Fantasy Sports – One of the fastest growing illegal online businesses?

For all of my life, I have played or been a spectator of sports and for the last 5 years, I have been an avid fantasy sports player – participating in Fantasy Football (NFL), Fantasy Baseball (MLB), and Fantasy Basketball (NBA) l

eagues. For those that are not as familiar with the world of fantasy sports, fantasy sports can be defined as, “a game where participants act as owners to build a team that competes against other fantasy owners based on the statistics generated by the real individual players or teams of a professional sport… In fantasy sports there is the ability to trade, cut, and sign players, like a real sports owner [1].” Many of the fantasy sports leagues I have been involved in were cordial season long competitions between friends or co-workers. In all of the leagues I have been involved in, I have bet money on the outcome in one form or another. And while I have won a few leagues, I have lost many.

Over the past 5 years, I have always assumed that betting on fantasy sports was illegal. My thought process was that if it were legal then the sites that I used to play fantasy sports such as or would have allowed players to bet money through their sites and earn large profits from the betting. Also, given that the online poker sites have been under immense scrutiny over the past few years for online gambling would have made it clear in my mind that fantasy sports gambling is illegal. However, I have recently become aware that betting on fantasy sports is completely legal and there are several emerging companies that are taking in and paying out large sums of money to winners. These popular pay-to-play sites take a cut of all the payouts and have been growing in popularity. They allow individuals to pick their ultimate team based on a fixed salary cap for the player roster they assemble and allow individuals to play for cash based on how many points they score [2}. The games last either one day or one week.

Fantasy sports has grown significantly in size, with some estimating as many as 32 million North Americans competing in public and private fantasy sports leagues online. It has been estimated that $800 million in total fantasy sports spending occurs every year and $4.5 billion in total sports industry impact per year [3]. Fantasy sports have generated a lot of money and a lot of enthusiasm in recent years. Furthermore, sites such as FanDuel currently claim to distribute more than $3 million to players monthly [4]. In my opinion, this entire process and system is screaming illegal. Fantasy sports have benefited from becoming an ever important part of Americans’ lives and the economy, as well as having the good fortune of ambiguous and unfair laws.

To be more specific, the Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA) has established the guidelines for gambling online and has carved out a special section within the law legalizing fantasy sports – essentially claiming that fantasy sports are considered games of skill and not chance. This alludes to the fact that fantasy sports players have enough knowledge and skill based on statistics and past player performance to win. I believe that this is not true at all and that fantasy sports rely on a huge amount of luck/chance. I cannot express how many times players have been injured immediately prior to the game, or the coach decided to rest the player for the playoffs, or the numerous other random chance incidents that occur during a season of playing fantasy sports. In addition, the UIGEA law findings state, “(3) Internet gambling is a growing cause of debt collection problems for insured depository institutions and the consumer credit industry [5].” An astonishing 32 million North Americans adults play fantasy sports and the majority of them are probably betting on the outcomes, sometimes large bets and sometimes small bets. And now given the rise of the pay-to-play sites that allow individuals to make bets and potentially win a significant amount of money for an activity that I consider “chance” seems outrageous to me.

Is it a coincidence that online gambling, especially the poker sites that were cracked down on heavily by the government, were considered a threat to the well-established and quite lucrative casino industry? Is it a coincidence that betting on fantasy sports is a growing industry that generates large sums of money and does not encroach on the profits of any existing industries? I believe that these issues are definitely driving the special status for betting on fantasy sports. I just wish the government would just say so and not try to come up with ridiculous rationales that include calling fantasy sports a game of skill. But then again, maybe I’m just terrible at fantasy sports and haven’t been doing enough research.







  1. Ryan Stewart

    Thanks for the post Marques. As an avid fantasy player myself, I certainly appreciate the chance aspects of the game and have cringed plenty of times when my star player goes down (I'm looking at you, Darren McFadden). In terms of the lega position the government should take with respect to the games' legality, it does seem to me that the argument for the skill-based element of the game does warrant some merit. It's been my experience that the most knowledgeable, most active owners in my leagues tend to wind up at or near the top of the standings consistently, while the least knowledgeable and least active owners routinely finish at the bottom. Some people are adept at maximizing the value of their draft, picking up gems on the waiver wire, and engineering beneficial trades. While none of this of guarantees a winning or profitable season, of course, they do tend to somewhat systematically separate the better owners from the lessor owners.

    In a sense, a loose analogy can be made here to investing. "Investments" are made based on the past performance and projected future potential of an entity (in the case, of fantasy sports a professional athlete), and these investments are far from sure-fire payoffs. Elements of chance invariably affect the performance of the entity – a shock to global oil consumption, a corporate scandal, an unexpected defect in a marquee product (the fantasy equivalents of a torn ACL or of a feud with the coach). These chance elements cannot be avoided. The relative reliance on chance/luck factors between fantasy sports and investing then might be more a matter of degree rather than a fundamental difference in the nature of the activities. If this is true, it's hard to draw a legal line on when an activity is inherently just gambling, and when it is a justifiably reasoned analysis of uncertain future outcomes based on knowledge and past experience. Could be a slippery slope.

  2. MT, i like the comparison to poker as both games is a combination of skill and luck. I think the suggestion on casino interest is a fascinating one, because fantasy sports is like a gateway drug that sucks a user into the game and then make them more likley to bet on future games (something that I've seen several of my friends do).

    There are significant value captured by the leagues with fantasy sports. I consistently find myself watching games b/t teams i don't care about purely because there's a player playing that affect my team. If anything, I wonder if the ESPNs/CBSs of the world can extract more value from the league for promoting fantasy leagues

  3. Shereen Khanuja

    Very interesting topic and post Marques. To the point that you were making about the broader economic issues such as internet gambling posing a threat to casino revenues versus fantasy sports which does not encroach on other businesses, I've noticed an interesting phenomenon in this space. Fantasy sports seem to have increased consumption of this sports content, so even if a person is not a Detroit Lions fan, he will find himself watching that game plus all the others on the Sunday ticket because of his fantasy league or subscribe to Red Zone. Fantasy sports may be immensely positively impacting sports and cable networks' bottom lines, but may conversely be detracting revenue from other portions of the economy such as other network ad revenues or movie theaters that aren't filling capacity. This begs the question, is there a limited amount of disposable income and isn't this just switching which buckets it goes into?

    There seems to be a difference between online poker gambling and fantasy sports in who you are ultimately betting on. In the former, you are betting on yourself. It could be argued that this is in fact just chance, while betting on someone else in fantasy sports is a much more objective decision, usually inciting research and past stat analysis.


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