What are Fantasy Sports and how has the industry evolved in the last decade.
Many people have already heard of Fantasy Sports, and millions play it, but do you know how it works?
Fantasy sports might have started as an entertaining way of passing time, among many people, but has become a multi-billion dollar business, with a huge connection to real-life sports. To understand how a simple game became a huge industry, we have to dig a little deeper.
Curious? Let’s get started!
Fans put together a virtual team of real-life players. The players’ performance is gathered and compared to find out the team that has more points, and in turn, the team that has done the best. At the end of the season, the team with more points wins.
The manager of each team uses multiple websites and mobile apps to see how their teams are performing, and check all the statistics. They can create leagues with friends and co-workers, or even join public leagues hosted by those websites and compete against strangers.
According to STATS Inc. studies, there are 56 million North Americans playing Fantasy Sports:
- 19% are adult men;
- 9% are adult woman;
- 10 million are teenagers;
- 16% of the people that play have incomes of 50.000$ or more;
- 10% are people that earn less than 50.000$.
With these statistics, we can understand that Fantasy Sports are indeed a big business in the US, where a total of 18 million dollars are spent annually on this game.
The Daily Fantasy Sports is just an accelerated version of the traditional fantasy leagues previously explained.
In this new contest, the user commits to a team for just a day or a week and picks up players within a set budget called a salary cap. The big question here is, how to choose the best player for a team? Well, it’s all about strategy, although you can take advantage of a NFL lineup optimizer.
For example: if you pick a really good (as well as really expensive) quarterback, you don’t have as much money to spend on defense, if we talk about American Football, of course. You also need to think about special factors, such as possible injuries, and performances during the season so far - it is a prediction game, after all.
The roster you selected locks up once the game begins. In the end, winners are crowned! They could take home a couple of dollars or a couple of million dollars. Next week you can do it all over again, with new players.
The year was 2015, when daily fantasy sports became very famous across the U.S, and a huge discussion began regarding the regulation and classification of daily sports platforms - are they considered gambling or a game of skills?
For the general public, these websites look a lot like gambling platforms, such as online casinos. This is actually very easy to prove if we make two simple questions: Do you have to pay something to play? Yes. Do you win something with it? Yes - then, this is gambling.
This side of the debate has been more concerned since it was discovered that many leagues, teams, and networks have signed deals with these companies, mostly to increase audiences and investors.
However, the daily fantasy companies claim that their websites are “100% legal”, as they define themselves as a skills-based game. So, they refuse to define their business as illegal gambling, for they are just an “entertainment product”. Still, this is the main defense argument for these companies, alongside the statistics of the games and the lack of need for an algorithm to predict a certain outcome.
In 2006, the U.S Congress passed the Unlawful Internet Gambling Enforcement Act, which states that daily fantasy sports are allowed under federal law - this doesn’t say that daily fantasy is legal, it just says that they weren’t specifically illegal under that specific law, which means that each state gambling law will still apply. So, under this law, some states such as Arizona, Iowa, Louisiana, Montana, and Washington have banned daily fantasy sports at the time.
In more recent news, in October 2020, the Internal Revenue Service (IRS) declared the fees players pay to participate in daily fantasy are indeed gambling expenses. According to the IRS, “The amount paid by a daily fantasy sports player to participate in a daily fantasy sports contest constitutes an amount paid for a wagering transaction under Section 165 (d)” of the Internal Revenue Code. This means that the daily fantasy players that pay entry fees or have taxes applied to what they earn with the games, can be deducted from federal tax returns.
Now, daily fantasy sports are legalized in a way that makes them a gambling game in the eyes of the law. Arrangements have been made so that the players are protected from the interests of these companies, which now every state has to rule them in light of their gambling laws.
As for the “game of skill” argument that the companies have shielded themselves from being seen as gambling based games, the IRS now compares daily fantasy to poker, recognizing that skill is a component, it does not predict the outcome but it gives a chance to dominate it.
On a final note, a game that began as a friends’ playdate has become a huge, complex, and profitable industry, that moves lots of sports fans every day to play the odds.
No matter what is your favorite sport, these platforms allow you to create your dream team and make money with the real-life potential of the players that you choose to be part of it. Nowadays, the legislation has provided you with all the safety that you need to play these games as you wish.
With this being said, all you have to do now is open a beer, turn on the tv and have fun!