February 9, 2018 by

Breaking News Sends Shock Waves through Sports Betting Industry

DraftKings has long contended that it is not involved in sports gambling.  Those denials have been thrown to the wind as DraftKings announced that it is establishing a sports gambling business.  Jason Robins, CEO of DraftKings, says that the move is in anticipation of an American market in which sports betting is legal in all jurisdictions.

Legalisms

DraftKings has always relied on the semantic difference between games of skill and games of chance.  Games of skill are legal in the United States while games of chance are legal in some instances and illegal in others.  If sports betting were seen as involving chance, they would be illegal in most US jurisdictions.  DraftKings’s business is to run a fantasy sports business in which participants can win cash prizes by paying “entry fees” to play and then for “winning” games.

Big Business

Sports betting is a multi-billion dollar business in the United States but the vast majority of bets are placed illegally.  The most prominent legal sports betting jurisdiction in the US is Las Vegas.  It is legal in tiny Delaware, vast but low-population Montana, and relatively low-populated Oregon as well.  Thus, most of the bets made on the Super Bowl, for example were made either with friends or illegally through bookies.

Anticipating the Supreme Court

The upcoming decision by the United States Supreme Court on the legality of sports betting in New Jersey and by extension every state will determine if states will regulate and legalize sports betting within their jurisdiction.  The decision is expected to be announced in the next few months.  It is based on the technicality of what is called “constitutionality” in the US.

The United States are 50 independent states all of which have a guiding document that defines the power of the state.  This document is called the constitution and, as stated, every state has its own constitution.  The United States as a union of independent states also has a constitution defining the powers and limitations of the central government in Washington D.C.

While most people think only of the government in Washington as the government of the United States, there are actually fifty other governments.  A law was passed by the legislature in Washington called the Professional and Amateur Sports Protection Act or PASPA.  The law intended to protect athletes, sports teams, and leagues from the temptations that would inevitably follow were sports betting to become legal.  It declared the states that already had legal sports betting could continue to support the practice but that it would be illegal in every other jurisdiction.

The state of New Jersey contends that the law is unconstitutional, meaning that the Congress in Washington has no jurisdiction over New Jersey with regard to sports betting.

Sports Betting Accepted

The great professional sports leagues of Europe already accept sports betting.  At first, American based sports leagues opposed the practice which led Congress tp pass PASPA.  However, the top four professional sports leagues in the US are finally coming to grips with the reality of sports betting.

Today’s players are far less likely to attempt to lose on purpose in order to collect a big payoff from criminal gamblers.  First, players earn massive salaries.  This alone reduces their incentives to asymptotic levels close to zero.

Secondly, it is so hard to lose on purpose and sports are so heavily scrutinized that it would be foolhardy to the point of insane for any single player to jeopardize his or her reputation by participating in a sports gambling scandal.  No team could possibly try to “throw” a game or a series.  Gamblers also know this and would concentrate their efforts on legitimate activities.

Third, all players see the ostracism their colleagues face in the wake of the steroid scandal and would be extremely reluctant to risk such ostracism.  Finally, players see that gambling has resulted in lifetime bans of former athletes and, again, would be unlikely to risk such an outcome.

All this leads the professional leagues to accept the inevitability of sports gambling.  Amateur leagues are still strongly against sports gambling because their athletes earn far less money and most have no professional aspirations.

The news from DraftKings is that they recognize that sports betting inevitably will become legal in the United States and that they want to be prepared to immediately enter the sports betting market when that eventuality comes to fruition.

How DraftKings Works

The first step is to sign up.  This is completely free and DraftKings gives new signees a fantasy $50,000 to use to pay “salaries” to the players they choose to play as their team in the fantasy games run by the site.  Salaries are limited to a total of $50,000 per participant which is said to even the competition, making choosing players more of a skill than in other fantasy leagues.

This has always been DraftKings contention since it was established in 2012: that by restricting salaries, it forces participants to become better evaluators of players’’ skills, thus making the contests run by DraftKings games of skill rather than illegal games of chance.

Additionally, DraftKings offers free fantasy sports for players who just like the fun aspect of fantasy sports.  It also offers several types of pay-in sports “events” from which winners get cash “prizes”.

After signing up, the next step is to “draft” players to fill out your team.

Fantasy Sports

The idea began a mere couple of decades ago and was called rotisserie sports at first because the rules governing each “league” were determined by the participants themselves over their rotisseries or barbeques.  Only when the phenomenon became widespread enough to attract the attention of business entrepreneurs did it become a business.  The genre then became known as fantasy sports.  DraftKings is just one of many businesses that run fantasy sports contests.