Is Daily Fantasy Sports Considered Gambling?

The art of gambling provides a level of excitement that is indescribable. For the past 7 years of my life, if it involves sports, the stock market, or even playing card games, adding money always changes the level of excitement towards the game.

One of my all-time favourite hobbies is playing Daily Fantasy Sports (DFS). I have been playing Fantasy Sports for almost 9 years and has introduced a whole new level of excitement. Ever since DFS companies including; DraftKings and FanDuel had been introduced I was instantly hooked. DFS provides me with the same level of excitement and cash winning opportunities experienced in a single day. The difference between season long fantasy and DFS is the shorten time of the contest.

The big question that has gotten many critics and states attention is determining if daily fantasy sports can be considered gambling. Being an enthusiastic and time-devoted bettor, this question has had me thinking but after evaluating both sides of the equation, I like to consider DFS as an investment, rather than a chance-based game.

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) was enforced to create online gambling laws and seeks to regulate banks and other financial institutions that act as a monetary link between Internet gambling consumers and Internet casinos. DraftKings and FanDuel are both each valued at more than one billion dollars and are being operated under the exemption to the UIGEA. The state of Nevada however recently ruled that playing DFS should be considered gambling as they consider it a game not involving skill but rather chance. The abandonment required sites such as Draft Kings and Fan Duel to immediately stop operating in the state until they receive state gambling licenses. Five states have prohibited the use of DFS in their states but none is as powerful and influential as the state of Nevada. Since Nevada has ruled the immediate stoppage of operation in their state, other states are now questioning the idea to either ban the use of DFS. New York state attorney general couple weeks ago wants to stop accepting bets from New York residents saying their games are constituted as gambling under state law.

When an individual is risking monetary funds for the chance to win a larger sum of money, I like to consider that gambling. However, if an experienced DFS player devotes many hours and a lot of energy into research , it can be considered more as an investment. Similar to investing in the stock market, they both serve similar purposes and financial outcomes in either winning or losing. Both DFS and the stock market revolve around some luck when looking at the short-term plays. But when we are looking at the long-term results of playing both the DFS and the market, the consistent profitable players are generally the ones that are extremely skilled and doing their due diligence. Both the stock market and DFS are skill-based games and therefore are not subject to gambling regulations.

In DFS, the elements of both skill and luck are both present however, because I consider this a skill-based game here are some of the elements used by the professionals to prove that DFS is in fact a skilled-based game. There are three outputs that professional DFS users use.

  1. Skill Matrix: is a method used where they split players based upon their average rating in each period and creating a cross tab to see the percentage in each group. A game of chance would see even numbers of players in each segment of the matrix, whereas a game of perfect skill would see players only remaining in the same period.

  2. Correlations: Finding the average rating of players in each period and the correlation between the two. A game of chance would have zero correlation as performance in one period would have no effect on another period, whereas a game of perfect skill would have 100% correlation.

  3. Matchup: Ranking players in period one and working out how many times specific groups outscore other groups in period two, where the groups are top players vs. other subsets of players. A game of chance would result in the top players only beating any other subset of players 50% of the time as their ranking in period one does not increase their probability of winning in period two. A game of perfect skill would result in the top players outscoring all other subsets of players 100% of the time as their ranking in period one means they are always going to be better players.

Combining the results from the three outputs has proven that it has given DFS professionals a significant advantage.

Professional DFS Advice:

 

When observing games such as poker, it requires a lot of skill and the chance of ‘hitting’ your cards. Similar to DFS, and the stock market, a lot of research and time dedication is required to play poker at a high level. Online and live poker games is clearly dominated by skill but still involves some luck. Since the outcome revolves around winning the hand, it still holds the game of luck as the better hand before the flop (percentage wise) still can lose the pot.

Screen Shot 2015-11-20 at 4.32.22 PM

Figure 1: Pre-Flop

Looking at Figure 1, pocket kings has an 80.05% chance of winning the pot before the flop, but there is still an 19.65% that pockets eights will win the hand.

Screen Shot 2015-11-20 at 4.36.16 PM

Figure 2: Post-Flop

With the outcome of this flop, (Figure 2), pocket eights are now the favourite to win the hand as they now have 87.58% of winning the hand. Poker still requires the chance of hitting cards and therefore is considered to many individuals and institutions as a gambling game, regardless of how good you are at reading your opponents. However, if we are looking at the long-term effects of poker, poker is clearly dominated by professionals as they are constantly seeking high profits and are always ‘making the money’ in online and live tournaments. Regardless of the hand, poker players are able to perform bluffs to scare opponents off their ‘made’ hands and they are able to get their opponents to pay them off with their made hands. It is evident that both DFS and poker are skilled-based games when evaluating the long-term benefits. When professionals are consistently seeking high profits margins, it proves that these games are skill-based with a little bit of luck being involved.

Although there is money being involved with the chance of either winning losing your investment, DFS is more of a skill-based game and therefore should not be considered gambling.

 

References:

Bogdanich, Walt, and Joe Drape. “Attorney General Tells DraftKings and FanDuel to Stop Taking Entries in New York.” The New York Times 10 Nov. 2015, Sports sec. Print.

“FanDuel Skill Analysis.” 17 Nov. 2015. Web. 23 Nov. 2015. <https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=dZhNjrJ3syVB/zzkWaR8oQ==&system=prod&gt;.

“Legality of Daily Fantasy Sports – Why Is It Legal?” Legality of Daily Fantasy Sports – Why Is It Legal? RotoGrinders, 1 Mar. 2015. Web. 23 Nov. 2015. <https://rotogrinders.com/articles/daily-fantasy-sports-legality-141&gt;.

“Nevada Regulators Tell DFS Sites: Stop Operating Immediately.” Legal Sports Report. 15 Oct. 2015. Web. 23 Nov. 2015.

Schneider, Sue. “Daily Fantasy Sports.” Gaming Law Review and Economics: 553-54. Print.

 

 

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