By Barry L Ritholtz, Bloomberg View<\/p>\n
\tAs they say in poker, If you\u2019ve been in the game 30 minutes and don\u2019t know who the patsy is, you\u2019re the patsy.
\n\t\u2014 Warren Buffett<\/p>\n
\tBy now, you may have heard about the insider trading scandal at the two biggest fantasy sports companies. DraftKings employees, based on the bets they saw laid down by their clients, made a killing at competitor site FanDuel.<\/p>\n
\tLet\u2019s get one thing out of the way: This isn\u2019t insider trading, at least as it\u2019s commonly understood. These aren\u2019t trades based on material nonpublic inside information about publicly traded companies. These look to my eyes more akin to one bookie laying off bets on another.<\/p>\n
\tThis black eye aside, fantasy sports is becoming a very big business. Family friendly Walt Disney Co. invested $250 million in DraftKings earlier this year; the fantasy sports site then raised another $300 million, led by Twenty-First Century Fox.<\/p>\n
\tThere is now a Fantasy Sports Trade Association, and that means lobbying dollars are not very far behind.<\/p>\n
\tHere\u2019s how I look at it. There are two big issues: 1) Is this gambling?, and 2) Is this a sucker\u2019s bet? There is a technical debate about the former question; there is no debate about the latter.<\/p>\n
\tLet\u2019s try to answer whether fantasy sports (professional football dominates the business) is a game of skill or chance? The answer is somewhat nuanced, as we will see below. There are some consistent winners, and that implies there is some skill involved. But there\u2019s a counterargument is based on a simple question: \u201cCan you lose on purpose?\u201d If you can\u2019t, then it\u2019s a game of chance and not skill.<\/p>\n
\tJust by way of background, if you thought online gambling was illegal in the U.S., you are correct. The 2006 Unlawful Internet Gaming Enforcement Act(UIGEA) did away with online poker, and other such games. But a technical loophole created an opening for a fantasy sports exemption. In short, the way the companies get around it is that participants don\u2019t bet on the outcomes of real games; instead, participants assemble imaginary teams made up of real players whose actual statistical performance is crunched to come up with a point total.<\/p>\n
\tTimothy Fong, associate clinical professor at the University of California-Los Angeles Gambling Studies Program is one of America\u2019s foremost researchers on fantasy sports. Fong scoffs at \u201cthe notion that fantasy football is a skill-based game and thus exempt from larger gambling concerns.\u201d It\u2019s not, he tells The Kernal, in a recent interview, where he observed:<\/p>\n
\tVery simply, it\u2019s gambling\u2026It\u2019s putting money on an event with a certain outcome in the hopes of winning more money.<\/p>\n
\tTo call it anything else is really just not accurate. That link hasn\u2019t really been made by the players and the public\u2014that what I\u2019m doing is no different than playing blackjack or craps or betting on sports in Vegas casinos.<\/p>\n
\tAlthough the legal issue about whether these games should be allowed to exist was settled by statute, perhaps the better question is, Should you bother playing?<\/p>\n
\tThe simple reality is that for the vast majority of participants, it\u2019s a losing deal. But that doesn\u2019t mean everyone loses. There is a small dedicated group of players who consistently win: An analysis by Rotogrinders \u2014 which bills itself as \u201cThe Daily Fantasy Authority\u201d \u2014 conducted for Bloomberg Businessweek \u201cshows that the top 100 ranked players enter 330 winning lineups per day, and the top 10 players combine to win an average of 873 times daily. The remaining field of approximately 20,000 players tracked by Rotogrinders wins just 13 times per day, on average.\u201d<\/p>\n
\tIn other words, 99 percent of the participants in fantasy sports are the patsy at the table.<\/p>\n
\tIn some ways, most players aren\u2019t all that different from amateur stock-market traders. Almost all of them get their clocks cleaned by the professionals. Between the high-frequency outfits and better capitalized and more knowledgeable traders, virtually all the rookies get walloped. But here\u2019s why people keep trying: A minuscule percentage manage to go on to have terrific, lucrative trading careers.<\/p>\n
\tIf you are interested in wagering on fantasy sports, I have one piece of advice for you: Don\u2019t kid yourself about who probably you are.<\/p>\n
\tThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.<\/p><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
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