The fantasy sports market is booming. Number of players are increasing and so are revenues raked in by fantasy sports companies. The industry is currently experiencing “growth pains,” with concern over whether to regulate fantasy sports taking precedent.
According to the Fantasy Sports Trade Association, more and more people in the United States and Canada are playing fantasy sports from only 12.6 million in 2005 to a whopping 56.8 million in 2015. Fantasy sports players are mostly male and have the means to spend, on average, $465 on the game annually, with fantasy football being the most popular among the several games players can choose from.
Fantasy sports companies are earning more, thanks mostly to this increase in number of participants. Popular and leading fantasy sports companies FanDuel and DraftKings both posted a dramatic rise in their key financial figures in recent years. DraftKings, releasing its figures for the first time in January, posted a spike in entry fees from $45 million in 2013 to $304 million in 2014, earning $4 million and $30 million, respectively. FanDuel earns $27,500 in entry fees per second, Nigel Eccles, chief executive officer and co-founder of FanDuel, told Bloomberg. The company’s revenue stand at $57.8 million in 2014 from a paltry $1.2 million in 2011.
Both companies are certain the future has more in store for them, with Eccles saying they’re “building a multibillion-dollar business.” Fantasy sports investors seem to agree the companies in this field have real profit potential. FanDuel investor Paul Martino, managing director of Bullpen Capital which invested in Zynga, TubeMogul, uDemy, and PayNearMe, seems to believe “there still exists real potential for growth” of these kind of sites and believes states are better off not banning fantasy sports-related betting as they would benefit more from allowing games to be played and taxing the income.
DraftKings is backed by Fox Sports, Major League Baseball, the National Hockey League, and Major League Soccer, while FanDuel’s investors include NBC Sports and the National Basketball Association. Big wigs like Yahoo! and Microsoft are now riding on the fantasy sports bandwagon as well, with the former reportedly joining in on the fray and the latter acquiring Incent Games, developer of FantasySalesTeam, a platform based on fantasy sports.
Clearly, fantasy sports has grown from being a game played by friends in a rotisserie to a multi-million dollar market. And this growth has not gone unnoticed. With more and more players engaged in the game and huge earnings at stake, there’s more and more talk about regulating fantasy sports companies.
1. It’s gambling.
It’s clearly a form of gambling, said Jim Murren, chief executive of MGM Resorts International, adding those who think otherwise are “absolutely, utterly wrong.” In fantasy sports, players risk money on how their team members perform which is similar to how sports bettors risk wages on game results.
“I don’t know how to run a football team, but I do know how to run a casino, and this is gambling,” Murren said.
2. To protect minors.
Fantasy sports sites “presume” players are of legal age, but “kids as young as 13 regularly play full-season fantasy sports contests,” said one report. There is also a struggle in the industry to ensure minors do not play for pay-for-cash games. Regulation is expected to address these issues.
3. To avoid conflicts of interest.
A number of sports leagues have invested in fantasy sports companies and this may pose a problem. With regulation, states can require fantasy sports companies to disclose who’s running the games as well as provide the names of individuals and entities with any financial interest in the company. With this legal backing, states can deny license to any companies that don’t disclose such information.
4. To ensure fantasy sports companies do not default on paying the winners.
A number of fantasy sports sites have this “against the house” game where players don’t pay any fee and the company wins or loses money based on the performance of the participants. In this setup, players risk not receiving their winnings. But if the game is regulated, this type of contest may no longer run, says Marc Edelman of Forbes. As for those contests that collect fees, the state may require the site to keep the fees in escrow and ensure all contests have a minimum level of reserves, capitalization, and insurance.
5. To protect the middle class
Critics like Les Bernal, national director of the non-profit Stop Predatory Gambling, say daily fantasy, the daily or weekly version of traditional fantasy sports games, could drain bank accounts of poor to middle class players. “The only way the daily fantasy sports model works is by attracting poor players, the fish, to feed the good ones, the sharks,” Bernal told USA Today. But FanDuel spokeswoman Justine Sacco said full-time professional daily fantasy players are “only a negligible portion” of its users.
1. Unlawful Internet Gambling Enforcement Act of 2006
This is an amendment to the SAFE Port Act that seems to clarify the legality of fantasy sports. The act makes illegal for online gambling sites to receive money via banks or similar institutions. It exempts, however, fantasy sports, educational games, and other online contests that meet certain conditions, one of which being that outcomes must “reflect the relative knowledge and skill of the participants.” Some states, however, don’t buy this and have chosen to regulate fantasy sports instead.
2. It’s a game of skill.
Daily fantasy sports requires knowledge and skills, says Jason Robins, chief executive and cofounder of DraftKings. To back up his claim, Robins says that based on internal data, the “best players do well and win consistently and get better over time.” This, for him, is the most compelling evidence the game is definitely not one of chance.
So, does fantasy sports need to be regulated? It seems it all boils down to how fantasy sports is defined by the law. The proper and necessary legal actions will be based on this definition.
Right now, fantasy sports companies and their supporters say the game is not gambling, but their detractors say otherwise. Laws on the game vary from state to state, with pro-fantasy sports stakeholders citing the Unlawful Internet Gambling Enforcement Act of 2006 as basis for non-regulation of the game while pro-regulation stakeholders maintaining it entails a big deal of chance and risk and is thereby gambling.