Daily Fantasy Sports: Skill, Gambling or Both?

Do you love sports?

I love football.

You can’t watch football now without seeing ads for daily fantasy sports websites such as Draft Kings and Fan Duel, which have become household brand names to sports fans all across North America.

According to the Fantasy Sports Trade Association, over 56 million people are expected to play in a fantasy sports competition in 2015. The daily fantasy sports market has grown into a multibillion-dollar industry over the past ten years.

Many newcomers to daily fantasy sports have one question in common: Is daily fantasy sports a game of skill, gambling or a hybrid of the two? First, let’s look at daily fantasy sports from a legal perspective.

The legality of daily fantasy sports

In the United States, the framework for legal fantasy sports wagering was defined in the Unlawful Internet Gambling Enforcement Act of 2006.

Individual states can make local laws concerning the legality of fantasy sports wagering websites. Certain states do not permit online fantasy sports for real money. These states are:

• Arizona
• Iowa
• Louisiana
• Montana
• Nevada
• Washington

Nevada: Daily fantasy constitutes a sports wagering platform

In October of 2015, Nevada concluded that daily fantasy sports competitions were congruent with its definition of sports wagering. State regulators pointed to Nevada’s Regulation 22, which provides a framework for how sports wagering must be conducted throughout the state.

The Nevada Gaming Control Board (NGCB) is said to have performed “Exhaustive analysis” on the daily fantasy sports model. The NGCB concluded that the daily fantasy sports business model fit the definition of a sports wagering operation as it pertains to Nevada law.

The ruling resulted in a cease and desist letter being sent out by the Gaming Control Board. The cease and desist letter asked popular DFS websites to obtain a Nevada gaming license before resuming wagering services to patrons located in the state of Nevada.

Isn’t there a distinct skill element in daily fantasy sports?

There’s no doubt that some level of skill exists in daily fantasy sports. If there wasn’t skill involved, then how are people making a living by playing daily fantasy sports competitions?

Just by doing a cursory search on Google, you can find the success stories of self-made daily fantasy sports millionaires. Since you see many of the same people consistently doing well in these competitions, shouldn’t that be the “Say all, be all” as it pertains the DFS skill versus chance debate?

The answer isn’t that simple. Think about a game that we know is 100% skill, such as chess. Have you ever thought:

Why isn’t there money in a game like chess?

It’s simple: because there is no element of luck to give inferior players a chance to win.

In chess, a player gets an advantage over their opponent by performing more precise calculations regarding their future moves. Once a player has a small advantage over their opponent, it’s often difficult for the opponent to come back and win.

The player could execute what is called a blunder (a questionable move in chess) but blunders do not happen due to sheer luck or misfortune. The miscalculation is the result of a player that lacks a critical skill needed to win the game.

Comparing daily fantasy sports with other games of skill

You could have a first-time player go on to win a large sum of money in one day playing daily fantasy sports.

Hypothetically speaking, that new player could do absolutely no research and choose a lineup based upon their gut instincts and potentially win a large tournament. While that player may not have a good chance at winning from the onset, the fact is, that player does have a chance.

Although that chance may be very small, that assumption creates an important question: How much chance is involved in playing daily fantasy sports?

Consider these comparisons:

If you put a beginner chess player against current World Champion Magnus Carlsen, how many games would that amateur player win against Carlsen if they played 10,000 games? Many experts would comfortably say that Carlsen would likely win all 10,000 of these exhibitions.

Put a daily fantasy sports beginner against the DraftKings’ eventual 2015 World Champion of Fantasy Football. Let those players play against each other in 10,000 head to head competitions. How many competitions does the beginner win?

It’s a great question because that’s an answer in which data is not readily available. Could you assume that the beginner could win a couple hundred of these competitions? Could the beginner win a thousand of these competitions?

The answer to this question will provide us with answers as to how much of a skill edge the best players in the world have against those just starting out in daily fantasy sports. The fact is, if there were absolutely no element of chance involved in fantasy sports, beginners would have a steep and expensive learning curve that would dissuade many new players from playing.

How do daily fantasy pros win consistently?

Fantasy sports professionals typically have large bankrolls that can sustain any sort of losing streak. Some professionals use creative methods of preparing their starting lineups.

Some players intensely watch game film while others rely on software that analyzes matchups and makes predictions. Others simply create spreadsheets and make assumptions based on statistics, calculations and probabilities. Do everyday people with jobs, spouses, kids, and responsibilities have that type of time to dedicate to daily fantasy sports? The answer is no.

The research methodologies that pros implement give them an edge over amateur players that do not have sophisticated tools at their disposal. Currently, daily fantasy professionals have a deeper understanding of matchups when compared to the influx of amateurs that have flooded these sites. This new wave of players who may be selecting lineups on a whim has created a large pool of “easy” money that is up for the taking by the pros and those few who are lucky.

What if the easy money in daily fantasy sports dries up?

What happens if daily fantasy sports amateurs players were to gain suddenly some of the edge that the professionals currently possess? Wouldn’t that effectively increase the likelihood of chance coming into the equation regarding the outcome of the competition?

Daily fantasy sports are experiencing an influx of new players, many of which simply join these websites to test out their skills. If regulations on daily fantasy sports cause new player sign ups to go down then the level of skill needed to win a competition will likely go up. With that said, what is the final verdict on whether or not daily fantasy sports is gambling?

Daily fantasy sports: skill or gambling?

Daily fantasy sports are definitely a game of skill that possesses an element of chance. You could call it a hybrid gambling game where both skill and chance can play factors on out the outcome of the competition. Is daily fantasy sports skill or gambling? It seems to be both.

Fantasy sports and your finances

Since these games take some skill and involve chance, should you play them? The answer – as with many things in personal finance – is it depends.

If you want to play, you need to be financially set up in the rest of your finances. Don’t play with money that should go to paying down credit card debt or a student loan. If you don’t have an emergency fund set up, this is a waste of your time.

If your financial house is in order and you have a set budget for entertainment, you can talk to your spouse and play with an agreed upon amount. Never spend more than the agreed upon amount.

If you are tempted to spend more, tell your spouse of a friend who can make sure you stay accountable. If you enjoy making sports more exciting, just like any other hobby, remember it shouldn’t impact your family or financial goals.

There are many harsh lessons learned from the gambling experience, but the harshest one of all is the difference between having Fun and being Smart. – Hunter S Thompson.