Fantasy Football: Harmless Fun or Unregulated Illegal Gambling?

Sometime coaches bench players who are healthy, to save them for next game or punish them for violating team rules. Does he have a grudge against the opposing team that would motivate him to play better than usual? Is the player unhappy and trying to get traded? Obviously, no amount of skill enables you to get inside the head of a player, so all of this information is left to chance.

Like penny stocks, which are very risky but have huge potential for returns, some football playersare considered”flyers” in that they are long shots, not likely to even play. The participants select their team rosters in an imaginarydraftin which allNational Football League(NFL) players are available. There are no external systems in place to prevent fraud or insider trading, other than the internal controls implemented by the fantasy football operators themselves. Some claim it is online gambling, which is illegal in most states[5], while proponents claim it is a game of skill[2]. But these long shots can pay off in a big way. Many rules and regulations are in place in the world of stock trading to prevent traders from benefiting unfairly from insider information. According to the New York Times, an employee ofDraftKingsused insider information to make bets that earned him $350,000 onFanDuel.[1]

Speaking of weather, what will the weather be like at game time? Some players don’t like playing in foul weather. This can happen when an unknown player gets a chance when a starting playeris injured. If you know a player is hurt before it becomes public knowledge, you have an edge. Or your player’s team might get behind early in the game and abandon the run for the pass, which can get you points quicker. Some coaches don’t like to disclose the health of their players because it could give other teams an advantage. Predicting such events is difficult, and arguably impossible.

As with stock trading, access to information in fantasy football gives you an edge. You win money by betting on (buying or drafting) players you thinkare undervaluedwho then prove your judgement correct by doing better than expected (catching more passes, gaining more yards, scoring more touchdowns). Or the other team might have injured players and be forced to play second-string defensive backs, which your player’s team decides to exploit by focusing on the pass instead of the run. If nothing else, as a player you should go into it with eyes wide open. Common sense tells you that with the large amount of money at stake, valuable informationwill be leaked. Perhaps they are trying to become entrenched before regulators catch on. You make money by buying stocks in companies that outperform expectations. They have a value, but unlike stocks, their value is not determined directly by the market, but by bookies – the operators of the fantasy football websites.

What is the player’s psychological state? Did the player have a fight with his girlfriend the night before the game. If a player is in unusually high demand one week, which indicates he isunderpriced, the game operators likely adjust his priceupfor the following week. In any event, predicting the weather at game time is difficult because you usually have to pick your players several days before the gamesare played.

Conclusion

Stock trading is heavily regulated and yet scandals and fraud occur with regularity. The fact that the operators can manipulate the price of the players makes fantasy football distinctly different from stock trading, and more susceptible to fraud. Here are just some of these factors:

By Paul Cutler from Chaska, USA (IMG_0954.JPG) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

What is Fantasy Football?

Fantasy footballis a popular role-playing gamein which participants pretend to ownprofessionalfootballteams. They know they have a short window of opportunity. Sometimes the opposing team might decide to focus on stopping the run that week and instead force the other team to pass. Teams must report when NFL players are injured. In snow and rain, teams usually run more than they pass and attempt fewer field goals. But, let’s try to be more subjective. This article concernsdaily or weekly fantasy football that is most often associated with the large operators FanDuel and DraftKings. It is comparable to stock market operators setting the prices of stocks, instead of letting the market directlydeterminetheir value based on supply and demand.

Sample Fantasy Football Team (espn.com)

Fantasy Football and Stock Trading

In fantasy football, players are like stocks. Almost 75 million people will play this year and spend almost 5 billion dollars.[3]

Is the matchup favorable? This is a an area where you might think that your skill comes into play. In fact, FanDuel and DraftKings probably know this, which might explain why they have been in an all-out marketing blitz, reportedly spending $150 million in advertising in just 3 months[4]. Otherwise, it is just luck. Or an injury could happen during the game on either side that completely nullifies the favorable matchup. First, fantasy football is not regulated. They are not always true. So unless you are an insider, you likely don’t know the true health or status of any player, regardless of your skill.

Fantasy football is controversial. Participants earn points based on the performances of the players in real-world football games.

Fantasy football is a big business. The outcome of all theses nuances is not predictable, much as the weather two weeks from now is not predictable with any accuracy.

So while fantasy football and short-term stock trading are similar, they have some important differences. An instructive way to frame this debate is to compare fantasy sports to a similar pursuit in which you make “bets” about the near future using limited funds: short-term stock trading. It does not concernseason-long fantasy football, which usually has a nominal cost, is played among friends, and has fewer legal problems.

Players are either fairly valued,overvalued, or undervalued. The same principle applies in stock trading. Second, in fantasy football, “price” is not set directly by supply and demand in the market, as is the case with stocks. Player pricesare setby game operators, who use supply and demand todecidepricing, but indirectly. Finally, as shown here, arguing that these contests are games of skill is dubious. Given that fantasy football is much less regulated, and given the large amounts of money involved, you should expect shenanigans. But they are not required to do so. Is a player healthy? This information appears to be readily available. Players must trust that the fantasy football operators are trustworthy and that information about player health, pricing, and team strategy is madeavailable publicly, and not leaked to a select few for financial gain. In fantasy football, there are nosuchsafeguards. In fact, this has already happened. But players often hide or downplay injuries. If you are playing a running back and you know that the opposing team is weak against the run, you might have a favorable matchup. I am not suggesting you should not play, but don’t bet the farm and don’t be fooled into thinking it is a game of skill.

. This makes them inexpensive. But reality is far more complex. Thiscan beproblematic. Personally, I consider fantasy football to be a game of skill if I win. But, these are just generalities. They increase sales and profits more than expected, which causes traders to bid up their stock price.

www.fanduel.com (FanDuel Logo)

Game of Skill or Chance?

Now let’s look at the argument that FanDuel and DraftKings run games of skill. To be a skillful fantasy player, you need to understand all the factors that influencehow well a particular player might perform. Think Enron, Martha Stewart, boiler room operations, etc