What Are The Chances?

Bennie would be shocked and amazed, and more than a bit furious. He had to dodge and weave the cops to run numbers, knowing that eventually he would get pinched.  And today, you can’t watch a football game without competing commercials for a minor variation on a theme. FanDuel or DraftKings?

How is this possible?  And how did a fun water cooler pastime turn into a multibillion dollar industry overnight?  It’s the same lie that allows a stock market to exist. Fantasy football isn’t a game of chance, but a game of skill. You buy that, right?

The key to the industry’s growth is a loophole. Considered a game of “skill” versus “chance,” daily fantasy sports is exempt from the 2006 Unlawful Internet Gambling Enforcement Act, which prohibited payments to online gambling sites. As a result, the industry is essentially unregulated, left to monitor itself.

Combine something guys love, football, with the dream of snagging a couple mil for some skillful guessing (and there are a lot of guys who believe their mad football knowledge is, indeed, skillful), and what’s not to love?

Evidently, it’s not doing a very good job. Last week Ethan Haskell, a DraftKings employee, published proprietary information about the percentages of DraftKings participants who “owned” different N.F.L. players used in lineups on the site’s biggest daily fantasy football contest. It was a seemingly accidental goof that might have passed unnoticed — had Mr. Haskell not used this potentially large strategic advantage to win $350,000 in a similar contest on FanDuel.

Somebody was smart enough to realize that Big Data approaches gave them an advantage over skillful guesswork. And as soon as others found that someone on the inside was smarter than they were, they all went nuts.

Cries of “insider trading!” instantly rang out. The F.B.I., the New York attorney general and the Department of Justice began investigations. Class-action suits have been filed; Harry Reid, the Senate minority leader from Nevada, has called for federal oversight.

As soon as someone felt cheated by being outsmarted, the analogy to the stock market became clear. The author of the Times’ op-ed, Mark St. Amant, calls out the silliness.

It’s tempting to join the pitchfork brigade. These companies have spent over $100 million on advertising to get more people to sign up, even as their employees were using proprietary information to cheat (both companies have since barred employees from participating in daily fantasy sports).

But the truth is, I don’t care. And I doubt most players do, either.

How is it possible that people who put money into the game of chance skill are foaming at the mouth?

Despite the legal fiction that daily fantasy sports is about “skill,” any rational person should know that it’s gambling, and any rational person is going to be in it for fun, not profit. Tsk-tsking a lack of transparency in an unregulated, billion-dollar industry is like going to a gentlemen’s club and being outraged that the dancers’ breasts are fake.

The naiveté with which people approach gambling, whether with fantasy sports or corporate earnings projections, is an outgrowth of our immature expectation of fairness and equality. There is no level playing field. There never was, even if it’s wrapped in rhetoric designed to persuade us otherwise.

While St. Amant may be comfortable approaching fantasy sports betting as a fun pastime, rather than a profit making venture, others are not. Nor did anyone make him the spokesman for what motivates other people to put money on the line to compete over whose mad skillz will win on any given Sunday.

As reflected in the comments to his op-ed, St. Amant is taken to task for two reasons, the first being that others don’t share his laissez faire attitude toward insiders having better odds than he does, and the second being that even if it is just a fun game, cheating is still an inherent evil that shouldn’t be tolerated.

Of course, casinos, whether in Sin City or elsewhere, have always kept the odds in their favor, which is why they can survive.  If they pay out more than they take in, there is no money left to have sexy waitresses ply gamblers with free drinks to keep them throwing chips down on losing hands.  Everyone knows this, and yet they still come to play.

And players hand over their life savings to large corporations on the belief that they care deeply about their having enough money to survive retirement in style, expecting them to play the game with far greater knowledge and sophistication than they could accomplish on their own. Except these corporations have more traditional names, like Goldman Sachs and Fidelity. They want to have the inside cheaters working for them instead of against them.

Whether St. Amant is right that the patrons of fantasy sports betting are in it for the fun, for the thrill, and don’t care enough about being outmaneuvered by others to grab their pitchforks and storm the digital castle is unclear.

Yes, I’d rather not have to beat DraftKings or FanDuel employees who might have access to confidential data. But even if the Ethan Haskells of the industry are all barred from the game, I’m still unlikely to beat the “sharks,” the hard-core players who have flowed into the game with sophisticated software to analyze lineups and make last-minute switches — and who are the real big-money winners, without a bit of insider information.

There are always “sharks,” people who will try harder, work smarter, try to game the system whether from the inside or out, by big data or Ouija boards, and even they aren’t guaranteed a win for their efforts. Because it’s all gambling, except for the house that takes a piece out of every player whether they win or lose.

We can pretend to regulate it all we want, to give us that sense of comfort that we’re all playing on a level field, but we aren’t and never will be. Once we accept that it’s all a game of chance, and stop trying to micromanage it as if one more tweak will make it fair, we can enjoy the game and take the hit with equanimity.

11 thoughts on “What Are The Chances?

  1. bmaz

    Okay to follow up a bit on a tweet I sent you with a link to the Nevada AG opinion on DFS that was released Friday. The big news out of NV came Thursday with the decision by the State Gaming Board there. But the bigger legal news is absolutely the opinion that the NV AG promulgated, that was partially behind the Gaming Board action, but not released until after it.

    The AG opinion flat out found that DFS was, without any question “wagering” and “gambling” and, in effect, is “almost identical to a casino”. “In short, daily fantasy sports constitute sports pools and gambling games”. The AG opinion noted the Reddit AMA with Draft Kings CEO where he flat out admitted as much. Memo to dodgy legal gambling shops, Reddit is not your friend.

    So, as a result, DFS, including Draft Kings and Fan Duel, are now strictly illegal in Nevada unless properly licensed by the state, like the rest of the gambling industry in Nevada. Now it is easy to dismiss the NV opinion as simply being protectionist, and there is unquestionably some truth to that thought.

    But Nevada is, as of this moment, the one state where DFS could, unquestionably, be legal. Nevada has the one across the board hard exception to PASPA (Professional and Amateur Sports Protection Act) in the country, and also has the most robust gambling regulatory structure. What NV says counts in this area of the law, by factors over pretty much any other state. It will almost certainly have a snowball effect on other states contemplating the legality of DFS. Including Florida where there is not only state gaming consideration, but a federal grand jury is considering actual criminal violations and charges against significant DFS officials. The GJ is considering whether DFS has violated the IGBA ( Illegal Gambling Business Act of 1970) through prohibited violations of particular state laws (a feature in the IGBA).

    Other states and the federal government are going to look to Nevada’s opinion here. It simply will carry a ton of weight on the critical issue of whether DFS is “gambling”. And the Nevada opinion is unequivocal on that.

    Frankly, I have been stupefied from the start that these billion dollar gambling businesses were built on the “exception” they claimed as “skill” games. Without more, that was simply absurd. To me, at least, it is patently obvious that what they were doing was gambling. And there were a lot of gaming and sports practitioners saying the same things if you are deep enough into their forums (which I occasionally am for a non-related issue). I think there was a reason theta Draft Kings and Fan Duel have spent more advertising money than any other concern over the last two months. They knew the shit was about to hit the fan, and wanted to inure the public to their product so as to make it ubiquitous and thus harder to take out of play.

    Here is a further little nugget to chew on: The quickest way to respectability and passing muster in states (and getting a favorable look from Congress) would be for the DFS operators such as Draft Kings and Fan Duel to get licensed by Nevada. And the NV opinion crystal clearly left that option open. The problem is, Draft Kings, Fan Duel and the others cannot meet the strict burden for the NV Gaming Board while running pretty clearly unregulated and putatively illegal games in other states. It is a Catch-22 they can’t work out of. There is also the immense scrutiny that NV inspection and regulation would bring, and they show no current ability to withstand that given the behavior of DFS insiders.

    1. SHG Post author

      When Bennie ran numbers, he ran a clean game because if people never won, they didn’t come back to play again. The only losing numbers game was when OTB took over. It took a government to fail to make a buck on gambling.

      Of course it’s gambling, and bravo for the Nevada AG to prove it by going to a reddit AMA. If it says so on reddit, then what more proof could anyone need? But some applaud the government controlling gambling and others prefer the government keeping its fingers out. The government does so love things it can regulate. No doubt the fingers of politicians in fifty states plus will do a fine job of it, given what a great job they’ve done regulating the rest of our lives.

      1. bmaz

        I have no problem with appropriate regulation. If other gambling has to be,then so, too, should these people. What gives me, personally at least, more pause is the criminal investigation. The “exception” DFS has relied on is contained in the UIGEA, which was a hastily (and rather ignorantly) cobbled together sub-act of the SAFE Ports Act. I don’t particularly care at all for these DFS twats, but not sure I can countenance criminal investigation because the Congress was stupid in making laws.

        Pretty much an evergreen thought.

        1. SHG Post author

          “Appropriate regulation”? I see. What isn’t clear is why someone having to suffer bad law means everybody should. I appreciate the parity aspect, but isn’t the better solution to, you know, not have anyone constrained to suffer bad law?

  2. bmaz

    Well, if you are going to, and gambling long has been, then there should not be carves outs for piss ant crap like DFS. I would be fine with legalizing and regulating all sports wagering evenly and consistently. But, no, I do not think gambling should be unregulated and unfettered. Nope, not for one second.

  3. delurking

    ERMAHGERD! I had NO IDEA it was even possible that someone playing Draftkings or FanDuel could have more information than me, and use it to his advantage. Holy Crap, Someone did that and won $350,000. That is like, a whole 0.01% of the payouts these companies have made. We had better pay a whole bunch of lawyers to spend a few dozen full-time-equivalents to figure out what to do next, because that will be totally worth the money spent. No, it doesn’t matter that they changed the rules so that can never happen again; it’s the principle of the thing, dammit.

  4. losingtrader

    I wish there were an “unsubscribe” button on my TV , given it seems half the ads are for these companies, and then the announcers get involved.
    I’m tempted to do what many people did in the Cosell era of Monday Night Football.

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