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Sports Leagues Have a Huge Bet on Daily Fantasy

Kavitha A. Davidson is a former Bloomberg View columnist.
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Daily fantasy sports sites DraftKings and FanDuel are coming under fire -- and not just for their barrage of annoying television ads

Representative Frank Pallone of New Jersey is requesting that the House Energy and Commerce Committee review the legal status of the sites, which some argue fall in a murky area of sports gambling. Under the Professional and Amateur Sports Protection Act of 1992, sports betting is prohibited in all states except Delaware, Montana, Nevada and Oregon. But in 2006, the Unlawful Internet Gambling Enforcement Act created an exception for fantasy sports, defining them not as a game of chance, but a game of skill. The language is short and extremely vague, providing little framework for determining just how, exactly, such "skill" is assessed.

The Internet gambling act's fantasy sports exception, having passed before daily fantasy was a thing, raises big questions when it comes to sites such as DraftKings and FanDuel. It attempts to distinguish between fantasy and, say, betting on point spreads by stipulating legal fantasy sports to be "determined predominantly by accumulated statistical results" of athletes, and not based on a single player's performance or the outcome of a single game. Pallone argues that daily fantasy is no different than traditional sports betting, in that fans bet on different lineups each day and can even bet on single events, such as golf tournaments. 

Daily fantasy's exception seems especially hypocritical on the part of the professional teams and leagues that have invested in these sites while historically opposing legalization of all other forms of sports gambling. In July, DraftKings secured a $300 million funding round that included investment from Major League Baseball, the National Hockey League and Major League Soccer, as well as the Madison Square Garden Company, which owns the New York Knicks and New York Rangers, and Legends Hospitality, a joint venture by the New York Yankees and Dallas Cowboys. That came after FanDuel announced its own $275 million round of Series E financing that included investment from the National Football League and National Basketball Association. As of July, the company has exclusive partnerships with 16 NFL teams and 13 NBA teams, while DraftKings has deals with 27 MLB clubs -- because we all know how seriously baseball takes gambling.

That said, some of the leagues are starting to evolve on the issue of legal gambling, and perhaps their investments in daily fantasy sites indicates this shift. NBA Commissioner Adam Silver has taken the biggest leap among the four major leagues, coming out in favor of federally legalizing sports betting. MLB Commissioner Rob Manfred, whose league arguably has the strongest aversion to gambling, has acknowledged how society's views on gambling have evolved and is open to "fresh consideration" of baseball's official position on the issue. NHL Commissioner Gary Bettman has somewhat waffled on the subject, seemingly resigned to the inevitability of legal gambling while remaining concerned about its effects, to which he thinks hockey would be less susceptible than higher-scoring sports such as basketball and football. And NFL Commissioner Roger Goodell has stayed staunch in his league's opposition to legalization. Whatever changing tide Silver et al's evolving position on the issue signals, NFL spokesman Brian McCarthy has said it "doesn’t change our stance that has been articulated for decades: no gambling on NFL games" -- that is, apparently, unless you're gambling through fantasy sites partnered with NFL teams.

Even with statements like those by Silver and Manfred, the leagues have repeatedly banded together to block attempts to ease restrictions on sports betting under the 1992 sports act, most recently by New Jersey Governor Chris Christie. And that's where things get interesting: In January, Pallone and fellow New Jersey Congressman Frank LoBiondo -- who represents Atlantic City -- introduced two bipartisan bills that would allow other states to gain exemptions from the law. So while most commentators have framed Pallone's hearing request on fantasy sports as a "major legal challenge" to the industry, he's also demonstrated a favorability of some broader form of legalizing sports betting. It's entirely possible, then, that his request is meant to better define what constitutes legal fantasy sports gambling with an eye toward eventual, wholesale legalization.

At least that would keep the leagues honest when it comes to their selective morality over gambling, instead of allowing them to cherry-pick exactly when legal betting poses a threat to the "integrity" of their game.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Kavitha A. Davidson at kdavidson19@bloomberg.net

To contact the editor responsible for this story:
Tobin Harshaw at tharshaw@bloomberg.net