Fake Teams, Real Money

Jacob Sullum
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Posted: Jun 04, 2008 12:01 AM
Fake Teams, Real Money

In the 2007 romantic comedy "Knocked Up" a woman who suspects her husband of having an extramarital affair discovers he is actually sneaking off to play fantasy baseball. In real life, people who participate in fantasy sports generally do not feel a need to hide what they're doing, and neither do the companies that offer them the opportunity.

Fantasy sports is a burgeoning industry in the United States, one that's likely to grow even faster now that the U.S. Supreme Court has let stand an appellate ruling that makes the business easier and cheaper to run. But the legitimacy of fantasy sports highlights the arbitrariness of U.S. gambling law, which for no good reason prohibits forms of betting that many millions of Americans enjoy.

Participants in fantasy sports choose real players for pretend teams that compete against each other based on the players' real-world performance. The online industry that facilitates these contests, which emerged a decade ago, today consists of more than 100 companies, including major players such as ESPN and Yahoo! Sports, and generates about $500 million in revenue each year, mainly from participant fees and advertising, according to the Fantasy Sports Trade Association (FSTA).

The FSTA expects the industry's growth to accelerate as a result of the Supreme Court's recent refusal to hear Major League Baseball's appeal of a 2007 decision by the U.S. Court of Appeals for the 8th Circuit. Last fall, in response to a lawsuit by CBC Marketing and Distribution, which operates CDM Fantasy Sports, the 8th Circuit ruled that companies like CBC need not pay license fees to professional sports leagues because they have a First Amendment right to use players' names and statistics.

Freed from the burden of getting league permission and paying millions of dollars in license fees, fantasy sports businesses are likely to expand and proliferate. Already, the FSTA estimates, 18 million Americans play fantasy sports. Mostly they do it for fun, but they can also win prizes, ranging from bobblehead dolls to cash awards as high as $25,000.

In other words, sports fans are paying for the chance to win money in contests that hinge on the performance of professional athletes. Why isn't this gambling?

One answer is that playing fantasy sports requires knowledge and skill. But so do sports betting and poker.

Here's the real reason playing fantasy sports is not gambling: The government says it isn't. The Unlawful Internet Gambling Enforcement Act, which took effect at the beginning of last year, includes a specific exemption for fantasy sports, provided the prizes are determined in advance and the imaginary teams do not correspond to any real teams.

The latter condition is aimed at preventing fantasy sports, which the professional leagues endorse, from morphing into sports betting, which they oppose. License fees aside, the leagues like fantasy sports because they increase interest in their games.

But so does sports betting, the market for which dwarfs the size of the fantasy sports industry. A 2003 ESPN survey found that more than 100 million Americans bet on sports each year, wagering something like $100 billion.

Yet taking sports bets is legal only in Nevada, and the leagues are adamantly opposed to broader legalization because they fear it would have a corrupting effect. Or so they say. Their actions suggest they know better.

"Most of the leagues now have a deal with the Las Vegas sports consultants," notes Jim Murphy, a professional handicapper. "The leagues pay them to track improper betting trends. Anytime you read about a point-shaving scandal or that so-and-so has been charged with trying to fix a game, it was the Las Vegas bookmakers that ferreted it out."

Whatever the likelihood that promising college players or well-paid professionals would jeopardize their careers by helping to fix games, keeping sports betting in the shadows of the black market is hardly a sensible way to reduce the odds.