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A soon-to-be-published academic study seeks to address the question that dominated gaming headlines in late 2015 and early 2016: Does daily fantasy sports constitute gambling?
“[D]aily fantasy sports are not games of chance, and the authors recommend that these contests should not be considered gambling,” wrote Todd Easton and Sarah Newell after analyzing DFS contests offered by both FanDuel and DraftKings.
As part of their analysis, the authors lost all 35 DFS contests they entered using randomly-generated picks from a simulation model.
The study is slated for publication in the Journal of Sports Analytics and can be found here.
Lead author Easton is a professor of industrial and manufacturing engineering at Kansas State University. Second author Sarah Newell is an engineer in the private sector.
“[T]his paper is designed to help politicians and lawmakers,” wrote Easton and Newell. “Whether or not individuals in a state can participate in daily fantasy sports has a massive economic and societal impact.”
The authors cite a “tense political climate” and several states that have declared DFS contests as gambling “because they are games of chance” as further motivations for the study.
For comparison, Easton and Newell point to the 2012 ruling by a federal judge who relied on a study of over 100 million poker hands to conclude that “poker has enough skill (betting strategy) that it is not gambling.”
Like the poker study, Easton and Newell turned to quantitative analysis to test whether DFS success is not based on chance.
The authors’ analyzed FanDuel’s NFL contests and used simulated “random teams to model a completely ‘unskilled’ DFS participant.” The data were drawn from the 2016 NFL season.
“If this is a game of chance, then every strategy should perform equally well,” wrote Easton and Newell.
The authors’ model picks over the course of ten weeks outperformed the simulation-generated random picks every week. With a 99.9 percent level of confidence, the authors concluded that the randomly picked fantasy teams would perform worse than the model team.
The simulated study of FanDuel contests — the authors did not use real money in actual contests — was replaced with a skin-in-the-game analysis for DraftKings.
Easton and Newell’s inquiry devoted to DraftKings was focused on the company’s Double Up MLB contests.
“It is important to emphasize an account at DraftKings was created and actual money was spent entering live contests,” wrote the authors.
The authors again selected random teams using the same simulation methodology as they did for their FanDuel-focused study.
And what did they find?
“The most astonishing result is that not a single team won a payout,” wrote Easton and Newell. “It is difficult to truly comprehend the extreme rarity of losing all 35 contests.
“This is less likely than a single ticket winning the Powerball.”
The authors point out what they view to be the root cause of confusion on the skill vs. luck issue.
“It is not surprising that some individuals and lawmakers have mistakenly interpreted the randomness of outcomes between skilled participants for the gambling definition of chance,” wrote Easton and Newell.
Indeed, the authors point out that in determining winners between similarly skilled DFS contestants, “luck typically plays a vital role in determining the outcome.”
During litigation in New York, both DraftKings and FanDuel submitted expert reports that addressed the skill vs. luck issue in DFS. The industry reports were used to bolster legal arguments by both companies that their contests did not violate New York law.
And if there is future litigation by a state attorney general pursuing related claims against the DFS industry, the new study forthcoming in the Journal of Sports Analytics could be among those cited to rebut any argument about daily fantasy outcomes being based more on chance than skill.