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Leagues use legal loophole on gambling to profit from daily fantasy games

NEW YORK – Sports gambling is evil.

Forever has it been the most sinister threat to darken sports’ door.

That’s what sports commissioners have warned us.

Then they found a way to get in on the action.

Federal legislation unwittingly permitted a daily fantasy sports eruption, bringing unforeseen sponsorship dollars and investment opportunities to leagues, teams and their broadcast partners.

Now wagering on the performance of athletes is just fine. The federal government says betting on daily fantasy sports is legal and that putting up entry fees in hopes of winning money through online sites such as FanDuel or DraftKings does not qualify as gambling, even though it matches a common-sense definition.

“I don’t know how anyone in their right mind,” said former NBA referee Tim Donaghy, who served prison time for betting on basketball games, “would think it doesn’t come under the definition of gambling.” The concept of daily fantasy sports is based on fielding the best lineup of players under a salary cap. Players are assigned a valuation based on how good they are, forcing fantasy managers to assemble a lineup that includes some marginal players.

The popularity of daily fantasy sports is indisputable. The baseline market forecast from Eilers Research, a firm that specializes in the gaming industry, projects revenues for daily fantasy sports will rise 55 percent to nearly $1.2 billion by 2020.

The Fantasy Sports Trade Association estimates fantasy players have grown from 55,000 in 1988 to 46.2 million this year, with 8.9 million playing daily fantasy games.

DraftKings and FanDuel constitute about 95 percent of the daily fantasy market, and each company carries a $1 billion valuation.

Big-league owners are thrilled with the influx of daily fantasy cash and justify the windfall by citing a miscast federal guideline. But the NCAA prohibits student-athletes from playing daily fantasy sports because the activity fits the NCAA’s gambling criteria.

Politicians are taking a hard look at daily fantasy. New Jersey Sen. Cory Booker said two weeks ago that he will investigate to determine its legality. The head of Michigan’s gaming regulatory body said last month that his board believes daily fantasy is “illegal under current Michigan law.”

Daily fantasy already has been banned in Arizona, Iowa, Louisiana, Montana and Washington. Many other politicians have supported daily fantasy sports.

The paradox, however, gets us that much closer to a universal sports truth: Gambling is an economic engine – perhaps the greatest engine – that powers the sports industry.

“Sports gambling is a very big underpinning to the popularity of many sports,” former Major League Baseball Commissioner Fay Vincent said. “Some people really can’t enjoy a game unless they have money riding on it.

“The question is ‘How far will you go to accommodate it?’ The lines are very complicated.”

Daily fantasy has provided real leagues with significant revenue streams. Yet those are mere trickles compared to all forms of sports betting.

Eilers Research estimated that $160 billion was wagered (legally and illegally) on sports in the United States last year, while only about $1 billion was laid on daily fantasy entry fees.

When the Pittsburgh Steelers played the Baltimore Ravens on Thursday night, only two areas of the country had hometown rooting interests. But the ability to bet on the game and its players let the entire nation make an emotional investment.

Emotional investment drives television ratings, which drive social media, which drives Internet traffic, which demands more media content, which drives more wagering in a seemingly perpetual loop.

Daily fantasy action accelerates that circle as participants have some action. Some assemble a football lineup or two at $5 apiece. Others lay hundreds of wagers a day on baseball for thousands of dollars a pop.

Sports leagues and broadcast networks are directly involved with and profiting from the daily fantasy business model because their accountants love it as much as the fans.

“We are seeing the baby steps to gambling being legalized across the board,” said Donaghy, founder of the gambling-advice website “I eventually can see kiosks in every NBA arena, every NFL stadium, where you can use your credit card and place a bet.

“The leagues will be the bookies, taking 10 percent on every bet and handling the payouts.”

Earlier this year, The Buffalo News participated in an Associated Press Sports Editors event that featured an audience with the leader of each major league at its Manhattan headquarters.

The News asked NFL, NHL, NBA and MLB commissioners and NASCAR’s top executive how they view the future of sports betting while the line between legal and illegal activities continues to blur.

“We know it’s a potential trap door to fall through if it’s not managed correctly,” NASCAR chairman and CEO Brian France said. “Everybody’s trying to figure out revenue streams. … But the integrity of the contest is what the commissioners, including myself, are most worried about.”

Traditional sports betting – picking games against a point spread or guessing whether the combined score of a contest will go over or under a certain number of points – remains illegal everywhere in America except Nevada. Delaware allows parlay cards, where multiple predictions must be made on a single wager, making luck more of a factor.

New Jersey voters in 2011 approved a bill to legalize sports betting, and Gov. Chris Christie signed it into law. But the big-four major leagues and the NCAA have opposed the movement every step of the way and have filed federal lawsuits to prevent New Jersey sports books from opening.

“We oppose legalized sports gambling,” NFL Commissioner Roger Goodell said. “We haven’t changed our position on that, and I don’t anticipate us changing that going forward at all.

“We think the integrity of the game is the most important thing, and we believe that our current position is the right way to be able to handle that.”

Daily fantasy leagues, meanwhile, have been embraced.

The NFL allows the Buffalo Bills and its other clubs to have individual sponsorship deals with FanDuel. The NBA has a four-year FanDuel agreement that includes a percentage of the company.

MLB has an equity stake in DraftKings. Fox Sports reportedly owns an 11 percent stake in DraftKings after a $150 million investment this summer. The NHL, NASCAR, Ultimate Fighting Championship and Major League Soccer have partnered with DraftKings to be their official daily fantasy provider.

“We spent a lot of time and a lot of money making sure we understood exactly what the law is and where the line between fantasy and illegal gambling falls,” MLB Commissioner Rob Manfred said.

“We analyzed the games that DraftKings offer. We got comfortable with the idea that those games were on the right side of the line in terms of what the federal law is now.”

NBA Commissioner Adam Silver has been willing to voice his support for legalizing all forms of sports gambling.

Silver would like NBA arenas to resemble European soccer stadiums, with kiosks and betting windows providing all manner of wagers throughout the game. He added that fans should be allowed to bet online, too.

“I feel like we’re going to be taken there eventually, no matter what anybody’s policy is,” Silver said. “What I’m learning in this job is that it may not always seem this way at first, but the fans really are in ultimate control of this sport and all sports.”

So far among his colleagues, at least when it comes to legalized sports wagering, Silver is a lone ranger.

2006 law opens the door

The Unlawful Internet Gaming Enforcement Act of 2006 cleared the way for daily fantasy sports, although the idea wouldn’t be conceived for another three years. The legislation’s purpose was to shut down online poker and sports books in the United States.

But a section within the Unlawful Internet Gaming Enforcement Act carved out permission for online fantasy leagues. Congress had in mind old-fashioned fantasy leagues, where the draft took all night in your man cave or office break room before the season began and a winner wasn’t crowned until the season was over.

To meet the criteria for legal online fantasy sports, the league had to: establish prizes in advance of the competition regardless of the number of participants; reflect relative skill and knowledge of the sport; not be based on an individual score, point spread, team or athlete.

Not included in the criteria was any time element that defined how long the league had to last or a limit to how many leagues a person was allowed to enter.

Blammo. The door was kicked wide open for daily fantasy to come along a few years later and thrive.

“It’s a complete double-standard,” said Eric Raskin, editor-in-chief at ALL IN magazine. “Daily fantasy sports is as much a form of sports betting as going up to the window at the MGM Grand and putting money on the outcome of a game.

“For anyone to say one is OK and the other isn’t is ridiculous. That’s just people playing politics, identifying that they can make money partnering with daily fantasy sites but that they haven’t figured out how to make money off of straight-up sports betting.”

ALL IN has reflected the shift in online gambling interest since the Unlawful Internet Gaming Enforcement Act. What began exclusively as a poker magazine in 2004 diversified to include fantasy sports in 2014. Research showed that a lot of the top daily fantasy earners are poker players.

Poker pro Matt Smith won the inaugural DraftKings Millionaire Maker a year ago. Another poker pro, Brandon Adams, won $100,000 payouts on back-to-back nights playing DraftKings fantasy baseball.

“If you have a good math background, it’s pretty easy to switch from poker to daily fantasy,” Smith said. Three weeks ago he won $250,000 and $75,000 on consecutive nights playing DraftKings baseball. “It’s a lot of the same things. It’s knowing numbers and stats.”

A Depew man named Nick (he declined to give his last name) won FanDuel’s $1 million NFL grand prize last week. He admitted he is more of a daily fantasy dabbler than a diehard.

The most serious players might submit a couple hundred baseball lineups a night and a few hundred more football lineups every week. A Sept. 10 Bloomberg Businessweek article profiled Saahil Sud, a professional daily fantasy player with economics and math degrees from Amherst College in Massachusetts. Sud claimed to spend $140,000 on daily fantasy entry fees and get about an 8 percent return on his investments.

Data shows Sud and a handful of other daily fantasy masters prey on neophytes and overmatched suckers.

Elite players use software to forecast high-probability lineups and automated tools that make instantaneous adjustments to however many entries might be affected by a last-minute coaching decision or threatening weather. There even are programs that seek out the weakest possible opponents to go up against.

For the Bloomberg Businessweek article, fantasy-analysis site calculated the top 100 daily fantasy players average 330 winning lineups per day, while the other 20,000 or so players average 13 winning lineups a day.

Eilers Research in July released a daily fantasy player survey that showed about 70 percent were not generating a positive rate of investment. But more than half of the respondents didn’t care; they liked participating because it made sports more fun to watch.

In the gambling world, those who don’t stand a chance are known as “dead money.”

At the Fantasy Sports Trade Association’s winter conference, Eilers Research Managing Director Adam Krejcik said the biggest threat to daily fantasy growth is not regulation, but an inability “to penetrate the casual player market and avoid becoming too hardcore.”

If daily fantasy becomes overpopulated with players who run algorithms and quantitative projections to draw up consistently victorious lineups, then the average sports fan might eventually go find something else to do.

Many argue that traditional sports betting requires the same methodical approach to be successful. Who’s to say, especially with so much information at our fingertips like never before, fantasy is a game of skill but point spreads are a matter of chance?

Sports analytics have become readily accessible and a fashionable way to examine games. Mathematicians all over the Internet are using statistical models to forecast outcomes and individual player performances.

“I used to sit in the caddy yard as a kid,” Donaghy said, “and people would look at the lines in the Philadelphia Daily News. The lines were probably 24 to 48 hours old, and they were making their sports picks based on that.

“Today, you’re at the computer with updated information. One little thing could in your mind set that minus-4 line to a minus-7 or minus-8.”

Casino ties taboo

League commissioners would rather sprinkle flecks of lead paint into their morning oatmeal than do business with casinos, even legal ones.

MLB Commissioner Bowie Kuhn banned Willie Mays six years and Mickey Mantle two years simply for taking jobs as corporate ambassadors for Atlantic City casinos, which do not offer sports betting. Mays lost his job as a New York Mets hitting instructor.

The NFL this summer forced Dallas Cowboys quarterback Tony Romo, New England Patriots tight end Rob Gronkowski, Philadelphia Eagles running back DeMarco Murray and dozens of other players to withdraw from a scheduled appearance at the National Fantasy Football Convention in Las Vegas.

Why? Because the event was held at Sands Expo, a convention center where no gambling takes place yet it is owned by a casino.

Nonetheless, leagues have made significant concessions for gambling for decades. Vincent, the MLB commissioner from 1989 to 1992, called himself “a traditionalist and a romantic,” but admitted “some of the instant-replay policies over the years have been driven by gambling and not being able to afford losing money on a bad call, and I think replay has been a good thing.”

The NFL mandates that each team produce three injury reports during a game week. Every single injured body part must be listed with the latest likelihood – probable, questionable, doubtful, out – that player will be available.

Former New York Jets and Kansas City Chiefs coach Herm Edwards used to shake his head whenever he filled out an injury report. Edwards knew the purpose was to inform gamblers.

The NFL’s rationale is that by being transparent on injuries, nefarious folks looking for inside info wouldn’t slap their tentacles onto league personnel.

But injury reports also have made the NFL easier to bet on, too.

Ad overload

So our televisions now are festooned with DraftKings and FanDuel logos. Our senses are bombarded with commercials and testimonials and promo codes to sign up now for cash bonuses to help you wager.

The ads have been obnoxious, ubiquitous. Weary viewers mocked the onslaught last week by Photoshopping DraftKings and FanDuel logos onto pictures of the blood moon and where liquid water was discovered on Mars.

Daily fantasy sites not only are advertising with broadcast networks and leagues, but also they have become business partners.

Amused broadcast analysts used to quietly chuckle whenever the network’s “fantasy expert” would drop by the studio with tips on whom to start and whom to bench.

Now those analysts are delivering daily fantasy advice as part of the advertising model. Perhaps those analysts are getting paid directly by FanDuel or DraftKings. Perhaps the TV network, with a piece of that sweet action, is instructing them to do so.

As insufferable as the commercials have been and as concocted as the “analysis” might seem, the numbers otherwise don’t lie.

“The marketplace is telling us that fans want to engage in wagering,” Silver said. “Despite government restrictions against it, they will continue to wager. Because of accessibility of betting through the Internet … it’s become that much easier to engage in that behavior.

“If they’re going to do it, you might as well join with them.”

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