Category Archives: gambling

Arizona Legalizes Sport Gambling

Followers of my blog will know that I support the legalization of gambling, including wagering on sports. So I was excited to learn this morning that the governor of my state (Arizona) signed into law a bill that legalizes sports betting. The bill also includes daily fantasy sports and other forms of fantasy sports wagering. This site has a good summary of the legal changes.

Some of my blog posts on sports, gambling, and fantasy:

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Outside the Studio: Sports Betting

I had a fun conversation with Matthew Blittner, Daniel Green, and Walt Bonné from the Outside The Studio radio show/podcast on Friday. We talked about how the perception of sports betting has changed over the last few years and what some of ethical implications of the legalization of wagering on sports are.

The podcast is available on Apple, Spotify, and elsewhere: https://www.podomatic.com/podcasts/outsidethestudio/episodes/2021-02-12T14_21_55-08_00

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I’ll Take That Bet: Gambling and Sport

I am not a gambler: I rarely, if ever, make a ‘friendly’ bet on a game. And it’s been over a decade since I was in Las Vegas and made any kind of legal bet. I don’t even make out NCAA brackets.

This is not for any moral reasons against gambling, I just don’t like to lose money. Indeed, gambling in itself seems morally unproblematic. The moral arguments, such as they are, against gambling are rather weak and tendentious. It is true that many religions have prohibitions against gambling, and so the religiously observant might regard the failure to obey such prohibitions as a vice. But that puts gambling, in my mind, in a similar position to bacon (mmmmm bacon). Observant Jews and Muslims might regard the eating of bacon as a violation of their religious commandments and that violation an immorality of sorts, but bacon itself seems beside the point. It is the keeping of the religious commandment that is important (and the failure that is regarded as sinful). Those who do not keep kosher or halal are not immoral for eating bacon.

Like many otherwise innocuous activities, there can be harmful consequences to overindulgence or dependency (again, bacon is a good analogy here). Behaving irresponsibly or impulsively seems to be the cause of the problem in such cases, not gambling as such. I don’t want to trivialize the negative consequences for those with gambling problems. The response, though, should not be moralizing, but psychological. We ought not to turn those people into “sinners” or criminals, but work to help them solve their problems.

Much like arguments for the prohibition of other ‘vices’ like drinking or sex, the arguments against gambling are most often based on a supposed link between gambling and the debasement of one’s moral character. Somehow gambling itself turns us into bad individuals, encouraging the uglier parts of ourselves. I am skeptical of such a causal link in part because it ignores any difference between use and abuse. That is, sex, drugs, gambling can all be abused and engaged in with harmful and deleterious effects. But they can also be used in unproblematic and beneficial ways. Given how long these sort of ‘vices’ have been a part of human civilization and how many people casually partake in them, it’s hard to believe the “abuse” should be the dominant paradigm here.

Gambling and Sports

The issue of gambling and sport is more complicated. Whatever the status of the moral arguments about individual gambling, there are real worries about the integrity of sport. There is great concern that gambling interests would interfere with and corrupt games. Fears of match-fixing, shaving points, and broken knee-caps abound. These are legitimate and well-founded concerns. There is a history of such activities in the US and around the world. No fan of sport wants that.

Aside from important legal and jurisprudencial issues resulting from the recent US Supreme Court decision in Murphy v NCAA, there will be a radical change to the relationship of the professional leagues and gambling. As more states will likely follow New Jersey and legalize sports gambling, the leagues will find ways to profit from gambling. The most obvious and likely immediate source of revenue will be advertising and co-branding, but there is no doubt that they are working on other creative ways to tap into the gambling dollars.

As the US moves forward with what will likely be a huge increase in legal betting, it is important to maintain the integrity of the leagues and games (and kneecaps).

There are a few main reasons why I think legalization will not undermine the integrity of sport.

First, the leagues do not want to be seen as turning into the WWE. Any whiff of fixing or seeming appearance of interference will be met by the leagues harshly. The have strong incentives to keep such interference out.

Second, legalized gambling is run by casino and gaming companies, not mafioso and gangsters. Steve Wynn is not Michael Corleone. There is little reason to watch or gamble on a sporting event that is fixed, so these businesses have a strong incentives to keep at arm’s length from the games themselves. The cynic might say: at least appear like they are arm’s length. But the easiest way to appear as though one is not interfering is not to interfere. And in most cases, the house wins regardless of the outcome of the game so there is little point in trying to interfere. In other words, the payout for such interference is not worth the risk.

(an aside: there will be individual actors for whom the payout is worth the risk. Such individuals already exist and take that risk today. If anything legalization will further marginalize these individual actors as they get pushed aside by legitimate organizations.)

Lastly, legalization reduces hypocrisy. Captain Renault is not the only one shocked to find gambling going on. Illegal gambling of all kinds is widespread and persistent. Anyone who wants to gamble can easily, I assume, find a bookie and place a bet. Betting odds for games are widely reported on all major media outlets. The hypocrisy of the current system does far more to undermine morality and respect for law than threats posed by legal gambling.

While I think gambling should be legal, I also think that strict fraud regulations should be enforced. Anyone in the leagues involved in any match-fixing or other gambling interference should be held liable and prosecuted for fraud. Since these individuals hold a kind of trust from the fans, sponsors, and others that they aren’t going to fix games or the like, then violating that trust is the violation of a kind of fiduciary duty. The violation of this duty might then lead to the violator being civilly or even, in egregious cases, criminal liable. This is one way to help keep such interference limited.

Be it drugs, gambling, prostitution, or alcohol, prohibition doesn’t stop the behavior it is prohibiting. It merely pushes it into the shadowy darkness of a criminal underworld. Most of the harmful consequences of these activities are caused by the illegal status, not the activity itself. In general, then, sunlight is the best antiseptic for corruption. Transparency of law keeps things above board and away from the criminal organizations. Of course, legalization is not a panacea. There will be problems. But legal sports betting is better than illegal sports betting. The problems can more easily be identified and dealt with—and without breaking kneecaps.

 

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Daily Fantasy, Gambling, and Sports

In the recent ‘scandal’ surrounding Daily Fantasy (DFS), it is frequently referenced as ‘gambling’. So one question in all this, is Daily Fantasy gambling?

Legal Definition

As in many such discussions, a large part of the issue depends on the definition. In this case what do we mean by ‘gambling’? Most states, and the federal government, use what is often called the ‘dominant factor test’. Essentially, the test is whether the outcomes of the game are more due to chance or due to skill. In general, if you can see players with greater skill winning the game more often than non-skilled players, that’s a good sign that the dominant factor is skill and not chance. Thus, such a game wouldn’t qualify as gambling under this description. (I want to thank the panel at ISLE symposium for the legal background.)

Fantasy (including Daily Fantasy) does seem to show that skill plays a large and dominant part in winning, rather than chance. Luck and chance play a role (e.g. players get injured), but a fantasy player’s knowledge and skill in drafting and building lineups is much more significant.

There are some states, including my own (Arizona), that don’t use this test and have a lower bar for considering something gambling. Thus Daily Fantasy is illegal in Arizona. (The other such states where DFS is illegal: Arkansas, Delaware, Iowa, Louisiana, Michigan, Montana, Tennessee, and Washington).

Common Usage

But beyond the legal definition, we might wonder what gambling means in more common usage and if daily fantasy fits that.

If we mean just any situation where you take a big chance, where you put something of significant value at risk, then a lot of things are ‘gambling,’ including fantasy. But so, it would seem, is the primary game of football itself. People use the term ‘gambling’ in ways like this all the time (I’m taking a gamble on taking the job offer in Austin over the one in Dallas), but this is not helpful in understanding the phenomenon at issue. We need to put aside these metaphorical usages and narrow our focus.

Gambling, then, usually refers to games where:

(1) The value at stake is financial or material (as opposed to an emotional value like pride or enjoyment).

(2) The role of chance is significant in the outcome. This is not just that the outcome is unknown but that chance plays a role in determining the outcome (e.g. roll of the dice, a random number generator, or the deal of the cards). It also means that the player is passive in terms of the outcome; that is, there isn’t anything they can do to affect the outcome.

(3) There is some financial/material prize for winning.

If I am correct, Daily Fantasy is not gambling because it fails #2. Namely, the main cause of winning is how one uses his or her skill and knowledge to create a line up. Chance plays a role, but the players are not passive. The more skill they have and the better they employ it, the better their chances of winning.

Paraphrasing Jerry Seinfeld, not that there is anything wrong with gambling. That is, even if DFS were gambling, I don’t think that matters from a moral perspective unless we have a prior argument that gambling is morally problematic. I don’t think we have such an argument. It matters, certainly, from a legal perspective given the current prohibitions in most states against gambling. (Prohibitions with which for the most part I disagree.)

Gambling and Sport

That said, the concern about gambling and sports is that there is big money at stake in gambling and the potential for, or even just the appearance of, corruption or interference in the game itself. There is, I think, a similar concern with daily fantasy. The professional sport leagues need to be careful here in working with fantasy companies. First, they need to make sure there isn’t any corruption going on. They need to have transparent and clear safeguards to prevent undue influence between the fantasy and the real games. Second, they need to make sure there isn’t even an appearance of anything corrupt. The same goes for the DFS companies themselves: the appearance of corruption is almost as damaging as actual corruption.

I don’t think there is a concern with the kind of marketing agreements between the leagues and the fantasy companies that we are seeing. The KC Royals have an official daily fantasy sponsor, but the sponsor doesn’t lose or gain anything depending on the Royals’ performances. So there is no real worry about the daily fantasy company trying to manipulate the game in the way a gambler might try to get a player to shave points or throw a game. The fantasy companies earn money by people participating, not according to the performances of a player/team.

But there could be concerns about players, coaches, officials, or others who can impact the outcome of games. They might have something personally at stake and use their position to manipulate the game so that outcome is achieved and they win. It might be best to prohibit or, in the case of the NFL, limit the participation of these individuals in such games. This wouldn’t be too dissimilar from a radio station employee not being eligible for the station’s contests. It prevents even the appearance of corruption.

The DFS scandal

Similar, the recent scandal involving DraftKings and FanDuel seems more about the appearance of corruption than actual corruption.

The information released, though not trivial, doesn’t strike me as the significant advantage that some have painted it. As I understand it, the information showed the percentage of players owned. Knowing what other players are owned can figure into your calculations about whom to start (in order to differentiate your team from the other teams). Nevertheless, I think most knowledgeable fantasy players probably have fairly good intuitions about this anyway. They won’t have the exact numbers, of course, but most will know, for example, that a good chunk of people are going to have Aaron Rogers as QB. Knowing the exact number doesn’t seem like it is going to make that big a difference. Still, it is not irrelevant or trivial information and safeguards (or at least better safeguards) should be in place regarding this information.

The real worry here is not the leaked information. It is that individuals at the company have access to this information when it is non-public and could, it seems, act on it. That seems like an unfair advantage (though we could quibble about that) and so people are concerned that the insiders at DFS companies could use this information to dominate leagues. Again, we could quibble about the fairness, appropriateness, or effectiveness of this. Nevertheless, the appearance that so-called insiders could be taking advantage of the market undermines the trust between players and fantasy leagues. So even if nothing untoward is actually going on, it is still damaging to this relationship and needs a transparent fix. The obvious fix seems to be, similar to the NFL limitation, a contractual prohibition or limit on playing DFS for individuals with access to this non-public, advantageous information. Companies that do not fix their trust dimension will lose out in the marketplace.

Regulating DFS

I don’t play DFS (mostly because it is illegal in AZ). But I think it is an exciting and dynamic industry. It highlights how markets can respond to individual tastes and desires in unforeseen and creative ways. What I fear from this situation is that lawmakers and regulators will come in and in the name of consumer protection or some such thing, kill or weaken this growing market. This situation certainly shows that the industry needs to make some changes as it matures. Competition and consumers should drive those changes and will do so in ways we can’t predict, finding solutions to problems in fitting and creative ways. Government regulations, on the other hand, will tend to hamper and prevent such dynamism; imposing one-size fits all, costly rules. The likely outcome of government regulation of DFS, based on what normal happens in regulated industries, is the cartelization into a few dominant players (instead of today’s dynamic and growing field of competition) and the locking in of current practices and standards (instead of seeing ingenuity and development of new more effective and appropriate practices).

Lastly, if I had to gamble I would bet (see what I did there?) that the main forces driving the ‘regulate DFS bus’ are those connected in some way to the heavily regulated gaming/gambling industry. DFS is a competitor and this would be an easy way to weaken it. (One might compare this to Uber and the taxi companies—the same phenomenon seems to be at work there: a dynamic new business is threatening the old way of doing things, providing greater choice and options to meet individual desires and needs in unforeseen ways.)

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