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Posted by Matt Hagen at 5:10am (2) Comments

Friday, March 04, 2011

Is fantasy sports gambling?

Last week, Chad Millman of ESPN devoted his Behind the Bets podcast to what I think to be a quite self-evident question: is fantasy sports (when played for stakes) gambling? Millman discussed this issue with two college professors, Bo Bernard, who specializes in sociology and Steven Weiss, who teaches psychology. Both Bernard and Weiss have studied gambling and fantasy sports fairly extensively.

At this point, let me be absolutely clear, I love pedantic debate that intellectualizes the most seemingly obvious questions and scrutinizes our most basic assumptions. I’m also fairly contrarian as a general rule… often specifically because of my habit of distilling presumed self-evident questions to their philosophical roots. All of this is basically to say that even though I was fairly certain in my opinion on this matter before hearing the podcast, I was fully open and eager to hear compelling intellectual arguments to change my mind. It didn’t happen though.

To be fair, though both professors concede that this is a debatable issue, they seemed to lean toward fantasy sports being a form of gambling, Bernard leaning harder than Weiss. I don’t really see this issue as particularly debatable at all, but I think it’s probably worth going through a few of the points that were raised to cast fantasy sports as a form of gambling because I’d like to take my shot a refuting them.

First, let’s start with the most basic definition of what gambling is in its most fundamental and broad sense. Bernard offered the following definition: the wagering of something of value on an outcome that is unknown.

Beautiful. I don’t think there’s need to geek out further into this. I will only attempt to delve a bit deeper to clarify the term “something of value.” I take this to mean either raw, absolute value or value to the owner. Therefore, if you are playing for money, the stakes automatically have value. It does not matter if you are Oprah Winfrey and playing in a $25 per team league, the fact that a relatively small sum of money may not practically matter to you does not mean that the stakes are not valuable; their objective value trumps any absence of value it may have to you. My ironclad example here is that nobody would make the argument that nickel slots are not gambling simply because the stakes are so low. On the flip side, if something is valuable to you, even if not particularly valuable to the rest of the world, and you wager it, you are gambling. …Playing poker for pretzel sticks isn’t really gambling… unless the game is being played among the cast of Survivor.

Honestly, I think the debate basically ends right here. If you are playing fantasy baseball for money, you are gambling. But, not everybody is ready to pack up their tents and go home here, so let’s look way too extensively at some of the other arguments.

The preponderance theory

This argument, originally asserted in this discussion by Weiss, states that fantasy baseball is more of a game of skill than a game of chance. Weiss references a study he helped conduct among fantasy players and non-players that studied the perception of skill versus luck in fantasy sports outcomes. Both groups concluded that skill was more important than luck. While seemingly simple and straightforward, this is problematic on many levels.

First of all, I’m not sure what the correct way to splice the luck versus skill component of any game is, but I’m quite certain that simply asking folks what skills are required and how much they perceive luck to be a factor is far from sufficient, regardless of whether there is a “control” in this study (non-fantasy players).

Further, why is skill necessary? To perform well, presumably, but what does that mean? To win a league? To finish above average, in the top half of the standings? There are many possible outcomes in fantasy sports league, so let me digress for a moment to make some additional points about the overlap and conflation of skill and luck in games that are a combination thereof.

Let’s talk about sports betting for a moment. Sports betting, like fantasy baseball, and like poker for that matter, is a game of chance through which one can considerably improve his or her odds through the acquisition of skill. (Of course, this is the fundamental flaw in the preponderance theory, even if you do grant it is applicable; you can gamble on a game of skill just as easily as you can gamble on a game of chance.) So, how much of sports betting is luck and how much is skill? Well, if you ask a professional gambler, he or she will tell you that only a select few can make a living by gambling, so therefore skill must prominently factor in.

I don’t know about that. I mean, I agree, but I also think it depends on how you look at things. In sports betting, there are two potential outcomes, three if you include the push. If you were to randomly wager on a side of any sports bet (with a spread), there would be a 50-50 chance of you winning and losing, if the line is set correctly. (It’s probably more like 48.5/48.5/3 if you include the push, but I’ll leave that out of the equation for simplicity’s sake.) The skill in sports betting comes in being able to set a better line than the house, so you get your edge because you’re able to identify that the line is really not set at 50-50 odds, but maybe 55/45 odds. Essentially, this is the same kind of edge one can find in fantasy, setting more accurate values to potential plays (players).

This achievement, however, does not fundamentally contradict the notion that you are playing a game of chance. You’re now simply playing a game of chance in which the odds have been mispriced. Note that to be a successful professional gambler, you’re "only" expected to win at approximately a 54 percent clip. So, what did all your hours and hours of work and the possession of elite skill actually earn you? I’d say you earned a 5–10 percent increased likelihood of winning over the square public bettor.

Now, I don’t mean to demean that accomplishment at all, practically speaking, that’s the tipping point. By exerting your skill, you’ve tilted the odds enough to make this game of chance sufficiently likely to play out in your favor over an extended period of time. But, getting back to the question of whether this is a game of skill or chance, is an endeavor in which the absolute best and most skilled in the business are able to swing the odds less than 10 percent in their favor something that can be classified as being defined by a preponderance of skill? That is, even if somebody needs skill to succeed in something in the long term, does that mean that the game itself, or each trial, not fundamentally characterized by luck? I’m trying to distinguish the nature of the game from the nature of one’s performance at that game here, and I think it’s fair to characterize the role of skill in fantasy baseball as generally similar to the role of skill in sports betting or poker.

Just to harp on this point a bit longer (you don’t have anywhere you’d rather be, right?), let’s take an extreme example, even though I don’t like arguing from the margins in philosophical debate. Let’s take a game that is clearly defined by skill; we’ll use basketball. In my absolute luckiest performance would it be possible for me to beat any pro basketball player in a game of basketball, no matter how small the sample size?

…Well, okay you got me. But, what if I excluded Eddy Curry? There we go, of course not, and that is because basketball is defined almost exclusively by skill. Now, I don’t gamble at sports books, but would it be possible for me to have a better weekly run than a top sports bettor, or even a better month, or maybe even a better year? Absolutely. If we grant the same overall dynamic to poker, we can look at the history of the World Series of Poker to prove that point.

Finally (and this may look like I’m taking a shot at professional sports bettors, but I’m not because I respect them greatly), isn’t it actually possible to profit over the long term in sports betting strictly on the strength of having good luck? Now, I understand that a lot of the skill in being a sharp is managing a bankroll, getting more money in on better bets, etc., so one’s rate of return is not necessarily identical to his/her win percentage over 50 percent. However, when I listen to pro bettors speak about their analytics, I’m usually not all that impressed. Somebody like Nassim Taleb (get ‘em Jon Halket) might be inclined to accuse successful pro bettors of being “fooled by randomness.” Maybe some of them are luckier than they are good, and essentially justifying their luck with pseudo-intellectualism? I don’t necessarily think this is the case, but it does cross my mind often when I hear pro gamblers explain their reasoning. They seem to understand strategy and how odds work and when to act—that’s their strength, in my opinion—but I’ve yet to hear somebody who makes me say, “Wow, this guy sounds like he really has it figured out,” the way I do when I read, say, Tom Tango’s work.

So, just to recap, I just spent like 750 words discussing sports betting to make the point that fantasy baseball is not, by a preponderance of its nature, necessarily a game of skill. I chose to focus on sports betting because defining successful performance in fantasy sports is a lot more ambiguous than the binary outcomes of sports gambling, and that definition of success was never offered for fantasy baseball.

Game of skill argument B

In this podcast, the professors also reference a study done two German researchers, Ingo Fielder and Jan-Phillip Rock, which proves poker is a game of skill by displaying that over 50,000 hands the best poker players emerge as most successful. As with the preponderance theory, I actually interpret this finding contrary to the way it is used in the professors’ arguments.

I don’t doubt the fantasy baseball possesses a similar dynamic in terms of meritocracy over truly extended sample size, but practically speaking, you are not gambling on 50,000 poker hands or hundreds of fantasy seasons. The number of trials needed to establish the meritocratic dynamic of this game ironically underscores the importance of luck as it relates to the practical application of the fantasy baseball experience. Once again, there needn’t be equal odds on either side of a proposition for an activity to be defined as gambling, in a social sense… a distinction we’ll get to shortly.

Relative skill vs. absolute skill

Fielder and Rock also raised the point that the role skill plays in poker or fantasy sports relates to the relative skill of the players in the league. The closer the level of skill among the competitors, the more luck is likely to matter. I feel this effect is more profound in fantasy sports than in poker or sports betting. In sports betting, you are simply competing against the oddsmaker, but doing so through the team on which you wager. There’s significant uncertainty in this equation because you adopt all the risk that comes with the performance of the team, but the essence of the challenge is outsmarting the oddsmaker, one on one.

In poker, there’s plenty of luck in regard to picking up hands, but in the skill side of the game, you are competing directly against your opponents at the tables. In fantasy sports, there are very few opportunities for a direct battle of wits between two owners; if performed at a high level, everybody makes pretty sound decisions and while each owner would likely be able to claim several successful attempts to outsmart the market, some will also benefit more from random variance, and some will be hurt more by unforeseeable injuries. Basically, correctly identifying which player will have the better season between Adrian Gonzalez and Mark Teixeira is exponentially less valuable than not being the guy who made a wise value investment in this season’s Kendry Morales or Justin Morneau.

The way I view the competition in fantasy sports, and to a large degree the whole endeavor, is that it's a competition to assemble the best risk equation of all the participants. You're building a portfolio. The skill lies in putting yourself in the best position to benefit from the random variation of performance curves and outlying events.

Any game with the tiniest skill component can become largely meritocratic if the chasm in that area is overwhelming, but when played among those who are generally your peers, fantasy sports is an activity of chance that is affected by skill, not a game of skill affected by chance. As a thought experiment, consider an auto-drafted team to represent a team of average skill in the most influential part of the game, the draft. Are we to assume that in an “expert league,” an auto-drafted would be the worst team or finish last anything approaching all the time?

Applied setting

Professor Bernard offered an argument the gist of which was that that social norms and definitions, as well as the real world ramifications of specific actions, play a role in defining them. In the abstract, I agree… but, again, only in the social sense. The lottery is gambling regardless of the public perception thereof; ditto for investing in the stock market. The essential nature of fantasy sports, specifically it fitting the definition of gambling offered at the top of this piece to a T, trumps any circumstantial concerns.

Bernard goes on to talk about the “real world consequences” (or benefits) of failing (or succeeding) at fantasy sports, which are similar to success in any other gambling activity. He even notes that the problem fantasy behavior qualify under the criteria of problem gambling.

Meanwhile, Weiss feels that the applied setting of the fantasy baseball experience is atypical of gambling, often repeating that he knows what gambling is and, as an avid fantasy player and a former gambler, fantasy sports simply don’t feel like gambling. His offering of the old Potter Stewart defense, frankly reads as a classic case of cognitive dissonance to me.

Opinion of sports leagues

It should also be noted that the NCAA does not allow its athletes to participate in fantasy sports for stakes. The NFL had previously banned its players from competing in fantasy sports, but no longer does so, though it’s not clear to me whether the “for stakes” caveat is in effect in the NFL too.

Legal definitions vs. social definitions

Often times, those who are in favor of further enabling forms of gambling rely on studies that prove the skill based component of a game to advocate for change of legal considerations regarding such a game. For example, the movement to define poker as a game of skill does not have only its academic face. Many who advocate poker’s standing as a game of skill seek special treatment of the game under the laws that govern gambling.

This is not the definition of “gambling” or “game of skill” that we should be concerned about. Legality is not an argument about the nature of an activity (drinking alcohol vs. smoking marijuana), but simply a cultural judgment of that activity. When we play fantasy sports for stakes, we are engaging in an activity that is defined by the risking of items of value on outcomes unknown, the fact that skill plays a role, and sometimes an important role, in determining the outcomes of this activity does not negate that. Fantasy sports is not a bowling competition where we each place down some cash and try to get the highest score; the outcomes are much more varied, the inputs infinite, and the intersection of strategy and random variance too complex to reduce as such. It’s way more like sports betting or poker; it’s gambling!

Taking it a step further

Not only have I made it clear that I think fantasy sports are unequivocally forms of sports gambling (and we haven’t even discussed daily fantasy games, which are much closer to traditional sports betting), but I’d even argue that it is impossible to play fantasy sports as they are intended without gambling.

Any games that are predicated on managing risk must be played for meaningful stakes to retain their integrity. An extreme example of this is the idea that if there was no money on the line in a poker game, it would be impossible to ever bluff successfully. To keep a game on the up and up, participants have to have something to lose when taking on additional risk; there must be real, meaningful consequences for strategic failure. If a player doesn’t fear losing, that player will not always act in accordance with his most objective rationality.

In previous columns, I’ve written fairly extensively about promoting integrity within your leagues, but this is the most fundamental foundation of all incentives for owners to maintain the league’s integrity. For some folks, honor and their individual values and commitment are enough, but for others the absence of a true penalty for losing empowers them to sully the league by doing things like making trades just for the sake of trading. Once these dynamics infiltrate your league, you are no longer playing rotisserie sports in a pure form.