Over the past two years, anyone who has sat down to watch a National Football League game has been inundated with TV ads for fantasy football websites. Fantasy sports, which began as a fun game baseball writers played at their local chicken restaurant (hence the original name “rotisserie baseball”) has become a multi-billion-dollar industry.
As was bound to happen, this week the industry faced its first major scandal. Allegations have surfaced that employees of Draft Kings used inside information to create winning fantasy football teams at rival Fan Duel. As the companies scramble to ensure customers don’t lose faith in their honesty, it’s time for a regulatory framework to be put in place either by the industry itself, or by government if necessary.
Fantasy football sites like Draft Kings and Fan Duel exist as a result of an exemption to the government’s general ban on Internet gambling. They claim to be offering a game of skill rather than a game of chance. Just as one is free to pay $10 to participate in an online chess tournament with cash prizes, one is free to test his skill at picking high-performing NFL players. But the head Democrat of the House Energy and Commerce Committee, Frank Pallone (D-New Jersey), isn’t so sure that analogy holds up, and has called for hearings on the issue.
Is Fantasy Football a Game of Skill?
Last week, I eked out a win against my buddy, Rich, in our one-one-one match-up in our fantasy league. This was in large part because I had picked up Tampa Bay wide receiver Vincent Jackson, who racked up a surprising 20 points. I like Jackson, and I liked the match-up against Carolina, so I took a chance on him.
Rich could have done the same thing, but didn’t. Was it skill or football IQ that led me to choose Jackson? Perhaps, but he just as easily could have gone down with an injury on the first play of the game and scored no points. Nevertheless, in a head-to-head matchup, a reasonable argument can be made that skill is an important factor, especially since Rich is 1-3 this season.
The games at Fan Duel and Draft Kings are considerably different. Rather than playing against an individual, participants play against pools of competitors. This dramatically dilutes the importance of skill, and increases the influence of chance, since instead of your one competitor having a shot at a great and surprising performance, thousands of competitors have that chance.
The only way to have a real leg up is to have inside information on how players are being chosen. Using less-picked players gives a greater chance of winning because fewer competitors are reaping the points from that player’s performance. This is what employees at Draft Kings allegedly did. By looking at the thousands of entries at Draft Kings, they were able to figure out what players were being underused, and made teams at Fan Duel using those players.
While this method is not a guarantee of victory, it does considerably increase the odds of success for those with inside information. This fact, in and of itself, suggests that the brand of fantasy football played at these sites is much closer to the lottery than it is to chess. Being a football genius is far less important than knowing the shape of participants’ picks.
Who Are the Interested Parties?
There are three main potential interested parties in regulating online fantasy football. First, the consumers who play online. Second, the NFL, which allows its sport and brand to be used and reaps income from fantasy site advertisements and increased interest in the league; and, finally, the government. Each of these interested parties has options in the effort to ensure the games are fair.
The primary option for the consumer is to choose not to play if he thinks the game is rigged. In libertarian fantasy land, this would be the end of the discussion. But we don’t live in libertarian fantasy land, and even if we did there is reason to suspect misrepresentation about how data Draft Kings gathers is being used. A person playing in both Draft Kings and Fan Duel may be able to obtain a legal remedy to this misuse of their picks. A class-action lawsuit on behalf of these individuals, for example, could go a long way towards pushing fantasy companies into better practices.
It is likely that the party most at risk in a fantasy football scandal is the NFL itself. Sixty years ago, two of the most popular sports in the Unites States were boxing and horse racing. The NFL was somewhere between tennis and figure skating. Both pugilism and the sport of kings saw precipitous declines in interest as a result of betting scandals that made fans question if the sports were on the up-and-up.
The NFL roared into the unquestioned position of America’s most popular sport in no small part because of its appeal to gamblers. Once Jimmy the Greek brought the point spread into people’s homes every Sunday afternoon, office pools and illegal football gambling soared in popularity.
Prior to the very recent rise of fantasy football sites, the NFL kept gambling at arm’s length, aware of its importance to the NFL’s popularity, but entirely separate from the gambling activities. This is no longer case. The close relationship between these sites and the NFL, including NFL owners with stakes in them, and the licensed use of the NFL brand itself changed all that. Although the NFL does not operate Draft Kings or Fan Duel, they may find that in for a penny is in for a pound if fans lose faith in fantasy sites.
This makes a strong case for the NFL to intervene and establish regulations for fantasy sites that wish to use its sport for profit. These could range from greater transparency regarding who is privy to valuable inside information to bans on participation by employees and their families in any fantasy sites. It would behoove the NFL to act quickly in applying remedies to this scandal.
What About the Government?
Does the government have an interest in ensuring the fairness of fantasy football markets as it does in security markets? Should it react with new regulations as it did to the stock market insider trading scandals of the 1980s?
According to a securities attorney I spoke with, government interest in securities markets is based on the importance of the markets themselves. As he put it, “One of the most important governmental objectives in trying to ensure fair securities markets is economic—the belief that strong securities markets are a critical, integral part of the capital-raising process, providing liquidity for investors, and any widespread perception of unfairness would seriously undermine confidence in those markets, making capital raising more difficult.”
This is clearly not the case for fantasy football markets. However, another attorney I spoke with argued that, given that Fan Duel and Draft Kings operate across state lines, the federal government may well be empowered to regulate disclosure, at the very least, under its constitutional powers. She brought up many measures, including “do not call lists” that Congress has enacted without regard to a specific threat to broader markets.
So, as always, it comes down to how much action we want the government to take in an effort to protect us. If the government’s goal is to protect us from ourselves, to keep us from taking risks we are or should be aware of, then it should not regulate fantasy football. But if the government’s goal is to prevent fraud and protect consumers from bad actors who undermine market fairness, then action may well be called for.
All other forms of legal gambling are subject to strict regulation. One can argue that this should not be the case in general, but one is hard-pressed to argue that fantasy sports alone should operate as an exception to that rule.
The lesson for the fantasy sports industry here is clear. When their representatives sit down before Congress to explain themselves, they must outline plans to ensure fairness and transparency in their games. If they cannot or will not do so, then the federal government has the right and responsibility to compel such measures.
In the meantime, buyer beware. Your football acumen might matter when you face off against your friend in your fantasy league, but on Fan Duel and Draft Kings other players may be using your picks to ensure an unfair advantage against you.