Despite New York Attorney General Eric Schneiderman's declaration this week that daily fantasy sports (DFS) is illegal gambling, millions of consumers will field their fantasy NFL teams this weekend.
The battle over DFS and whether it is a game of skill or chance will likely go on for some time. In the meantime, millions – maybe billions – of dollars will change hands.
Money may, in fact, be the root of the controversy.
The two major DFS enterprises, DraftKings and FanDuel, bring in an enormous amount of money from players, and they spread it around. The two companies have inked deals with professional sports leagues and this year they became the largest advertisers on network television, eclipsing even brewers.
Too many ads?
After Schneiderman's broadside this week, ADWEEK speculated that DFS enterprises may have made themselves a target by spending too much on advertising.
“DFS companies have been launching ads at sports fans from every direction,” ADWEEK reported. “Basically, every major American sports venue is covered in signage. Segments are sponsored on ESPN, the NFL's RedZone Channel, and anywhere else sports is discussed on TV. There are also podcasts, radio shows and digital banners promising 'real money' for winners. DraftKings even plasters the PATH train that connects New Jersey and New York."
But is it a case of states seeing all that money and cynically reaching for their cut, or has the extremely high profile DFS has achieved awakened regulators who are suddenly asking, “Hey, why isn't this considered gambling?”
What happens next will likely depend on whether DFS' current exemption under gambling laws as “games of skill” holds up. Recently interviewed by CNBC on the subject, Hall of Fame quarterback Joe Namath wasn't buying the "game of skill" argument.
“Do they have to pay something to play?” Namath asked. “And do they win something? It's gambling.”
Let's take Namath's questions and apply it to professional golf. A pro golfer pays a small fee to enter a tournament, in hopes of winning a large cash prize.
But no one thinks that's gambling because the pro golfer is counting on his skill to put him in the money. So the question should be asked – are people who play DFS in the same league, in terms of skill, as professional golfers?
How about poker players? Winning at poker inarguably requires a large amount of skill, yet it is classified as gambling. More than likely, these questions will be decided in court.
Meanwhile, Congress is about to get involved. Rep. Frank Pallone (D-NJ) says the Energy and Commerce Committee will hold hearings, especially since the Federal Trade Commission (FTC) has said it has the authority to investigate the industry. And Pallone says he thinks any probe should go beyond DraftKings and FanDuel.
“The legal ambiguity surrounding the industry and its relationship with professional sports makes this issue ripe for Congressional review,” Pallone said. “As we prepare for a hearing, it will be important to hear from the FTC about what it would need to enact regulations on the industry.”
Pallone suggests any regulations also cover the conduct of the major professional sports leagues and their personnel, many of whom, he says, have financial interests in DFS.
Pallone and Sen. Robert Menendez (D-NJ) held a news conference last month outside MetLife Stadium to call attention to what they called “the hypocrisy of the professional sports leagues” in opposing sports betting while supporting daily fantasy sports.