A new report from Bartlett Cleland at the James Madison Institute exposes how market dominators FanDuel and DraftKings are gaming the system to lock out competition in online sports entertainment.
In “Taking a Chance: Market Dominators Game the System,” Cleland details the troubling actions of these two companies as they abandon principled policy in favor of protectionism.
Key Takeaways
- FanDuel and DraftKings, which control 80% of the sports betting market, are pushing to regulate daily fantasy sports (DFS) as gambling, even though DFS is legally recognized as a game of skill.
- The companies helped expand legal fantasy sports, but they are now reverting to moral arguments to close the door on emerging DFS competitors like PrizePicks and Underdog.
- If forthcoming investigations reveal FanDuel and DraftKings colluded to block DFS providers from doing business with partners like TV networks and payment processors, it would violate antitrust laws.
From Prohibition to Harm Reduction
Historically, activities like gambling and alcohol were prohibited on moral grounds. But as Cleland notes, this “moral-illegal framework” failed with Prohibition, fueling crime while doing little to curb demand. The alternative is to legalize such activities and focus on reducing harms through responsible regulation, quality control and help for problem users. This is the approach that has successfully replaced Prohibition in current U.S. law.
The Skill vs. Chance Distinction
Cleland traces the long-established legal distinction between games of skill and chance. Fantasy sports, where the outcomes reflect players’ knowledge, are considered games of skill under the law. Sports betting is a game of chance.
Both can be legitimate entertainment if regulated to ensure integrity and identify problem users. But skill and chance games fall under different regulatory regimes.
“Bootleggers and Baptists” Undermine Progress
FanDuel and DraftKings pioneered the expansion of legal sports gaming. But now, they are attacking fantasy sports, their former turf, by pressuring regulators to treat DFS as gambling. Cleland warns they may be strong-arming partners to boycott DFS in an illegal industry squeeze-out.
This alliance – “bootleggers” who profit from heavy regulation by colluding with moral “Baptists” – threatens to undermine progress. Instead of enhancing their gatekeeper status, dominant players should welcome the innovation and consumer benefits of a dynamic free market with robust competition. Regulators must resist being misled by the bootleggers and ensure a level playing field.
Protecting Competition Serves Consumers
We at NetChoice believe consumers benefit when disruptive innovators challenge gatekeepers and expand consumer choice. Antitrust laws must be enforced when dominant firms try to use regulation to lock their competitors out of the marketplace, rigging the game.
Policymakers should establish sensible and consistent rules, then let consumers in the free market pick winners and losers in competition. Government shouldn’t put its thumb on the scale to bench market players.