Fantasy Arguments Are Being Used To Stifle Competition In Fantasy Sports

One of the fastest-growing interests in the U.S. is fantasy sports. For years, that entailed participants choosing real players for their team to compete in a season-long league. The teams whose players performed the best won the contest.

Eventually, companies like FanDuel and DraftKings capitalized on this trend by introducing Daily Fantasy Sports, which allows people to select a new team every day and compete in a league that lasts for a week–or even a day. Sports fans without the ability or interest to commit to selecting and monitoring their team for an entire season could still participate in such contests.

These companies soon faced stiff opposition from casino interests which argued this version of fantasy sports is tantamount to gambling. Casinos feared (correctly, as it turned out) that DraftKings and FanDuel, which operated football fantasy contests that skirted gambling prohibitions, would be in a position to quickly take over market share and cut into their profits.

After years of lobbying, 45 states agreed to allow them to operate Daily Fantasy Contests. The argument that won the day was that fantasy sports is a game of skill and not chance, with participants’ performance depending upon how the roster of real-world athletes selected would perform in the aggregate in their athletic contests.

Today DraftKings and FanDuel have nearly two-thirds of the online gaming market, and they have as much a lock on the market as the casinos had a decade ago.

Now the two gaming behemoths are trying to restrict competition from upstart companies by using the same arguments casinos once used against them. The trade association representing these companies is now encouraging state legislatures and Congress to categorize certain fantasy sports competition platforms as being tantamount to illegal gambling.

A few months ago, an article appeared suggesting that some of the newer fantasy sports sites are “fantasy” in name only and that their games were, in fact, akin to prop bets on individual player accomplishments. A lobbyist forwarded the article to the Wyoming Gaming Commission along with a memo arguing that these entities were violating gambling laws and should be regulated akin to other gambling operations.

Wyoming quickly followed the recommendation and within two months it sent cease and desist letters to the fantasy sports sites mentioned in the memo. Other states quickly followed suit, with Florida, Michigan, New York, and Maine taking steps to do so in 2024.

However, Wyoming’s action amounts to a state government effectively protecting the market share of the incumbents rather than protecting its consumers. Rather than compete, the established companies would rather use governmental power to stifle competition.

FanDuel and DraftKings’ team-centered fantasy games and the other companies’ pick’ em style fantasy games clearly fit the legal definition of fantasy sports. The distinction between gambling and fantasy sports contests is that the latter involves a modicum of skill: fantasy sports entails having the participant aggregate a team of some sort, and knowledge of the sport and the participants can improve their chance of success.

New fantasy sports contests may differ somewhat from traditional fantasy sports, but the essential characteristics of fantasy sports–that is, skill is involved–remains the same. Participants have a salary cap they must adhere to when picking their participants, all the players cannot be from a single team, and the winning outcomes are determined by the collective performance of the players.

It is important to understand the notion that none of the distinctions between fantasy sports and gambling entail a “betting against the house” versus peer-to-peer division, as is often assumed. Neither the federal government nor any state makes such a distinction.

The government regulation–and protection–of entrenched gambling interests is a deeply personal interest for me, as my father paid for my own and my siblings’ college education from the proceeds from our family’s gambling operation in the 1940s that received protection from corrupt politicians. That protection was not offered to the competition, which happened to be operated by Richard Pryor’s family. While I remain grateful it afforded my entry into the middle class, that my family used a modicum of political influence to protect its operation–at the expense of Pryor’s family–remains discomfiting.

The fact that the incumbent fantasy operators are using their newfound power and incumbency to use the law to stifle burgeoning competitors is similarly discomfiting. Our governments should be on the side of progress and strive to allow competition to flourish in every market, regardless of the fact that it might anger the market leaders.

Ike Brannon is a senior fellow at the Jack Kemp Foundation.

Ike Brannon on March 16, 2024

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