Daily Fantasy Sports Companies Continue Dodging Long Arm of the Law
Bill Doherty contributed a story to Lehigh University’s College of Business and Economics’ blog this week concerning a research paper by Lehigh Professor of Business Law Matthew Melone, who surveyed the legal grey area in which daily fantasy sports companies have increasingly come into conflict as their popularity surges.
According to industry reports, the United States and Canada are home to roughly 57 million daily fantasy players. The “immediacy of daily contests” coupled with the ease of “cloud-based technology” gave rise to the trend.
DraftKing and FanDuel, the two top dogs in the daily fantasy industry, have parlayed this enormous consumer base into big bucks— FanDuel’s revenue, according to the article, was $14 million in 2013, $57 million in 2014 and over $100 million in 2015. Each company’s value currently hovers in the low billions. This is due in no small part to “hefty investments from top sports franchise and media outlets like ESPN,” according to Doherty’s article.
The model is relatively straightforward: on Sunday mornings, users construct a “one-day league” fantasy team for nearly every major sport. Winners are announced the same night.
Melone, “a self-professed sports fan,” couldn’t help but notice the recent deluge of fantasy sports advertisements that cropped up during television broadcasts of games. Melone was immediately intrigued and began “researching the history of fantasy sports.”
Melone noted the major distinction between its earliest incarnations in “1950s fantasy golf” and its present-day form: “While sports and gambling have been around in various forms for years, this was different because the sports leagues themselves were investing in, not fighting against, these daily fantasy companies in an effort to get more eyes on their sport.”
In Melone’s paper, Fantasy Sports Contests: Does the Fun Justify the Fantasy that these Contests are not Gambling?, due for publication in an upcoming issue of the University of Virginia Sports & Entertainment Law Journal, he believes any legal decisions should be up to the state without any federal intervention. “States should be transparent, treat these activities as gambling, and then make a reasoned policy choice as to whether the entertainment and economic value of these contests justify the attendant social costs.”
There is an ongoing debate between state authorities—particularly those in Texas, Massachusetts, New York, and Illinois—and fantasy sports industry executives on whether the games are predominately chance- or skill-based. Fantasy sports supporters argue that the games are skill-based but Melone believes otherwise.
“Imagine the uproar if a professor at the university established a system whereby students could wager significant sums of money against each other based on calculus exam results. Is there any doubt such wagers are gambling despite the fact that what is being wagered upon is a skill-based activity?”
Despite the fact that Melone argues against the games’ “skill-based” classification, he has a more measured take on the discussion: “In the end, I believe that most states will allow daily sports fantasy to continue, but with age restrictions, wager limitations, and other safeguards to minimize abuse.”
About the Author
Jonathan Pfeffer
Jonathan Pfeffer joined the Clear Admit and MetroMBA teams in 2015 after spending several years as an arts/culture writer, editor, and radio producer. In addition to his role as contributing writer at MetroMBA and contributing editor at Clear Admit, he is co-founder and lead producer of the Clear Admit MBA Admissions Podcast. He holds a BA in Film/Video, Ethnomusicology, and Media Studies from Oberlin College.
