Opinion: How Blurred Are Lines Between DFS, Sports Betting?

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Robin Thicke has largely disappeared from the public spotlight.

(Beyond a few lawsuits, at least …)

The lines between fantasy sports and sports betting, however, continue to be blurred in today’s environment.

Back in 2014 when daily fantasy sports first became a part of the American sports ethos, many people noted the similarities between daily fantasy sports and what most thought of as sports gambling.

Given that daily fantasy sports emerged at a time where sports gambling existed primarily in markets that were inaccessible to most Americans, the chance to participate in something that looked more like sports betting than previous iterations of fantasy sports, naturally, drew significant interest from sports fans.

How to help clear up the lines

Now, many have access to both. Regulators should ensure that operators on both sides of the sports betting boundary are operating within the law. Failing to stop fantasy operators who step across the parameters punishes the operators who play within the rules.

Much of the country has worked diligently to set up a regulated sports betting environment. One of the responsibilities of regulators is to protect the value of those licenses.

The most efficient way of doing that is going after people who are operating sports betting products without a license, even if they are branding them as fantasy or DFS.

A distinction without a difference

Despite what is now almost certainly hundreds of millions of dollars spent on marketing, fantasy sports were always a type of sports betting. Even if you want to argue that there was skill involved in fantasy sports (season-long or daily, take your pick,) both were a type of sports betting.

Fantasy sports, however, were long viewed as the safe or family-friendly version of sports betting; after all, at least some of the sports leagues thought no one would ever fix a game over a fantasy contest.

That might well be true. The economics would not make much sense barring an incredibly high-stakes fantasy contest. Fantasy sports were not only treated as a special category of sports gambling when the sports leagues opposed traditional sports betting, but the sports leagues knew that fantasy players were amongst the leagues’ most hardcore fans.

Leagues saw fantasy sports as a pathway to connect to new generations of fans, sponsoring school programs that taught “math skills” through fantasy sports-type games.

Old men legislating things they do not understand

When Congress began taking aim at online gambling with sports betting being a primary focus, fantasy sports quickly became regarded as an activity that would be differentiated from the “bad” type of sports gambling.

Congress began carving out a fantasy sports exemption within internet gambling legislation almost as soon as they became coming up with apocalyptic stories of ruin, and even before online gambling was linked to terrorist money laundering.

The reason that fantasy sports were viewed differently was that fantasy sports were supported by at least one players’ association, and it became clear that at least some members of Congress did not really know what fantasy sports were. At least one member seemed to believe that fantasy sports referred to sports video games.

After nearly 10 years of debate, the Unlawful Internet Gambling Enforcement Act (UIGEA) emerged as a sieve-like effort to ban online wagering.

A hole you could drive a truck through

Amongst the carveouts in the legislation was an exception from the definition of bets and wagers for certain types of fantasy contests. The three numerical prongs set forth in the UIGEA exemption have been examined to death, but they set the stage for something that no longer resembled what was the predominant form of fantasy sports at the time UIGEA was passed.

For years, fantasy sports were a season-long endeavor, often played between friends and sometimes with elaborate in-person drafts. But a consistent theme was that these contests last more than a day or two.

UIGEA’s language, though, made no reference to a season or length of time at all. This of course led to entrepreneurs crafting games that were facially compliant with the language of UIGEA but were a significant departure from what most people had thought of when they heard the term fantasy sports at the time.

A DFS behemoth emerges

Out of this innovation emerged two DFS powerhouses, FanDuel and DraftKings. While neither was the first, both companies operated the new concept of daily fantasy sports better (at least as a business) than their competitors.

Within a few years, it was DraftKings and FanDuel, then everyone else. In the years before the Murphy v. NCAA decision opened the US sports betting market, daily fantasy sports was the only legal game in town for much of the country.

Fighting a constant customer acquisition battle saw many DFS companies begin to push the envelope, including offering contests on single events, something that did not appear to comply with UIGEA. In spite of forays across what appeared to be a clear boundary, federal (and state) law enforcement seemed to have little interest in stopping operators who were serving customers who participated voluntarily.

Sports betting takes over from DFS

In the wake of the Murphy decision, it is easy to forget that fantasy sports and daily fantasy sports are still prominent activities, especially when looking at handle or revenue, Nearly half the country still lacks access to regulated sports betting markets.

While UIGEA’s fantasy sports exemption creates significant opportunities to offer a product that looks more like sports betting than traditional fantasy sports, UIGEA still creates a bright-line rule that fantasy operators must not cross.