Coming to Better Understand the Legality of the DFS Industry

legal-illegal

Deflategate? Sure. Greg Hardy and domestic violence? That was impressive. Johnny Manziel and his inability to bypass the all-too-common pitfalls of fame? Astounding.

That said, each of the aforementioned, though arguably more important in their own right, pales in comparison with the fiscal giant that is the daily fantasy sports (DFS) industry.

Seriously, in today’s day and age, few things are as widespread in popularity as DFS. Still not convinced? Have you turned on the television or radio lately? Yup, FanDuel and DraftKings are always there, more willing than ever to talk your ear off about the explosive riches that are little more than a few mouse clicks away.

Though both are awesome business entities, their booming monetary success has made them points of concern for various local and national law enforcement agencies.

Currently, with sports gambling being solely legal in the state of Nevada, many are left wondering as to how FanDuel and DraftKings managed to wiggle through some obscure loophole and become viable money-making powerhouses.

At the core of this heated debate is found the following question—Is DFS a game of chance or skill?

Unfortunately, as is often the case with legal matters, the answer to such a straightforward question couldn’t be more complex. No worries—keep reading, and you’ll soon be able to more fully wrap your head around this mess.

DFS and Why It’s a Big Deal

Okay, so the best place to start is always with the fundamentals—what’s DFS really all about?

Basically, DFS is a more compacted version of the regular fantasy sports model. Instead of season-long commitments, fantasy competitions are mere daily or weekly endeavors. Participants select a lineup at the start of each day or week and score points based on how well a group of predetermined players perform come game time.

Additionally, managers have in-game budgets that tend to limit the number of top-tier talents they can acquire when building their respective teams.

Yup, you guessed it—the best players come with higher, more costly price tags, and the inverse occurs with their less gifted counterparts. At the end of the day or week, whichever team has accumulated the most points wins.

Seems simple enough, right? Well, the water’s murkier than you might’ve originally thought …

DFS Is Gambling

There are many people out there—both inside and outside of influential legislative bodies, mind you—who wholeheartedly believe that DFS is a form of gambling. Truthfully, there’s nothing innately wrong with the way that DFS is played; moreover, the greater issue comes from what it takes to get involved: an entry fee.

While executives at FanDuel and DraftKings tend to use the term “fees,” opposing lawmakers see right through the semantics and opine that “bets” and “wagers” are really taking place.

Even crazier, this isn’t some jaw-dropping cash that’s required to get in on the action. Users can play for as little as $0.25 on DraftKings and a buck on FanDuel.

Of course, there are larger pots at stake, with some games requiring participants to fork over upwards of $10,000 for a shot at a hefty payout.

If being completely forthright here, paying money for a chance to win more money seems to align fairly nicely with the idea of gambling. If it looks like a sounds like a duck, walks like a duck and quacks like a duck, it must be a duck, right?

Almost ….

DFS Isn’t Gambling

Every great argument has a counterpoint, and this one is no different. Fans of the DFS layout insist it isn’t gambling. They, much like their opponents, have rock-solid reasons backing their stance.

In fact, as far as the richest of DFS experts are concerned, the law is actually more on their side than anything else. Believe it or not, in 2006, there was an exemption law passed known as the Unlawful Internet Gambling Enforcement Act (UIGEA). Over nine years ago, the act was controversial, much like it is today.

Anyway, back to what matters most—the nitty-gritty of the the aforesaid act. According to Louis Bien of SBNation.com, those in favor of legal DFS participation very much have an ally in the UIGEA.

The following list presents the UIGEA’s three main qualifications for ridding an activity of the “gambling” label. In Bien’s own words:

“Payouts are made clear to users before the game takes place, and the number of users does not determine the payout. Winning reflects ‘the relative knowledge and skill of the participants and are determined predominantly’ by the accumulated statistics of individuals across ‘multiple’ sporting events. Users can’t win prizes as a result of the performance of a team as a whole, the outcome of a game or the performance of a ‘single’ individual athlete.”

When taken at face value, it appears that DFS meets each of the act’s three filtration points: payouts are made known right from the start, winning is a direct byproduct of knowledge or skill and the success of a participant is based solely upon his or her involvement.

Problem solved.

Game of Skill vs. Game of Chance

You didn’t really think the dilemma would be taken care of that easily, did you?

Of particular interest, employed by the federal act itself, is the phrase “wining outcomes reflect the relative knowledge and skill of the participants.”

Why? It’s tricky to pinpoint the exact meaning of what’s being presented. If DFS is skills-based, it’s protected by the UIGEA and shouldn’t be considered gambling. But, if more often than not, the end result is left up to chance, you might as well stick the proverbial fork in DFS as we’ve come to know it.

Taking a step back and looking at things, though, it’s probably both. Hence, all the confusion.

Think about it—are there certain poker players who are more skilled than others? Yes, without a doubt. However, there’s still an element of mystery—chance, if you will—that’s entirely owned by a dealer. Skill can take a poker player extremely far, but the power of initial positioning is one that rightfully belongs to he who distributes the cards.

Similarly, when better players are drafted right from the get-go, odds are substantially higher a contest will ultimately be won.

Furthermore, according to at least one in-depth study, the top 10 percent of DFS players beat the lower 90 precent nearly 60 percent of the time.

However, bring up unforeseeable factors like sudden in-game changes of strategy, injuries, poor performance and weather—each a bonafide chance in its own right—and the issue is back to square one, once again.

The State of New York and Its Legal Involvement

What’s to be done about all of this? The state of New York—home to 7 percent of DraftKings’ and 5 percent of FanDuel’s active members—has taken an extreme interest in this case and hopes to soon make sense of any and all confusion surrounding the state of DFS.

On November 24, the New York Supreme Court even went as far as holding a hearing to determine whether the services offered by the likes of FanDuel and DraftKings are technically gambling.

The Empire State vehemently maintains that they are and plans to take further legal action until its point is proven. Though no verdict has been reached, the legal proceedings are now well under way.

In recent years, both have become billion-dollar companies, and a legal blow to the foundational structure of FanDuel and DraftKings could prove painfully costly, if not completely lethal.

Regardless of whether New York manages to slay the DFS giant and the practice’s many devoted followers, DFS as a whole is in for a lengthy legal battle, be it in state or federal courts.

Participating In DFS

Can you win? Absolutely. Is it likely? Nope. Not in the slightest.

In fact, after the attorney general of New York conducted a study on fantasy sports players’ return on investment statistics in 2013 and 2014, he discovered that 89.3 percent of them were negative.

It gets weirder.

Oftentimes, the top ten spots in a nationwide, million-dollar contest—along with the cash that’s to be given to each top-ten finisher—is awarded to the same person.

Using intricate web scraping techniques, innumerable public resources and a series of homemade algorithms, full-time fantasy experts—or “sharks,” as they’re more commonly known—play the odds of a contest about as well as they can be and rake it in when all is said and done.

For sports fanatics, DFS is a blast. Not only does it add excitement to every pass, shot our touchdown, but it helps build an even deeper emotional connection between athletes and the supporters who watch their every move out on the diamond, court or field.

So, regardless of where you and your home state stand on the issue at hand, if you’ve enjoyed using FanDuel or DraftKings and have made a few extra dollars in the process, take advantage of the hobby while you still can, seeing as how its future is unknown.