Daily Fantasy Sports Fuels Debate on Whether It’s a Game of Skill or Chance
Daily Fantasy Sports has become a billion dollar business. Media outlets across America discuss the hobby, which stemmed from the Rotisserie baseball and fantasy football years so many Americans love. Sports Illustrated and USA Today each have competing websites which allow visitors to play for real money–and it’s perfectly legal.
Forbes.com had a story this last week which detailed the growing industry, while Real Sports with Bryant Gumbel recently did a piece on the daily fantasy industry. The first piece focused on the business opportunities the industry offer. The second piece focused on the professional fantasy sports players and whether the activity is gambling or not. This article will touch on both those subjects.
FanDuel Excites Its Investors
Forbes talked to Paul Martino, who was one of the original investors on business ventures like Zynga, PayNearMe, uDemy, and TubeMogul. Of all his brilliant financial moves, he says none of them made him more excited than his investment in FanDuel, one of the leading sites in the daily fantasy sports industry. In fact, Martino says none of his investments make him as excited right now as the Fanduel project.
The growth is being fueled by legitimate corporations who don’t throw their money into fly-by-night schemes. Recently, NBC Sports Ventures, Shamrock Capital Advisors, and Bullpen Capital combined to invest $70 million in a FanDuel upgrade.
DraftKings Also Has Big Money Investors
That funding spree followed a $41 million influx of cash into DraftKings, FanDuels’s #1 competitor, so Shamrock Capital’s move is in many ways an upping of the ante. For the DraftKings investments, a combination of new and existing investors were involved: the Raine Group, Redpoint Ventures, Atlas Venture, and GGV Capital.
When DraftKings announced the $41 million transfer in late-August, DraftKings CEO and co-founder of DraftKings Jason Robins said, “This round of funding, led by Raine with their vast experience and network in the sports and entertainment space, allows us to significantly increase our player base and liquidity as we add StarStreet to the DraftKings family. This is a groundbreaking week for DraftKings. We expect the growth in contest sizes and variety to continue. We look forward to continuing to transform the industry through technology innovation and larger and even more exciting contests, cementing our position as the best destination for daily fantasy sports.”
When FanDuel Started
Paul Martino saw the possibilities 4 years ago, when FanDuel CEO Nigel Eccles asked him for an investment in the startup. Many of Martino’s colleagues were concerned about the risks, because people still viewed daily fantasy sports as operating in a legal gray area. Martino was willing to take the risk, because he was in a venture fund which was geared to such startup ventures.
Now, Martino feels a lot more secure in that investment. He told Forbes, “To some extent I feel comfortable because the smarter and larger money is getting more comfortable in the space. The reason I always felt the environment was going to get better as opposed to worse wasn’t just that the [UIGEA] exemption was written so clearly, but states are looking for other ways for revenue.”
Fantasy Sports under the UIGEA
The UIGEA casts a large shadow over the online betting landscape in America, and it is a key factor in the growth of the daily sports industry. The difference between sports gambling and fantasy sports is stark, under the UIGEA. Fantasy sports is given an exemption, alongside lottery gaming and horse racing. Of course, no congressman who voted for the UIGEA ever imagined a daily fantasy sports site. They had in mind the yearly fantasy leagues, which take months to determine a result (and therefore are seen as harmless gaming).
For that reaason, daily fantasy has its detractors, though. Real Sports talked to John Kindt, a Professor of Business and Legal Policy University of Illinois at Urbana-Champaign. Kindt is a long time opponent of gambling and he believes there is no difference between sports betting and daily fantasy. He sees them as games of chance with little or no skill involved. John Kindt also calls for the loophole in the UIGEA to be fixed by national politicians.
It might not help that famous poker players are so good at fantasy sports, too. This last weekend, poker professional Matt Smith won the DraftKings Millionaire Maker Event on a $27 buy-in, collecting a million dollars with a lineup including Peyton Manning, Arian Foster, Ben Tate, Golden Tate, Emmanuel Sanders, Demaryius Thomas, Antonio Gates, Terrance Williams, and the San Diego Chargers Defense. Fantasy football team owners who are familiar with last week’s contests will recognize instantly why Smith won.
Game of Chance or Game of Skill?
DraftKings and FanFuel will say that fantasy sports is not a game of chance, but is a game of skill. They can point to statistics in which some players win 90% of the time, where such a number is next-to-impossible in sports gambling. If a result is repeatable and consistent, then it cannot be simple chance. Jason Robins and Nigel Eccles can point to the professional players who make a living playing daily fantasy.While any one contest might be luck-based, in the macro sense a good player can assure success.
They also have refuted Kindt’s claims that age verification technology is weak on their sites, saying the professor seems to be uninformed about the new verification technologies. The debate seems eerily similar to many of those which made against online sports betting. It’s possible that Sheldon Adelson and his political allies may one day try to target daily fantasy games. If so, they’re likely to have an alliance of corporations lining up to oppose such a move: USA Today, Sports Illustrated, and NBC represent powerful media combines. Even the NFL, NBA, and Major League Baseball are beginning to sign sponsorship deals with FanDuel and DraftKings.
Try Telling That to the Fans
One other group of people might challenge their arguments: fantasy sports players themselves. Fantasy team owners are not only sports fans, but they play because they want to prove they know more about sports than their friends, neighbors, and coworkers. Such people will never believe they won their league trophy because of luck.
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