The March Madness tournament has put sports at the forefront of many people's minds, and with it, online betting and fantasy leagues. His two largest online fantasy sports companies, DraftKings Inc. and his FanDuel Group, are considered to have made his rent-seeking in the lucrative industry.
In economics, rent-seeking is defined as an attempt to protect market position by influencing government officials rather than creating added value through superior products, innovation, or business acumen. Refers to activities.
Because rent-seeking circumvents natural competitive processes, it negatively impacts consumers and innovation while enriching incumbents, especially by raising barriers to entry. Moreover, rent-seeking by a coalition of competitors could run afoul of existing antitrust laws, which are meant to prevent price-fixing and other harmful practices in the industry.
DraftKings and FanDuel's rent-seeking connections are through a sports betting alliance that also includes existing BetMGM and Fanatics Sportsbooks. The SBA has petitioned state regulators responsible for regulating gambling and fantasy sports to classify products offered by innovative rivals such as Underdog Fantasy and PrizePicks as games of chance rather than games of skill. ing.
This distinction is important because fantasy sports, which are considered games of skill, are not as tightly regulated as games of chance, or gambling. The SBA's aggressive efforts drew the attention of the Maryland State Board of Elections, which imposed the SBA's largest fine to date for failing to disclose significant campaign contributions.
When DraftKings and FanDuel hit the market more than a decade ago, some states initially banned daily fantasy sports (DFS) products on the grounds that they constituted gambling.
The companies argue that DFS is a different type of product and should be exempt from the regulations that normally regulate gambling, because participants need extensive knowledge of the sports industry, not luck, to be successful, according to federal officials. succeeded in persuading state authorities. This industry is now a multi-billion dollar commercial industry.
As in virtually every market, innovation happens. Start-ups have developed a variety of differentiated products that are extremely popular with consumers. These include Pick 'em DFS, where participants create a list of predictions and are rewarded based on the performance of each prediction against a set benchmark. For example, do the Buffalo Bills throw multiple touchdowns?
In this context, DraftKings and FanDuel have been lobbying state authorities to classify games like Pick 'em DFS as gambling.
legal line
The line between opportunity and skill is debatable. This is a states' rights issue and is more of a continuum than an absolute category. That's why these two entrenched companies insist that regulators use state power to erect artificial barriers to entry that impede competitors' ability to compete.
These companies note that most states in the country classify most sports games that require the predictions of multiple players as fantasy contests, rather than gambling contests, under the terms of Congress's Unlawful Internet Gambling Enforcement Act. I know that. But they also know that aggressive lobbying can make a difference.
There is nothing fundamentally wrong with standing up for yourself and sharing your views on issues with state officials. But we shouldn't be so naive.
Nobel Prize-winning economist George Stigler argues that regulatory burdens can hurt upstart rivals far more than incumbents, who are in a better position to overcome regulatory costs and hurdles. Because of this, he pioneered the insight that incumbent companies often demand regulation.
double standard
What about the claim that DraftKings and FanDuel believe that while traditional DFS products are beneficial, games like Pick 'Em hurt consumers? The credibility of this argument is that both DraftKings and FanDuel is disproved by the fact that various states offer games of chance such as online casinos and on-line betting.
After all, like any dynamic market, online fantasy sports involves innovation, product differentiation, and skill. Gambling has always been highly regulated in various states, but lobbying by incumbents to classify their competitors' products as prohibited products while offering similar products in other jurisdictions is harmful. This seems like a textbook example of rent-seeking.
Incumbent companies have significant influence over the regulation of sports prediction contests, whether that involves spending hours of research on fantasy football teams or filling tournament slots based on your favorite college mascot. should not be able to influence.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author information
John M. Yoon is an Associate Professor of Law at George Mason University's Antonin Scalia School of Law and previously served as Acting Deputy Director of the Bureau of Economic Affairs at the Federal Trade Commission.
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