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FanDuel and DraftKings are trying to use math to show they’re not gambling

FanDuel and DraftKings are trying to use math to show they’re not gambling


But do all the calculations add up — or even matter?

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Daily fantasy sports are like poker games. Or horse racing. Fishing, maybe. They could be like football games themselves, or closer to spelling bees. Maybe they're something entirely different.

Analogies aside, they're definitely one thing: in danger. New York state's attorney general has demanded that the two biggest operators of daily fantasy sports, FanDuel and DraftKings, cease working in the state, claiming that the sites are running gambling operations. (Fanduel has partially shut down; DraftKings hasn't, pending litigation.) Last week, at an emergency hearing ahead of a trial, the two sides presented the case for and against a shutdown, reaching for every comparison to make their arguments stick. Crucially, to qualify as gambling, daily fantasy sports have to be contests of chance — and the idea of "chance" is in dispute.

The idea of "chance" is in dispute

The basic concept of fantasy sports games, which have recently ballooned into a multi-billion-dollar industry, is simple. Users of the sites put down money on the outcomes of individual players' performances in a sport, and a combined points system tallies a winner, who's awarded a prize. That function isn't in dispute, but the New York attorney general's office and the two businesses have hotly debated exactly where chance ends and skill begins in that scenario.

"New York law is a little different than the law in many states," says Keith Miller, a professor of law at Drake University Law School with a focus on gaming law. In the state, the standard for determining when something is a game of chance is particularly low. The attorney general's office argues that, unlike many states where the law says contests must have chance be a "dominant factor," they only need to show chance is a "material" part of fantasy sports. The mechanics of the game — the chance events inherent in gambling on any sports game — are clearly gambling, they say. The fantasy sports businesses counter that they're so overwhelmingly contests of skill, they're more akin to a person paying an entry fee to compete in a tournament.

The stakes are high. Although New York law won't be applied in similar decisions for other states, fantasy sports are unlikely to see nationwide legislation allowing them to operate free of worry, meaning they'll have to win in state-by-state battles. The New York population is a major prize. And the question of chance will likely come up again and again as regulators in other states examine fantasy sports. In Illinois, for instance, fantasy sports businesses are being investigated under a law that defines gambling as a contest of "chance or skill for money or other thing of value."

FanDuel and DraftKings have marshaled mathematical support for the case, enlisting statisticians and using internal figures to meticulously categorize themselves as — at least prominently — games of skill.

FanDuel and DraftKings argue they're games of skill

The exhibits span hundreds of pages and cite figures like "sophisticated computer simulations involving DraftKings contests," all in an attempt to show that fantasy players work well beyond the realm of chance. The results are occasionally dizzying: one exhibit, from an outside statistician, logs win ratios and probabilities of success for dozens of "exceptionally performing clients." A report submitted as part of evidence suggests — loudly — that "it is OVERWHELMINGLY unlikely that the performance of any of the exceptionally performing clients... could be due to chance." The report says "this chance probability is SMALLER THAN WINNING THE MEGA MILLION OR POWER BALL LOTTERY MORE THAN TWICE."

"Although there is a chance component in certain DFS contests, DFS satisfies all the necessary and sufficient requirements for skill-based games in which the outcome does not depend in a material degree on chance," another statistician claims.

That evidence, however, certainly isn't beyond reproach. "People are finally looking at it a little more critically and analytically and it is not by any means clearcut," Miller says of the exhibits submitted by the fantasy sites. The attorney general's office dismissed the reports as having "obvious methodological flaws."

Lawyers for the fantasy sites pointed out that the attorney general's office hasn't supplied any statistics showing that fantasy sports are games of chance. But, according to the attorney general, it doesn't matter. The office has countered that, under state law, it only needs to prove that there is some element of chance involved in the games, to which it argues: of course there is. A tipped ball, or a player injury, or some other happening could all change the outcome in ways the fantasy sports player can't predict. Regardless of exactly how much this changes the outcome, it changes.

"It is not by any means clearcut."

New York law — unlike gambling in many states — outlaws contests if they rely on a "future contingent event": an event that's out of the control of the person laying down the money. A central dispute in the case is what that event is — the outcomes of the real games that fantasy sports revolve around, or the competition between other fantasy sports players, where the players have to strategize to outwit other players. (The fantasy sports sites argue that the way "chance" is defined by the attorney general's office could be applied to every competition with an entry fee, all the way down to spelling bees.)

As for the math being proffered by the fantasy sports sites, the attorney general's office called the evidence "a really expensive distraction." If only an element of chance is needed — and the state argues that's the case — then statistics saying fantasy sports are mostly, or even "overwhelmingly," contests of chance, are immaterial.

To further discredit the statisticians, attorneys for the state claimed that one statistician had previously been quoted as saying, "I can play both sides of this. If DraftKings wanted to hire me as an expert to prove that it is a game of skill, sure, easy to do. If Connecticut wanted to prove that it is a game of chance, easy to do." (It's unclear where the quote originated.) According to the office, another statistician cited by the fantasy sports sites once said, "Determination is difficult to make because there is no well-defined principal in mathematics or statistics that can be used to measure the precise influence that chance has over the outcome of a contest or game."

Moreover, the attorney general's office argues not only that the sites are gambling, but that the companies knew it. In one particularly embarrassing internal document, produced as evidence by the attorney general's office through a subpoena, DraftKings directly compares its size and growth alongside "the online betting and casino market." Similarly, a FanDuel document submitted seems to explain how players can use "Vegas lines," apparently a reference to betting technique, to improve their outcomes. (A FanDuel spokesperson said the company does not consider itself to be a gambling business but did not elaborate on the document. DraftKings did not respond to a request for comment.)

The judge on the case, hearing the shutdown request last week, declined to rule immediately, but said a decision would be forthcoming soon. Regardless of which way his decision goes, the statistics submitted will likely be the subject of a lot of testimony as the trial unfolds, Miller says — with an outcome too early to predict.