3 reasons more and more states are outlawing daily fantasy sports sites like FanDuel.

If you've watched an NFL game this year, chances are you've seen at least one ad for either DraftKings or FanDuel.

Probably, you've seen more like 17 hojillion. Photo by Scott Olson/Getty Images.


You probably know that they allow users to bet on fantasy sports — and maybe earn (or more likely, lose) a few bucks here and there. What you might not know is that these sites have come under increased legal scrutiny in the past few months.

Nevada banned the sites from operating in-state back in September. And just today, the attorney general of New York ordered both DraftKings and FanDuel to stop taking bets in that state while his office investigates the legality of each business.

What's the deal? Why is fantasy football — of all things — attracting the attention of the law? It basically boils down to three things.

1. An employee cheating scandal makes the whole thing look ... kinda shady.

Photo by Donald Miralle/Getty Images.

In theory, fantasy sports are a level playing field. You put in your money and choose your players and/or teams, and you're promised an equal shot at winning a monetary prize. It's a system that works ... as long as everyone has the same information.

Increasingly, that's looking like it might not be the case with DraftKings and FanDuel.

In September, an employee of DraftKings won $350,000 in a competition at competitor site FanDuel — the same week he accidentally released a bunch of insider data online — which made it seem like people who work for daily fantasy sports sites might be operating with more information than the average player. According to some reports, executives and employees of the two companies are some of the top bettors on their rivals' platforms.

Ultimately, the employee was cleared — internally — of wrongdoing. But it prompted the FBI to launch an investigation, which is ongoing.

2. Unlike most gambling, the daily fantasy sports industry is pretty much completely unregulated.

Photo by Scott Olson/Getty Images.

Gambling is a heavily supervised industry in most states and on the Internet. A 2006 law prohibits most forms of betting online. Online fantasy sports are exempt from the law, however, as "games of skill" are not technically considered gambling under the law.

Why is fantasy football a game of skill? It's ... not entirely clear. Evaluating player and team statistics — and making judgments based on that analysis — certainly requires specific knowledge. You could probably say the same for more traditional gambling platforms like horse racing and poker. But it doesn't really matter. Under the law, right now, it's considered one.

Without the same government oversight that comes with running a traditional casino or other gambling operation, daily fantasy sports could be vulnerable to hacking, cheating, insider betting, and other such bad behavior that potentially makes the contests lopsided, unfair, and not-as-advertised.

Conventional gambling outfits certainly aren't always beacons of honesty and fairness even with oversight, but right now, daily fantasy sports are subject to none. And that's a problem.

3. Gambling is a big public health issue, which is rarely addressed.

Slot machines. Photo by Philippe Lopez/Getty Images.

To hear representatives from DraftKings and FanDuel tell it, daily fantasy sports are not gambling. Which — as today's New York Times report makes clear — is news to New York Attorney General Eric T. Schneiderman, who launched the most recent investigation of the sites:

"The attorney general's office said daily fantasy sports 'appears to be creating the same public health and economic problems associated with gambling.'"

More casinos are closer to more Americans than ever before. Studies estimate 1.1-1.9% of the population — between 3.5 and 6 million people — suffers from some form of gambling addiction. And low-income Americans are particularly vulnerable, as their losses can be far more catastrophic. Many experts believe that, as a potential source of addiction, fantasy sports are indistinguishable from other forms of gambling. Now that they're available at the click of a button, the barrier to entry is suddenly extremely low, and the potential to lose hundreds or thousands of dollars is high.

Fantasy sports can be fun and harmless — but more oversight is a good thing.

For those who play — and even place the odd bet here and there — fantasy sports can be a rewarding hobby. Gambling a little bit of money with your friends or even random strangers on the Internet is fun! But betting through an easily hackable, unregulated system where employees might have access to information that you don't? Not to mention one that can be an emotionally and financially devastating if abused?

Seems like it might be a good idea to stay away until a few more rules are put in place.

Taking a look under the hood of the industry is long overdue. Hopefully, a thorough investigation can make the system fairer, more transparent, and, most importantly, work better for everyone.

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