Heard about the legal troubles of FanDuel and DraftKings? These are fantasy sports companies that allow people to pick lineups (according to certain rules) for professional sporting matches and to win money based on wise picks. The New York Attorney General and others are going after these companies because they claim fantasy sports contests are gambles.
Here’s the setup in brief (go to the original sites for details): The men chosen in the lineups earn points for various activities, like running for a touchdown or getting a base hit. The fantasy game user who picked the lineup (per game or set of games) that earned the most points wins the contest. Fees are paid to enter contests, and the winner (or winners) take a cut of the pool, the remainder going to the fantasy sports company.
Is this gambling? I mean, legally speaking? What I don’t know about the law could fill a library, so I won’t attempt any legal answer. I can only give my opinion about the terms used by lawyers when considering what make contests games of skill or (as they call it) chance.
The very useful site Legal Sports Report has an excellent article on the situation, “Analyzing FanDuel’s Statistical Arguments On Skill Vs. Chance At The New York Hearing“. The writer, Peter Hammon, said this of New York gambling laws:
1. “Contest of chance” means any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.
2. “Gambling.” A person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.
What Is A Game Of Chance?
The legal question is thus whether a contest depends “in a material degree upon an element of chance”. So, what is chance? There is no such thing. Chance does not exist. I understand many think it does; New York clearly believes in it. Still, it wouldn’t be the first time the law is in error.
If you haven’t already, please read the article “What Is A Game Of Chance?” which defines terms and in which I conclude a “game of chance” is a “game where the causes are unknown but where the outcomes are defined”. I’m going to assume readers here have complete knowledge of that article.
What does this definition have to do with fantasy sports? Fantasy contests would be “games of chance” if their outcomes were like those in craps, in the sense that no causes (or proxies) could be measured.
Are Fantasy Contests Games Of Chance?
First, it is clear pikers enter fantasy contests having no idea what is happening, knowing only that they could “win money”. The same happens in casinos, of course, and even bars, with drunks falling into poker games, folks who haven’t a clue how the game works but who believe riches are only a few bets away. But surely it is unfair to judge a fantasy company, or a casino, on just the ill-thought-out behavior of ignorant (I use this word in its technical sense) users. To understand the role of “chance” we thus need to look at those people who at least claim to know what is happening. And that means looking at how the games are constructed.
Users pick lineups (subject to various restrictions) hoping that the men chosen for the lineups will excel during professional sports games and thus garner more points according to the specific posted rules of the contests. Users can enter multiple lineups per contest (some enter hundreds). Unlike craps (this was the example used in the linked article on games of chance), the number of possible points is not known in advance, except that it is bounded below by 0.
A running back carrying a ball in for a touchdown causes that touchdown. Actually, his activities are some of several causes; there are various blocks and so on by other players that also contribute. A fantasy user who has the running back on his lineup can’t predict in advance all the exact causes for that touchdown, but if he has good knowledge of football, he might know which running backs are better at securing touchdowns in the games which are part of a fantasy contest.
Every contest has a list of possible men that could be picked for a lineup. This makes for a huge number of potential lineups. Each of these potential lineups, even if they are not picked by a fantasy user, would result in a score. Here is a tricky point. In craps, because we know how totals are constructed we know, in advance, that some scores are more probable than others. Are some scores more probable than others in fantasy contests? This would be true only if we could, a priori and based only the rules of the contests (and not on “data” of past contests), discover that certain lineups of player types (quarterbacks over running backs, say) result in more points than others. Given the nature of the scoring rules, which award points by activities which themselves are contingent, I can’t see how this could be so. But if somebody could derive those, in a strictly mathematical sense, that becomes the baseline knowledge I’ll discuss next.
Now the scores of all potential lineups can be ranked, smallest to largest. I mean “all” as in all, i.e. even those lineups no fantasy user picked. (Forming all possible lineups is a simple problem in combinatorics.) A clear indication that fantasy users are demonstrating skill, meaning they have some understanding of the causes behinds the points they are awarded, is that their scores consistently fall into the upper range of this ranking. The idea is like this: a “chance”, i.e. “no-causal-knowledge”, user chooses any of the potential lineups; each lineup, to this “chance” or “no-causal-knowledge” player, has the same probability of garnering more points in a match-up with another “no-causal-knowledge” user. But a skilled player has knowledge that many lineups are poor, which is why they aren’t picked.
Even a casual acquaintance with sports indicates most potential lineups will result in low scores. Experts, those with some knowledge of cause, should be able to handily beat “chance/no-causal-knowledge” users easily and often. Think of it this way (to quote myself from the linked article): take two craps players, one a novice but who knows the rules, and the other an expert who claims, falsely, that he is able to measure some of the relevant causes. Pitted against one another, each is as likely to win (more money) as the other. But if the second player truly can measure some of the relevant causes, he will beat the first fellow consistently. How consistently depends on the extent of his causal knowledge. Same thing with expert fantasy users pitted against “no-causal-knowledge” users.
What Do Others Say?
Fantasy companies have begun answering the charges about games of chance. Hammon commented, “FanDuel released data that showed about 50% of the prize money is won by 1% of the winners. In a game dominated by chance, you would expect a more equal distribution of prize money over time.” But Hammon doesn’t like this argument because the “average number of entries per week and the top 1% of winners predominantly fell in the ‘500+ entries’ category while the bottom 1% of winners all fell in the ’25 or fewer entries’ category.”
A user who entered every potential lineup would win (or at least tie) every contest, but this approach obviously requires no skill. There are ways, however, of handling multiple entries per contest in comparisons, so Hammon’s objection doesn’t have much force. For instance, consider that the expert multiple-entry user could be matched against the “no-causal-knowledge” user given the same number of entries (from the pool of all possible lineups).
Hammon said, “FanDuel looked at the performance of lineups created completely at random…and compared them to the performance of the average FanDuel user lineup across”. He doesn’t like this either:
Because the simulated lineups were selected randomly and without a salary floor, that means they would include low-priced reserve players who would not have been drafted by actual FanDuel users. Not surprisingly, the average FanDuel user lineups won most of the time. But all this proves is that even the worst FanDuel contestant is smart enough to avoid drafting reserves who don’t see playing time.
If the objection is that the “random” (there is no such thing as “random”, so he means what I meant by potential) lineups includes men who could not be used by FanDuel users, then Hammon’s objection is sound. But if these men aren’t drafted because FanDuel users don’t like them, because for instance they are thought to have little athletic ability, then this indicates FanDuel users know something of cause. In other words, FanDuel users are showing skill.
Hammon has some other objections at that site, and I’ll let you read those on your own. At another site he comments on an approach taken by DraftKings in demonstrating skill. Basically, DraftKings found expert users and pitted them against average users, and discovered the experts were much better. Well, no surprise. But that some users can consistently come out on top gives terrific evidence that skill (knowledge of some cause) is required.
Fantasy sports contests are not “games of chance” in the same sense as for instance dice games are. In order to be consistently successful at fantasy games, players have to have knowledge of the sports in question to staff their lineups, over and above the knowledge that this or that potential lineup is allowed by the fantasy rules. In other words, some skill is needed to be successful.
Perfect skill in fantasy sports is not attainable. But neither is perfect skill in, say, weather forecasting attainable. Consider that physicists know a lot of the causes of tomorrow’s potential rain, but even they don’t guess right every time. Yet nobody would claim (except jokingly) weather forecasting is a game of chance.
Note: I have an interest in this subject, though not with either of the companies mentioned.
Craps is probably a poor comparison here. Better would be rubber bridge or gin rummy. Both these games were once popular gambling pastimes and both were illegal to play for money — a law that was seldom enforced due to the private nature of the contest. There is also no question that skill is a major factor in these games of chance. So, the question is: are these games still illegal to play for money? This would seem to relate directly to the present situation. Note that a game like duplicate bridge has eliminated the chance of the deal and thus prize tournaments are completely legal just as, say, Golf tournaments are.
Actually, I often claim weather forecasting is a game of chance. I’m not joking. I have read estimates of forecast “accuracy” between 58% and 80%. These, of course, depend on what one considers “accurate”. Is 5 degrees of the high “accurate”? Does the amount of precipation matter? (Some ratings of accuracy only counted whether or not a tenth of inch of rain fell, not whether the amount was even close to the amount predicted.)
It seems if we use the same level of “accuracy” for climate change models as for weather predicting, that could explain why people believe the models are accurate. Warmists would tell me I’m too picky here with weather forecast accuracy—58% is plenty accurate. So is 80%.
As for fantasy football, it seems likely there is an element of skill involved in the choices. After all, it is based on real players who have real scores and abilities that can be followed. Otherwise, wouldn’t players just be created and the outcomes that are bet on would be from computer generated games? The actual physical existence of the players would seem to indicate there is skill involved and not chance.
“Otherwise, wouldn’t players just be created and the outcomes that are bet on would be from computer generated games?”
You must give the illusion of skill to attract sports fans. Bingo and the various lotteries are another matter. Also it is important that the random selection be seen as above board, which is why lotto number selection is televised and the casino roulette table is watched closely by the bettors. Would anyone bet if the croupier just gave his personal assurance that the number was randomly chosen by computer somewhere below the table. The football etc results are outside the control of the bookies, to return to the original point. Of course, this does not explain the attraction of the slot machine which must address an entirely different psychology
“Skill algorithm constructed by PhD of Mathematical Statistics from Cornell University”
Oh hey I think I’ve heard of that guy.
I think the attraction of the slot machine comes from low entry costs, free drinks, rewards cards and bonuses, and the chance for a high payout. You can play a lot of slots without losing too much money (the cheap ones anyway). It also requires no skill or thought, so if you enjoy all the things I mentioned it can be an entertainment expense.
Not that I’m one of those people, though, I don’t consider any money expendable enough to gamble with.
“Gambling.” A person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence
So a person who puts down money (“invests”); opens a shop; and waits for customers in the hope of making money on the outcome is a gambler? I hope this isn’t part of the legal definition of “gambling” as anyone who goes into business has zero control over the customers he depends upon.
There was a great article on this in The New York Times Magazine called How the Daily Fantasy Sports Industry Turns Fans into Suckers.
The games themselves are inherently clean and require the application of skill for success. The larger issue in the head-to-head games and the 50/50 games seems to be transparency, where the small, casual player unknowingly finds himself up against the “professional” using hundreds of entries possibly facilitated by computer scripting. The game becomes predatory as these top players seek out the “bums” to play against. Under these circumstances, the games may as well be “chance” lotteries.
Personally I don’t have a problem with that. If a fool wants to be parted from his money so be it. Today’s nanny state (which is the real issue) clearly has different ideas.
RE: “The men chosen in the lineups earn points for various activities, like running for a touchdown or getting a base hit.”
Now that would be something to watch, play and gamble on — a single game that incorporates both touchdowns and base hits and all that goes with those!
If a fool wants to be parted from his money so be it. Today’s nanny state (which is the real issue) clearly has different ideas.
Not really. It’s a long standing tradition.Dice throwing and spinning wheels don’t have much of a skill element. You puts yer money down and you takes yer chances. Lotteries are a version of these. The state is being hypocritical to run games where the take is so high that the element of skill to win has to be very strong then turn around and outlaw similar games. Squashes competition. Would be nice if they were forthright about their reasons instead of trying to make it a moral issue.
To me, the basic difference between a gambler and an investor is the gambler hopes he will win while the investor knows (or is highly confident) he will win.
DAV, to the state it’s all about the vig. I agree, in the absence of a share of the vig, it’s about eliminating the competition. Still fools will find a way to be parted from their money despite the state. Even with legal outlets for gambling millions of dollars are bet every day illegally.
How is this any different that investing in stocks and bonds?
DAV: Advertising agents would disagree with your assessment, as would customers. There is an element of chance, but there is much more skill involved. If you pick a product no one wants, you lose. However, you can research this before you invest fully in the business. If you treat your customers as slaves to your business and ignore them, eventually that ends your business. Where you set up matters, the money involved, the research, etc. How well you manage money, inventory, and so on influences your success. A business does have some control over the customers it depends on, especially in essential services such as medicine, groceries, etc. There are elements of chance, there are elements of skill.
The mistake in the drafting of the law can be described as an application of the reification fallacy that conflates abstract with concrete objects thus muddling the fact that information can be gained through study.
From the definition above, all investments are gambles. The only difference is skill level in predicting the outcome. Casinos in Vegas invest while visitors mostly gamble. Same game; different outlooks. There is nothing evil about gambling regardless of skill level just as there is nothing inherently evil in buying or selling alcohol on Sunday. The gambling laws were once puritanism in action and, although still are to some extent, the new justification is competition with very costly state lotteries. Complete hypocrisy.
I used to play a fair amount of online poker. To me, this is the best analogy. There is no doubt that skill is a factor in online poker, skilled players will, in the long run, take the money of lesser skilled players. This has been shown in myriad studies and, unlike some things shown in studies, makes sense. On the other hand the outcome of a single hand or session is based on events whose cause the skilled player cannot know (the output of pseudo random number generators). And, like daily fantasy, skilled players use computers to more efficiently determine take the money of the unskilled. This activity was outlawed by the Unlawful Internet Gambling Enforcement Act of 2006. My government felt the need to protect me from myself.
As it turns out, some of the sites rigged their games and, while rigged daily fantasy is much more difficult (unlike the computers that generate the pseudo random numbers for poker, the players aren’t controlled by the daily fantasy sites), there’s certainly been some shady activity by employees of the sites, who have access to who’s been picked by past winners and losers prior to today’s games.
So, if Fan Dual and Draft Kings are legal, I see no reason why Poker Stars and Absolute Poker should not be. And I’m in favor of both. The only reason I’d support the daily fantasy ban is that it has slowed the awful barrage of commercials for these activities. You gotta take the bad with the good!
I should have read the link to your interest in this topic before commenting. I see that it covers the transparency problem which leads to mismatches in player skill. Your client’s service would level the playing fields in fantasy sports.