Eric Schneiderman, New York State’s Attorney General, recently made headlines by announcing that he considered the services provided by fantasy sport sites such as Draft Kings and FanDuel to be games of chance rather than skill and therefore illegal under state law. He demanded these and other operators cease all transactions within the state. The companies complied, but are seeking relief in the courts.
Schneiderman’s argument rests on the presumption that fantasy sports is primarily a game of chance. Games of chance are legal in NY (and most other places, I believe) if all the money wagered is paid out to winners. If an individual or entity draws from the aggregate of money wagered, then it becomes illegal gambling. Of course, taking part of the money pool is how any facilitator of gambling gets paid. Gambling jargon refers to this money as the vigorish, or vig, or juice, and it’s the source of profit for games where the house isn’t working off a mathematical advantage (e.g. blackjack, craps, roulette). Court rulings have drawn distinctions between games of chance, like sports betting and blackjack, and games of skill, like tournament poker. Schneiderman would have us believe that fantasy sports, which involves assembling fictitious teams that consist of actual current athletes in a professional sports league like the NFL, is more in line with sports betting than with tournament poker. DraftKings and FanDuel argue the opposite, claiming that there’s a substantial element of skill involved in fantasy sports.
From a perspective of liberty, however, the distinction is irrelevant. Adults should be free to do as they wish with their own money, and if they’re willing to pay a vig for access to their preferred form of gambling, it’s neither others’ nor the state’s business to tell them no. Nevertheless, government has been saying no to consensual adult behaviors since the dawn of government. Government prohibits or restricts gambling. It also prohibits engaging in sex for money. It prohibits consumption of certain drugs. It restricts the lending of money. It imposes large taxes on tobacco and alcoholic beverages. Governments have been doing so for centuries, but all these activities persist. To what end?
Gambling. Prostitution. Narcotics. Loan sharking. Cigarette and liquor smuggling. These activities have been mainstays of organized crime since the Prohibition era, and they’re all enabled by government’s prohibition, restriction and taxation. Government perpetually fights these activities and pursues the lawbreakers, but won’t admit either its failure to stamp out the illegal activities or its complicity in the creation and rise of organized crime. These admissions would suggest that it’s time to try something different, to stop trying to prevent the unpreventable, but that would mean government foregoing power.
New York and other states have, even as they continued their law enforcement fight against gambling, embraced gambling as a source of revenue. A few decades ago, numbers rackets were a mainstay of the Mob. At some point, someone figured out if you can’t beat Ôem, join Ôem and states started all sorts of lottery games, including numbers games. These games, cheap to play (bet a dollar on a three digit number appearing via some mechanism, win $500) but with absolutely terrible odds, have long been extremely popular in poor communities. The poor, who the government has long claimed to be defending in its prohibitions against gambling, are the people most drawn into government lottery games. The hypocrisy of government’s gambling schemes has not gone unnoticed, but politicians don’t seem to care as long as revenues continue to flow into treasuries.
In New York, the lotteries proved insufficient slake for gamblers’ thirst, as demonstrated by the success of the Indian casinos Foxwoods and Mohegan Sun, and while Atlantic City’s casinos haven’t fared well in toto, the Borgata seems to be doing just fine. To capture more of that gambling traffic, New York allowed the building and operation of racinos, gambling venues that are a dumbed down version of traditional casinos, and named thus because they’ve been co-located at local horse racing tracks (themselves another format for gamblers to engage). While the racinos are privately operated, they serve to keep gamblers in-state, away from Atlantic City, away from the Indian casinos, and away from other states’ racinos.
With all these forms of overt “chance” gambling legal and available to gamblers in NY, it seems odd that the attorney general would target fantasy sports. One obvious conclusion is that fantasy sports is seen as a threat to government-approved forms of gambling, drawing gamblers and revenues away from the games the state permits. We might conclude that the rent-seekers who lobbied the state in favor of racinos are upset at the incursion, or we might conclude that the state is protecting its own revenue stream. Whatever the motives are, though, the outcome is the same – adults are being denied the right to spend their money as they wish so that special interests can benefit.
The difference between mobsters, corporate rent-seekers and greedy politicians blurs away. They all benefit from government’s restrictions on consensual behaviors. These restrictions are nothing more than protectionism, harming consumers and benefiting the protected. Government long ago abandoned any moral justification when it began offering its own games to the public, so we can dispense with the farcical premise that government’s restrictions are intended to protect the public.
As noted above, government’s interference in consensual behavior extends well beyond gambling, into other vices and beyond. Consider the wars that government has been engaging in against the burgeoning sharing economy. Ride-sharing services such as Lyft and Uber have been attacked in places like New York City – why? – because they’re undercutting the well-connected yellow cab industry. Room-sharing services such as Airbnb are under attack as well – why? – because they threaten “traditional” hotels and upset the well-connected hoteliers. While there’s no organized crime involved in these services, gypsy cabs have illegally been picking up street hails for decades and illegal sublets have been going on for decades. Government’s regulation and prohibition produce two results – driving certain behaviors underground and protecting entrenched interests. From the standpoint of the individual, there’s little difference – both cost us liberty, reduce our options, and prevent us from reaping the benefits of market forces. Protectionism for the mob – in its criminal, corporate and government incarnations.
As for fantasy sports? Certainly, there’s an element of chance therein, but there’s FAR more skill involved than there is scratching a lottery ticket with the edge of a coin. Why is the former under attack while the latter is OK? I’d suggest we follow the vig.
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