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Leave DFS Regulation to the States, But Don’t Kneecap Skilled Players

Congress is abuzz with the issue of gambling. Last month, Senator Lindsey Graham (R-S.C.) inserted language from his failed online gambling ban into the Senate appropriations bill, presumably hoping to secretly sneak his ban through the process. And just last week, the House Subcommittee on Commerce, Manufacturing, and Trade held a hearing on Daily Fantasy Sports (DFS) betting, asking the question: what should be the future of this form of online betting and is there a role for the federal government to play?

Just a day before the hearing, CEI released a paper titled, “Game Changer: Rethinking Online Gambling Regulation in the Age of Daily Fantasy Sports.” In it, Steven Titch and I examine the wildly popular world of DFS and conclude that the best way for Congress to protect consumers would be to leave regulation of the industry where it belongs: with the states. Regardless of what body ultimately oversees the activity, regulation should merely seek to protect consumers from fraud and shouldn’t “handicap” skilled players, as my co-author Steven Titch explores in the following post:

In the last few weeks, Last Wednesday’s congressional hearing on Daily Fantasy Sports (DFS) yielded an informative discussion of the legal and technical issues surrounding these controversial contests and the degree to which they need to be regulated as a form of gambling.

With DFS participation reaching a reported 60 million players in 2015, yet facing a backlash from numerous states which have claimed it to be a form of unregulated online wagering. The House Energy and Commerce Committee’s subcommittee on Commerce, Manufacturing and Trade

The only disappointing comments came from Kurt Eggert, professor of law at Chapman University, who conflated the use of scripts and algorithms in DFS with the use of bots in poker and suggested regulations prohibit their use to prevent casual players from being “cheated or beaten unfairly.” (A video of the hearing is here; Eggert’s comments begin at about 1:21:00)

Eggert was correct when he said the bulk of winning DFS players also are skilled at poker and data management. From his tone, however, he seemed offended by this, and implied that DFS regulations should favor passionate sports fans who draft their fantasy line-ups with more heart than head.

Eggert’s thoughts deserve some rebuttal because they generated some extended questioning from committee members, and some of Eggert’s questionable opinions equating skilled play with cheating went unchallenged.

First of all, DFS algorithmic tools and scripts are not equivalent to the poker bots that dishonest players deploy on online poker sites. Bots operate autonomously, making decisions that are mathematically optimal in a given situation. Given that poker is a game of incomplete information, bots are not foolproof, but they can be effective enough against poor play by human opponents. Poker sites ban them under their terms of service. Players caught using them will be restricted from the site.

DFS algorithms and scripts, on the other hand, do not make autonomous decisions. Using numerous variables, algorithms identify optimal players to draft for that particular day’s play. Unlike poker bots, they are available to any player from a variety of legitimate app developers. There also are websites, like rotowire.com, that do similar work. In the end, however, it’s the player, not the software, that decides the fantasy line-up. (Rotowire also ranks DFS players by username so others can be aware of their level of skill, refuting Eggert’s statement that casual DFS players can never know the caliber of their competition.)

Scripts allow DFS contestants to simultaneously enter or change multiple line-ups that he or she may have in a multiplayer fantasy contest, say, if just before game time, a real-world player in the contestant’s fantasy player line-up us is scratched. Scripts do benefit deep-pocketed players by allowing them to manage tens or hundreds of entries at once, but again, they are easily available to anyone who wants to use them. Leveraging economies of scale in wagering is not viewed as cheating. Skilled Las Vegas sports bettors place wagers on many games each day with the aim of winning more bets that losing. Poker pros have the means to re-enter big-dollar tournaments if they bust out early. Online, poker pros will often play up to ten or more tables at time.

Non-gamblers tend to be skeptical of claims that there are winning wagering strategies. Casino games have a built-in house advantage and many so-called “systems” that promise untold winnings indeed are rubbish. Hence, goes the logic, anyone who consistently wins at a gambling game must be cheating. This thinking was reflected an article in TheStreet, which partly looked at the case DraftKings employee Ethan Haskell, who was accused of using company proprietary information to win $350,000 on rival FanDuel’s site. Although a later investigation found Haskell did not have any inside knowledge when he entered the contests, TheStreet doesn’t limit its accusation of cheating to the use of inside data. Rather, from the article’s title on down it treats any use of statistical data in DFS as unfair.

This kind of math -- and having the knowledge necessary to apply it -- is what allows someone like Haskell to waltz to victory by being "smart" enough to pick a seemingly random assemblage of players the average competitor might not expect. 

Despite the paternalistic claims of some, DFS players know (or should) that to be successful they can’t just rely their gut and numbers from last night’s box score. As with poker and conventional sports betting, there are numerous books and web sites that teach the basic knowledge and skill sets needed to win consistently at DFS. Here’s an example from one such web site:

Research and Resources

This is probably the step most dreaded and ignored component to winning. Players ignore or forego it, because it takes time. However, this step can be really fun and challenging. It's like a treasure hunt to find the best talent at the best value. It's up to you to find the metrics and advantage over your opponents. This step is an integral piece to winning long-term. If you just want to have fun and lose money, skip this step and pick your favorite players without looking at matchups or statistics. However, if you want to win money on fantasy leagues, do your research, create and improve your process over time.

Sites like these, of course, are where a DFS player should start. Results will depend on how well he or she can apply these lessons, match contests to their skill level, manage a bankroll and remain disciplined.

As Michelle Minton and I argue in a new Competitive Enterprise Institute paper on gambling policy, it should be up to DFS operators to decide what limits to put on players regarding use of algorithms and scripts. It is counter to DFS operators’ interests to have an overwhelming percentage of winnings flow to an elite group of players—a problem that plagued on-line poker. Yet the operators, not the government, are in the best position to determine the degree they need to offset any advantage skilled professional gamblers have.

We can agree that government regulation of DFS should create safeguards against fraud, prevent underage players from playing and ensure proper geo-fencing is in place to prevent access from states where it is illegal to play. Assuring fairness means making sure that the same rules will apply to all players. The enjoyment of DFS competition comes from matching one’s skills against another—just like other skill-based gambling games like poker and baccarat. In this case “fairness” does not mean micromanaging game play to the point where skill becomes an insignificant component. That’s not the type of game DFS is.