Five Misconceptions About The Daily Fantasy Sports Industry You Are Seeing A Lot

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As daily fantasy sports receives more mainstream attention, there is a lot of misinformation floating around in the media on the internet.

If you’ve read stories about DFS at other outlets, or you have seen discussions oon social media, you may have run into some of these misconceptions about DFS:

“DFS is a lot like chess”

Truth-o-meter: Kind of, but not really

DraftKings CEO Jason Robins again made the comparison of daily fantasy sports to the game of chess in his remarks during a panel at the Global Gaming Expo.

Let’s start here: The “myth” portion isn’t that DFS involves skill. It clearly does.

While both chess and DFS involve skill, getting from one to the other is a pretty big leap. And the DFS-chess comparison, in particular, rankles people who believe DFS is more like gambling. ESPN’s David Purdum put it pretty succinctly:

To expand upon that idea, let’s take the idea of the top-ranked chess player in the world playing against a relative novice, and then imagine the same scenario in DFS, which would be a head-to-head match. A quick search of the internet does reveal that some very smart people believe luck does play a role in chess.

But for the sake of argument, let’s consider just the scenario of a chess grandmaster playing against someone who plays a little bit of chess (i.e. can move the pieces around the board correctly and has played the game at least a little bit few times, and can maybe beat a friend once in awhile). The outcome of this match? It’s a victory 100 percent of the time (or at least approaches that figure) for the grandmaster. (Win expectancy calculator here.)

In DFS, let’s take the scenario of top-ranked pro “maxdalury” playing one-on-one against a newcomer to DFS: Someone who understands the basics of DFS and might look around at a site or two for some expert advice before setting his lineup. What is the outcome of this match? Usually, yes, it’s a win for maxdalury.

Is he going to win 100% of contests in a head-to-head matches? Not even close. Putting an expectation on it might start at a floor of 60 percent, and could be much higher, up to 80 or 90 percent, depending on just how unskilled the opponent is and what sport is being played.

But a 100 percent victory rate or anything close to it, over a large sample, is not in the realm of possibility.

“DFS is legal in 45 states”

Truth-o-meter: Maybe.

Mainstream media, since it has started covering the DFS space with more intensity in the wake of the DraftKings-FanDuel commercial blitz, has taken this line several times: DFS is legal in 45 states.

In reality, this is at least possible. In truth, though, the “45 state” figure is linked to the states that DraftKings and FanDuel operate in. DraftKings and FanDuel stay out of five states where almost everyone believes DFS is illegal.

(We can also note that some stories say DFS has been banned in five states; this isn’t true, either. State law in those states, when applied to DFS, makes it illegal for operators to accept real-money players. Montana does actually address fantasy sports.)

Few states have laws expressly dealing with DFS, and its legality is usually predicated upon its status as a skill game. DraftKings and FanDuel believe they have a good legal argument to operate in the other 45 states. Some other sites? They don’t think so.

At least some DFS operators stay out of Michigan, Arkansas, Delaware and Tennessee. This is due to the fact that gaming law in those states is at least gray in terms of whether DFS is legal.

A number of lawyers believe DFS would not hold up to a legal challenge in some states. (For a more nuanced look at the legality of DFS, read this article.)

Could DFS be legal in 45 states? Sure. But to say it’s legal in 45 states, beyond a shadow of a doubt, is not accurate. There’s also the issue that not all fantasy sports are created equal, and calling a game “fantasy sports” does not equate to a free pass under the law. Which brings us to….

“Federal law says daily fantasy sports is a skill game”

Truth-o-meter: False.

The other legal matter that the media seems to gloss over, and that many in the DFS industry seem to rely upon, is the carveout for daily fantasy sports that exists in federal law, via the Unlawful Internet Gambling Enforcement Act. We’ve seen a lot of references to fantasy sports being called a skill game at the federal level.

What the UIGEA actually says is that “participation in any fantasy or simulation sports game” is exempted from being called a “bet or wager” as long as it “meets the following conditions.” One of those conditions:

(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

No reading of the UIGEA can lead one to believe that the law expressly says that fantasy sports are a skill game. More simply, UIGEA speaks to the matter of “if” DFS contests involve skill, not “because” they involve skill.

The UIGEA, in essence, just passes the buck to the states. Are DFS contests likely to be considered a skill game in a lot of states? Definitely. Federal law, however, says nothing about whether a DFS contest is actually a game of skill. It just allows them to be categorized as such by states.

“DFS being like the stock market is a reason to consider it ‘not gambling’ “

Truth-o-meter: False

Like equating DFS to chess, we’ve seen the analogy to the stock market a lot, including from Robins. And it’s a fair one, in reality: There is a lot of skill and some luck involved in making money on the stock market.

But the argument is taken a step further by some. We’ve seen a version of this statement, several times on social media: “If you say DFS is gambling, then you have to ban stock trading because it’s the same thing.”

No, really, you don’t. In a lot of states, securities trading is specifically exempted from gambling laws precisely because it resembles gambling (for example: Ohio). As we went over above, DFS is usually not specifically exempted at the state level. (And, as an interesting side note, securities trading is also mentioned/exempted from the UIGEA, just like fantasy sports.)

On the same topic, many reports have headlines that basically say “insider trading” is going on at DraftKings and FanDuel in the online going DraftKings leak scandal. So far, there is no hard evidence of this. Is it possible in an unregulated environment, without knowing what kind of protections the sites have? Sure. But that’s a far cry from where we stand today, which is uncertainty.

“DFS sites take all the same precautions as legal, regulated online gambling sites”

Truth-o-meter: We don’t know, but probably not

There’s generally a tacit belief that there are a lot of consumer protections at DFS sites.

But could it possibly rise to the level that is expected of regulated online gambling and poker operations in the United States, at every site, if it’s not required? The truth is, we have very little idea what goes at most DFS sites on this front; the most recent example is the DraftKings lineup leak, which you can read about here.

On the positive side of the matter, DraftKings has qualified for a gaming license in the United Kingdom. Seth Young, COO of Star Fantasy Leagues, has on multiple occasions listed the protections offered at his site, which would likely pass muster in a regulated environment.

At the same time, Robins had a pretty good chance to address consumer protections when asked at G2E last week, and didn’t:

A DFS site should want to scream from the rooftops that it’s doing all of the above, in today’s climate.

But there are no real standards that DFS sites operating in North America are beholden to on this front, since there is no regulation at the state or federal level.

DFS sites, to be a part of the Fantasy Sports Trade Association, must agree to the Paid Entry Contest Operator Charter. That document does mention consumer protections, but does not include a lot of detail about how those protections must be satisfied:

Know Your Customer
The signatory companies will put measures in place to ensure that their paying customers:
• Reside only in states in which the signatory companies, after seeking legal advice, have chosen to take paid entrants for their games; and
• Are of the required minimum age for that state, province or country.

Coding, Fraud and Anti-Money Laundering
The signatory company will use an appropriate merchant category code for credit card processing and institute adequate fraud and anti-money laundering checks in handling player funds.

The only known penalty for not following the charter? Losing membership in the FSTA. The FSTA is not going to great lengths to verify compliance, and it is certainly not set up to be an enforcement arm.

For comparison’s sake, here is a list of things that New Jersey online gambling sites require upon sign-up, which generally aren’t required at a DFS site upon sign-up:

Do DFS sites have protections in place? Sure. But it’s simply hard to say the protections are as solid as what is going on at regulated gambling sites.