By now, those of us who maintain a steadfast interest in sports are probably familiar with the recent scandals surrounding fantasy sports websites DraftKings and FanDuel. These companies run online games in which players are effectively betting money on the performance of athletes on a given day (or, in football, a given week). Before ESPN dropped their ads, these sites advertised quite aggressively on television.
These commercials featured average Joes who won money from their sports betting, with awards ranging from less than $100 to over a $1 million. However, the cozy, profitable and relatively regulation-free world of daily fantasy has come crashing down. The FBI launched an investigation into the companies, discovering that employees of these sites were allegedly using insider information to build their rosters. Also unveiled was the unfortunate reality that the seemingly typical Americans who had won millions of dollars featured on commercials were actually full-time professionals who used computer programs to set dozens of lineups at once. In fact, nearly all of the winnings in the entire system were going to a handful of professionals. A study in Sports Business Daily found that 91 percent of the winnings were won by only 1.3 percent of players and that the top 11 individual players paid an average of $2 million in entry fees, accounting for 17 percent of all fees the sites accrued. These players only netted an average of $135,000 in winnings.
So daily fantasy sports has proven a poor investment and is essentially illegal. Everyone knows this. The question arises as to where I am taking this column. The answer is to another form of what I consider to be casual online gambling.
I would like to introduce you to the dubiously named online phenomenon known as prediction markets. If you do not get the same ads on Facebook for PredictIt that I do, you probably do not know what these so-called markets are, nor how they function. Basically, I can predict (read: place a bet) that an event will happen (at this time most predictions center around politics). The company then takes all of the people who bet like me and all of the people who bet the opposite and groups us into a “market.” All of the money is then distributed to whichever side gets it right. These companies masquerade in the language of financial markets by claiming that I’m buying a “share” of an event. For example, I can buy a “share” of Sen. Bernie Sanders winning the Democratic nomination for President of the United States. If he does, I will take all of someone else’s “share.”
This is in every way identical to roulette, except no roulette players would ever say that they buy a share of red or a share of black because they readily admit that what they are doing is gambling. Unfortunately, PredictIt, a leader in this field, has received a letter from the Commodity Futures Trading Commission (a government agency) promising not to prosecute, lending legitimacy to its use of words like “trade,” “share” and “market”.
Basically, if the government is going to recognize daily fantasy sports as gambling, as the state of Nevada has already done, then these prediction markets should be considered gambling as well. Traditionally, the law has allowed fantasy sports websites to involve “prize money” because the sites argue that the games fundamentally require skill.
Prediction markets require no more (and probably less) skill and effort than daily fantasy sports, as there are fewer statistics available for analyzing politicians than there are for athletes. Ultimately, the regulators truly need to think about whether or not these online games that award “prizes” can truly be considered something other than gambling.