It is perhaps hard to imagine, but 15 years ago, fantasy sports was an activity that only a select group of hardcore sports fans participated in.

Now, a far cry from the two million Americans that participated in fantasy sports in 2000, about 17 percent of Americans participate in fantasy sports, fueling a $70 billion industry. Participation in fantasy sports has increased more than twenty-five fold over the past 15 years, and it is only gaining in popularity. In the last year alone, fantasy sports gained 16 million new players as the industry continues to explode.

One of the main drivers of the growth of fantasy sports is that the demographic fantasy sports appeal to—males aged 18 to 29— is the most likely to use the internet, to be sports fans, and also to gamble. This perfect storm of factors at least partially explains the rapid growth of fantasy sports. Some 93 percent of those aged 18 to 29 use the internet, while 72 percent of those aged 18 to 29—and 86 percent of men in this age-range—consider themselves sports fans. Fantasy sports sites are in the  unique position of being  able to capture the attention of its target demographic, which they have harnessed into a multibillion dollar business.

Gambling
Photo Credit: The Telegraph

Fantasy sports also greatly benefit from the similarities it has with gambling. Men are more likely to gamble in general than women are, and
also more likely to be “problem gamblers”. Most men are sports fans and
most men are bettors, as more than two-thirds of men are considered bettors. This has created a culture where sports gambling is fairly common. However, the majority of sports gambling that occurs is illegal. It is estimated that about $400 billion is spent on illegal sports betting, while only about $3 billion is spent on legal sports betting, meaning the legal market is about 1 percent that of the illegal market. What fantasy sports has done is given a legal alternative to bet on professional sports for those who would otherwise do it illegally, as well as attract those who legally bet, and sports fans who wouldn’t otherwise spend money on the outcome of sporting events.

Fantasy sports sites make use of many of the same techniques that casinos do in order to entice people to spend money.  The primary way fantasy sports sites encourage people to play and spend money is the illusion of control. In the same way that gamblers are more likely to play and spend more money on games that reflect some sort of skill such as poker or blackjack rather than games of complete chance such as slot machines, all people are more likely to participate in something the more control they feel over the situation.

Fantasy sports sites make drafts highly customizable with different draft form options, scoring settings, and roster sizes. In addition, fantasy sport sites put out articles daily written by “experts.” The research and advice given to fantasy sports users make them feel like they are knowledgeable about the topic, and are not just victims of chance. At the beginning of each season, almost every fantasy sports owner feel like they have as good of a chance, if not better, than any of their competitors. The illusion of control provided by these sites lead to users having higher expectations of winning their fantasy league, and also thinking more highly of the fantasy product.

Fantasy football is the most commonly played fantasy game, as 73 percent of fantasy sports users claim it is their preferred fantasy game. The NFL has the shortest season of any of the four major American sports, and its games are also the most spread apart. That means that owners only have to set their lineups once a week for four months—meaning it requires less commitment than any other fantasy sport. In addition, football is an “event sport” in the sense that there is steady buildup to each game throughout the week that precedes it as sports media releases predictions and analysis.

Recently, DraftKings and FanDuel have revolutionized fantasy sports and are responsible for a lot of the growth in the fantasy sports industry. In a standard fantasy football league, you have the same team all year, except for trades you make and adding players that other teams have not claimed. However, the model used by DraftKings and FanDuel are daily fantasy football leagues, where players can have a new team every week. While the 16-week-long season can lead to certain owners being out of contention only two months into the season, daily fantasy sports (DFS) allow owners to be competitive and win money every week. This increases the illusion of control and incentivizes owners to spend even more time on research as they pick teams more frequently and always have a chance at winning. This has led to the average fantasy user spending $465 a year and 3 hours a week on fantasy sports.

Sports gambling is only legal in Las Vegas so how is fantasy sports legal? In 2006, the Unlawful Internet Gambling Enforcement Act banned online gambling games such as poker, but did not include fantasy sports because it was labeled a game of skill instead of a game of chance.

In addition, it was deemed to be different from sports gambling because the prizes are revealed in advance and the result is based on real statistics instead of outcomes. If that sounds like a very dubious distinction, that’s because it is. In an interview with USA Today, Joe Asher, the CEO of William Hill, a large betting and gaming company, said “of course [DFS is] sports betting… you’re risking money on something of an uncertain outcome, and to me that sounds like gambling.” However, because fantasy sports is exempt from the same laws as sports betting, it is reasonable that betting and gaming companies would be upset. Draft fantasy sports has provided for an alternative to illegal betting and also legal betting, which has negative implications for betting and gaming companies as well as casinos.

One of the people that also doubts that fantasy sports is truly different from gambling is Rep. Frank Pallone of New Jersey, the ranking member of the Energy and Commerce Committee, which has jurisdiction over professional sports and gambling. In response to a question asking how fantasy sports is different from gambling, Pallone answered, “I really think if they had to justify themselves at a hearing they wouldn’t be able to.” Pallone believes that the Unlawful Internet Gambling Enforcement Act deemed fantasy sports to be legal only because they did not foresee its rapid growth, instead of actual legal distinctions. Pallone has requested a hearing with DFS sites in order to explore the relationship between gambling and betting.

This is a clear threat to the future of the fantasy sports industries because gambling is only legal in certain places with state government permission, and sports betting is only legal in Las Vegas. Sports betting is very limited because of the Federal Wire Act of 1961. This act prohibits interstate gambling in order to limit the control of organized crime.

Gambling businesses were usually run by crime organizations, and were often rigged and took advantage of gamblers in order to make profits. Sports gambling was especially associated with organized crime, leading to the passage of the Sports Bribery Act in 1964. The risk that sports gambling would lead to scandals and the fixing of games led sports leagues to distance themselves from any relationship with gambling for years.

The other most common argument against gambling is that it is addictive. About 15 or 20 million of Americans have gambling addictions, which is about 5 to 7 percent of the population. Gambling is thought to be addictive because of the rush it provides and also because the illusion of control makes gamblers feel like they always have a good chance at winning. This makes it hard for gamblers to know when to stop, because they always feel that they have a good chance at reward if they continue playing. Keeping that in mind, it is very easy to see how fantasy sports can be addictive.

Fantasy sports users are incentivized to spend as much time on fantasy sports as possible, because they believe the more time they spend researching, the better they will perform. This provides an illusion of control where fantasy users always feel they have a chance at winning and an edge on their competition. In this way it is very similar to other legalized forms of gambling, such as stock trading where one believes that the more time they spend on research gives them a better chance at predicting what will happen. And very similarly to stock trading, and unlike other forms of gambling, the majority of fantasy sports users attended and graduated from college.

The National Council on Problem Gambling, whose stated purpose is to to serve as the national advocate for programs and services to assist problem gamblers, published a resolution concerning DFS arguing that DFS users are at high risk to develop gambling problems, and also that demographics of DFS users actually puts them at higher risk for gambling addiction. As of October 15, only five states in the US—Arizona, Iowa, Louisiana, Montana, and Washington—had banned their citizens from daily fantasy sports because they believe it leads to addiction.

However, the fantasy sports industry is currently embroiled in controversy, leading one more state to be added to that list. The Nevada Gaming Commission, which controls all of the sports betting in the nation, recently declared that DFS is gambling and illegal in the state of Nevada until they obtain a gaming license. While this action is consistent with the beliefs of those who want DFS to be regulated, many believe that the Nevada Gaming Commission had reasons for banning DFS other than producing a regulated industry. A spokesperson for DraftKings said, “We understand that the gaming industry is important to Nevada, and, for that reason, they are taking this exclusionary approach against the increasingly popular fantasy sports industry.” Chris Grove of Legal Sports Report agreed, saying the Gaming Commission’s decision was “self serving” but also stated that the Gaming Commision was just doing their job: “that is what the agency was designed to do— ensure an environment where the state’s licensed operators have the best chance of success.”

The controversy that led Nevada to ban fantasy sports began after a DraftKings employee finished second in a FanDuel contest, winning $350,000, deeper investigations showed that DFS employees often compete on other DFS sites and do very well, allegedly because of their access to information that gives them an advantage on other users—which is the equivalent of insider trading.

Since these allegations, DraftKings and FanDuel have prohibited employees from participating in other DFS contests for money, but at least five class action lawsuits have already been filed against DFS sites for corporate fraud. Pallone and US Senator Robert Menendez of New York have requested the Federal Trade Commision to investigate DFS sites in order to implement “appropriate consumer and competitive protections.” Right now, many see fantasy sports as a multi-billion dollar industry with no regulation, which is what allowed this scandal to occur. Regulation would lead to taxation, which would reduce the profitability of these sites and the fantasy sports industry.

However, even more troubling are allegations that DraftKings has allowed and encouraged participation from citizens of states where fantasy sports and gambling of all kinds are illegal. If DraftKings is found to have violated the Wire Act or the Unlawful Internet Gambling Enforcement Act, that would result in hefty fines and perhaps imprisonment.

The League, a show about adults competing in a fantasy football league, shows how popular fantasy sports has become Photo Credit: IMDB
The League, a show about adults competing in a fantasy football league, shows how popular fantasy sports has become
Photo Credit: IMDB

While these allegations could result in reduced interest and profitability in fantasy sports, or even its collapse, it is also just as possible that the fantasy sports industry will continue to grow. The reason for this is the increased support for the legalization of sports betting. Traditionally, professional sports have been hesitant to align themselves with sports gambling because of the associations it has with crime and the fixing of games.

However, all major American professional leagues have expressed their support for fantasy sports. Fantasy sports is usually considered the derivative market of professional sports leagues, but as fantasy sports have become more profitable than professional sports leagues the opposite could also be considered true.

Daily fantasy sports players consume 40 percent more sports after becoming players because they have incentive to watch more games—both for research and because they own players from many different teams. In addition, fantasy sports reaches a demographic that professional sports leagues are also trying to reach, meaning that leagues can use fantasy sports to drive higher ratings. Although the MLB opposed daily fantasy two years ago, they now embrace it and have signed a sponsorship with DraftKings as the “Official Mini-Game of MLB.” Similarly, the NBA recently signed a four-year deal with FanDuel and the site will be featured on the league’s official website.

Support of fantasy sports by professional fantasy leagues have led to a greater acceptance for sports betting. Every major American professional sports league besides the NFL has expressed support for the full legalization and regulation of sports gambling. These leagues have decided to confront the fact that hundreds of billions of dollars are spent each year on illegal sports gambling. Instead of deciding to ignore it, they believe that legalization and regulation will allow leagues to claim a portion of this amount.

Lobbyists of sports leagues have begun to push for Congress to consider legislation that will make sports gambling legal. There is reason to be optimistic that the leagues will be successful. Other countries have legalized sports gambling with great success. For example, gambling generated over $2.5 billion in tax revenue for the United Kingdom government in 2012-2013. The gambling industry employs over 100,000 people and represents close to 0.5 percent of the nation’s GDP. The gambling market in the US is even larger, presenting more chances for jobs, revenue, and taxes. If the sports gambling becomes legal, then the hundreds of billions of dollars of business that currently occurs in the illegal sports betting market will be even more likely to occur in the fantasy sports industry instead. Although the fantasy sports industry is currently embroiled in controversy, this is an industry that has been growing rapidly and shows no signs of slowing down now.