Future of Online Fantasy Sports Uncertain

October 14, 2015

Fantasy sports have been popular in America for decades. It is estimated that around 31 million Americans play fantasy sports each year, creating fantasy rosters of real players from different sports teams and accumulating points based on each player’s performance in actual games. Traditionally, a group of friends or co-workers would use the same team roster for an entire season and compete for prize money awarded at the end.
Recently however, the entire format of the game has changed. In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act which prohibits Internet gambling—making online poker, online casinos, and other online games against federal law. At first, major sports leagues wanted to extend the ban to online fantasy sports, an online version of traditional fantasy sports, but changed their position at the last minute. As a result, fantasy sports were excluded from the law and sports leagues hoped online fantasy would increase fan interest and be good for business. Proponents of online fantasy sports say it helps teams “draw fans when they are struggling at the box office” and “it has had an immediate impact on the cultural landscape at a time when the appetite for sports wagering is at a peak.”
Two online fantasy sports companies in particular have been runaway successes, FanDuel and DraftKings. On these sites, players pay an entry fee and can create multiple fantasy lineups every week. The companies have secured astounding support and financial backing; FanDuel has $363 million in financing and DraftKings has $426. The two companies have deals with NFL teams, NBA teams, and NHL teams plus relationships with ESPN and Bleacher Report, and they have big name companies as investors (think Google and Comcast). To continue their success, the companies launched outrageous ad campaigns this year to the extent that “DraftKings and FanDuel outspent the entire beer industry in the month leading up to and including the NFL’s opening season.” These ads promise huge payoffs to winners, cash prizes, and testimonials in an attempt to attract as many players as possible to the sites.
While these sites are currently legal, many people are calling for increased scrutiny and regulation after a DraftKings employee won $350,000 on FanDuel the same week as that employee released data online about which football players site participants were choosing. This data, not available to the public until after the rosters are closed, could create an advantage because “top prizes are often won by individuals with a player who appears on fewer rosters but comes through with a big game.” While it is disputed if the employee used this information to create his successful roster, the fact that employees of one site could potentially use this information to win on other sites led to allegations of insider trading last week.
In response to the allegations, both sites released statements “defending their businesses’ integrity” and have now temporarily prohibited their employees from playing games on other company’s sites in addition to already prohibiting employees from playing games or tournaments on their own company sites.
Despite assurance from the two sites regarding the use of data by employees, consumers are still very concerned.

“Industry analysts” are calling for the likelihood of future criticisms regarding the loose regulations of online fantasy sports.

Additionally, Lawmakers have been discussing whether “daily fantasy games are pushing the boundaries of . . . [the] law that has allowed them to operate.” Representative Frank Pallone Jr. from New Jersey has requested a Congressional hearing to study the relationship between gambling and online fantasy sports in response to these conversations. Representative Pallone commented that these sites are enjoyable for sports fans and a big part of how they experience the games, but “[d]espite how mainstream these sites have become . . . the legal landscape governing these activities remains murky and should be reviewed.”
Furthermore, a class action lawsuit was filed last Thursday in federal court in Manhattan, accusing the two sites of “negligence, fraud and false advertising.” Adam Johnson, plaintiff, alleges that in light of the information regarding how the sites’ employees can use data to win on competing sites, Defendants misrepresented the contests as “fair games of skill,” when in reality Plaintiff and members of the class “were competing against individuals with insider knowledge, access and use of non-public data.”
Currently the fate of online fantasy sports is uncertain. Some, like NBA commissioner Adam Silver, are calling for the legalization of betting on professional sports all together. Critics however, see online fantasy as a game of chance and “de facto gambling” and should be against the law. Others simply have questions about the sites’ legality as they are currently operating; while the sites market themselves as “skill-based games,” is that an accurate portrayal of how the sites work? Despite the varied viewpoints in the US, one country considers online fantasy a form of gambling: when DraftKings expanded its business to England “it had to apply to the United Kingdom’s gambling commission for a license, which was granted last month.” Despite the confusion regarding this area of law, it seems clear that scrutiny will only continue to increase for online fantasy sports websites and their fate will remain uncertain until Congress and the court system further explore this issue.