In Las Vegas, cheating at the gambling tables can swiftly send you to jail. Yet in the world of fantasy sports betting, major companies are cheating and getting away with it: They are edging out rising competitors rather than playing fair. Their accomplice in this endeavor? None other than state legislatures.
The online fantasy sports betting industry is experiencing tremendous growth, with 2023 revenues in the U.S. alone exceeding $10 billion. Fans of live sports have become used to the constant flow of advertisements for the leading online sports betting companies, like DraftKings and FanDuel, during commercial breaks. All this growth shows potential competitors there's money to be made in the online sports betting market.
In July 2023, the Sports Betting Alliance, a lobbying group representing DraftKings, FanDuel, and other industry leaders, asked Wyoming's attorney general to classify certain fantasy sports games as outright gambling activities. A few months later, the state issued cease and desist orders to local competitors. From Michigan to New York, at least eight other states have taken similar actions or are contemplating such measures and more states may follow suit.
Their lobbying efforts are largely centered on having the states classify pick'em fantasy sports games—where users predict the winners of a series of matches—as games of chance (classified as gambling), rather than games of skill (not considered gambling).
Legally, not all gambling is the same. Federal and state laws differ on the legality of online betting. Typically, online gambling in games of pure chance is illegal; while online gambling in games of skill may or may not be legal. The decision depends on state legislatures.
A good way to tell the difference between games of pure chance and games of skill: Studying can make you better at one but not the other.
There is little difference between the fantasy sports contests offered by DraftKings and FanDuel and the pick'em contests of their emerging competitors, such as PrizePicks and Underdog. In both, participants predict the performance of players, but the core mechanics vary slightly between choosing players based on statistical performance or predicting their performance relative to a benchmark set by the companies. Success in both pick'em or DraftKings' and FanDuel's primary contests involves a little bit of luck—as do most games of skill. But unlike a game of pure chance like roulette, these games offer players an opportunity to leverage their knowledge and predictive abilities on player and team performances.
Years ago, brick-and-mortar casinos lobbied to ban online fantasy sports, viewing them as a direct threat to their businesses, similar to how online retailers challenge big-box stores. But now, the Sports Betting Alliance is using the same legal playbook that once threatened its operations against its smaller competitors.
Predatory lobbying is the ugliest form of what business experts call "nonmarket strategy"—trying to gain market advantage outside of market mechanisms. Businesses naturally dislike competition; most businesses would prefer to be a monopoly, even if it means stifling innovation and consumer choice. More competition, after all, means lower market share, revenue, and prices. Often, CEOs know that the best way to compete is not to compete at all, but instead get the government to outlaw competition. They will advocate for regulations or taxes under the guise of public interest when, in fact, they aim to benefit themselves.
State-imposed bans on online fantasy sports betting will not eliminate these games. Instead, they will ensure that companies such as FanDuel and DraftKings enjoy a duopoly on online sports betting in the United States. When states prohibit competition, they only funnel consumer spending toward industry giants. They are being played for suckers.
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