowhere else. Much like previous attempts to regulate gambling, PASPA was marked by exceptions; for example, the law did not apply to sports such as horse racing, which had long-established gambling procedures. In response to the development of online gambling, particularly online poker, the federal government in 2006 passed the Unlawful Internet Gambling Enforcement Act (UIGEA), which made it illegal for companies to process payments for certain gambling-related activities electronically and effectively rendered many online poker companies unable to operate in the United States. However, UIGEA notably did not apply to the realm of fantasy sports, and that exception would lead to the development of a tricky legal gray area over the course of the following decade.
Originating in the mid-twentieth century, traditional fantasy sports were initially popular among fans of team sports such as baseball and football. In that activity, groups of sports fans select players to be part of their fantasy teams and earn points based on the actions of those players—such as home runs or touchdowns scored—over the course of a season. The participant whose fantasy team accumulates the most points is typically considered the winner and, when participating in a fantasy sports competition with a prize, may win a financial reward. Following the development of the internet, fantasy sports moved online, allowing participants to compete against both friends and strangers. While some fantasy sports websites offered monetary prizes, fantasy sports generally were not considered a form of sports betting, as the participants focused on players from multiple teams and did not wager on the outcome of specific games or tournaments.
An offshoot of traditional fantasy sports, daily fantasy sports (DFS) originated not long after the passage of UIGEA and differs from its predecessor in that its contests focus not on full seasons but on shorter periods, such as a day or week. Contests take a variety of forms, including tournaments and head-to-head competitions, and participants typically pay an entry fee in exchange for the possibility of winning a cash prize. Early DFS websites included Fantasy Sports Live, Instant Fantasy Sports, and DraftStreet. Founded in 2009 and 2012, respectively, the companies FanDuel and DraftKings would go on to become the dominant forces in the DFS industry during the 2010s, amassing a large user base and forming partnerships with major professional sports teams, leagues such as Major League Baseball and the National Basketball Association, and sports-related publications such as Sports Illustrated. As fantasy sports were not prohibited on a federal level by UIGEA, the legal status of DFS differed state by state. DFS companies argued that the contests required research and analytical skills and therefore were not games of chance. That distinction enabled the companies to operate largely unchecked in numerous states as well as to present DFS as a legal alternative to sports gambling. However, the amount of random chance remaining in daily fantasy sports—for instance, the chance that unforeseen poor weather might affect a game—prevented the companies from operating in the select few states in which all games with any chance element are illegal. Other states went on to challenge the legality of DFS, noting that their focus on short periods rather than full seasons rendered them closer to sports gambling than traditional fantasy sports.
The debate surrounding DFS and their connection to gambling intensified in 2015, when the news media reported that an employee of DraftKings with access to insider information not yet available to the public had won more than $300,000 on competing website FanDuel. Although DraftKings later claimed that the employee did not access the data that could have helped him or other players win, the incident raised questions about the largely unregulated nature of the DFS industry and the ways in which inside information and the competitions' participants could be exploited. Individuals and organizations critical of DFS identified the incident, and subsequent revelations of other employees who had played and won on competing websites, as evidence that DFS were predatory, unfair, and lacking in consumer protections. Some proponents of DFS likewise called for the implementation of internal regulations, arguing that such a move was necessary to prevent the federal and state governments from introducing their own regulations. While states such as New York attempted to ascertain the legal status of DFS, with the intent of regulating the industry, companies such as DraftKings and FanDuel continued to operate in most US states, including both those in which DFS are explicitly legal and those in which the industry's legal status is ambiguous.
Daily Fantasy Sports and Gambling Today
As of early 2018, both DraftKings and FanDuel were closed to participants from Alabama, Arizona, Hawaii, Idaho, Iowa, Louisiana, Montana, Nevada, and Washington, while FanDuel also blocked Texas-based players. The companies continued to operate in the remaining states, including New York, where DFS were legally deemed games of skill in 2016. Despite legal challenges, DFS remained popular in the United States. As of 2017, 59.3 million people in the United States and Canada played fantasy sports of some kind, according to the Fantasy Sports Trade Association (FSTA), an organization that deals with both traditional and daily fantasy sports issues. The organization found that as of 2017, 71 percent of players were male, and the average age of fantasy sports participants was thirty-two. Although the FSTA did not publicize the number of people who played DFS specifically, they credited the rise of DFS with dramatically increasing the number of fantasy sports players overall.
A potential turning point for DFS came in May 2018, when the US Supreme Court struck down PASPA, determining that the law violated the rights of the individual states to pass their own laws regarding sports gambling. The decision enabled each state to determine whether it would allow sports gambling operations to take place within the state and the ways in which such operations would be regulated. Legal sports gambling began in the states of Delaware and New Jersey soon afterward, and other states were expected to follow suit. Following the decision, media outlets speculated that the legalization of sports gambling might harm the DFS industry, as its companies had long characterized their services as legal alternatives to an illegal practice. However, DFS companies responded to the Supreme Court decision by planning to move into sports betting following its legalization in various states, and in June 2018, DraftKings announced plans to partner with New Jersey's Resorts Atlantic City casino for that purpose.
These essays and any opinions, information, or representations contained therein are the creation of the particular author and do not necessarily reflect the opinion of EBSCO Information Services.
About the Author
Joy Crelin is a freelance writer and editor based in Wethersfield, Connecticut. She holds a bachelor of fine arts in writing, literature, and publishing from Emerson College.
Bibliography
Barnes, Robert. "States Are Free to Authorize Sports Betting, Supreme Court Rules." The Washington Post, 14 May 2018, www.washingtonpost.com/politics/courts‗law/states-are-free-to-authorize-sports-betting-supreme-court-rules/2018/05/14/31a46d16-2af1-11e8-b0b0-f706877db618‗story.html . Accessed 11 June 2018.
Bien, Louis. "Everything You Ever Wanted to Know about Daily Fantasy Sports and Why They're Getting Sued." SBNation, 24 Nov. 2015, www.sbnation.com/2015/11/24/9791608/draftkings-fanduel-daily-fantasy-sports-lawsuit-new-york-internet-gambling. Accessed 11 June 2018.
Drape, Joe, and Jacqueline Williams. "Scandal Erupts in Unregulated World of Fantasy Sports." The New York Times, 5 Oct. 2015, www.nytimes.com/2015/10/06/sports/fanduel-draftkings-fantasy-employees-bet-rivals.html. Accessed 11 June 2018.
"The Evolution of the Daily Fantasy Sports Industry." RotoGrinders, rotogrinders.com/static/daily-fantasy-sports-timeline. Accessed 11 June 2018.
Grove, Chris. "What Are the States Where You Can Play Daily Fantasy Sports?" Legal Sports Report, 2018, www.legalsportsreport.com/daily-fantasy-sports-blocked-allowed-states/. Accessed 11 June 2018.
"Industry Demographics." Fantasy Sports Trade Association, fsta.org/research/industry-demographics. Accessed 11 June 2018.
Johnson, Richard. "The Centuries-Old History of How Sports Betting Became Illegal in the United States in the First Place." SBNation, 18 May 2018, www.sbnation.com/2018/5/18/17353994/sports-betting-illegal-united-states-why. Accessed 11 June 2018.
Novy-Williams, Eben, and Ira Boudway. "Gambling Laws Created Daily Fantasy Sports. Now It Could Cripple Them." Bloomberg, 17 Jan. 2018, www.bloomberg.com/news/articles/2018-01-17/spread-of-legal-sports-betting-could-upend-daily-fantasy-sports. Accessed 11 June 2018.