Game Changer

Rethinking Online Gambling Regulation in the Age of Daily Fantasy Sports


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The rapid rise in the popularity of Daily Fantasy Sports (DFS), now a multi-billion dollar a year industry, represents a sea change in how Americans gamble and has rightly spurred a reevaluation of our gambling laws. The legality of non-sports online gambling was drawn out of its long-occupied gray area in 2011 by a Department of Justice opinion that paved the way for states to legalize and regulate certain forms of online gambling, as several have done. At the same time, it provoked opponents of expanded  ambling to push for a federal prohibition of online wagering. The fragile legal status of online gambling in general, and of fantasy sports betting in particular, has resulted in responses from lawmakers, state gaming regulators, and state attorneys general that range from embracing legalization and regulation to calls for outright bans.

According to the Fantasy Sports Trade Association, more than 41 million people played fantasy sports in the United States and Canada in 2014. In recent years, much of the growth in fantasy sports revenue has come from daily fantasy sites, with Americans spending roughly $3 billion on DFS each year.

The fantasy sports industry’s two largest operators, FanDuel and DraftKings, assert that DFS is not gambling because it is a “game of skill,” which puts it outside the purview of federal and state gambling statutes that regulate “games of chance.” However, many state attorneys general disagree and are taking action to prevent such companies from operating outside of states’ gambling laws.

At the same time, industry experts estimate that Americans spend upwards of $145 billion a year gambling on traditional sporting events. Most of this betting is illegal thanks to a federal law from the 1990s that disallows all but four states from regulating the activity. While these illegal wagers include innocent office pools and informal bets between friends, others are run by criminal syndicates and used to fund other illicit activities, including drug distribution and human trafficking.

The popularity of fantasy sports betting and the regulatory tangle developing around it demand a reassessment of gambling regulation in general, and online gambling regulation in particular. For years, online gambling sites simply recreated poker and established casino games like blackjack, roulette, craps, and slot machines, while offshore sites offered conventional sports betting. DFS, which has never been offered in a brick-and-mortar casino or sports book, owes its existence to the processing power and social networking scale the Internet provides. This, and the fact that the Internet creates virtual communities that can defy state lines and national borders, is forcing lawmakers to reevaluate the degree to which gambling can be regulated, how well prohibitions can be enforced, and whether the cost and resources needed to mount successful investigation and prosecution of illegal gamblers can yield any net gains in terms of community safety or health. Several states, including New Jersey and Pennsylvania, have taken steps to overturn the federal ban on sports gambling.

What kind of gambling regulations are best for America today? Why are online fantasy sports legal, while offline sports betting remains illegal? Should legal offline games, like poker or the lottery also be legal online? What would be the consequences of  legalizing or criminalizing online gambling? Should regulation be left to the states or to the federal government? This paper seeks to address these questions and provide a framework for regulating gambling in the age of DFS. While the DFS industry will likely accept regulation in return for a stable operating environment, such regulation must be wisely implemented to be effective, allowing competition and diversity in game selection, and incorporating consumer protection against fraud and theft.

Good policy begins by recognizing that gambling, whether on the lottery, at the casino, or betting online on the big game, is a legitimate means of recreation. Rather than enforcing subjective morality or trying to protect people from themselves, modern gambling regulation should treat citizens as adults, restore individual choice, protect consumers from crime, and preserve the right of states to regulate and profit from gambling activities within their borders.