The IRS vs. Daily Fantasy Sports - Part V

A Call to Action

This is your last chance. After this, there is no turning back. You take the blue pill—the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill—you stay in Wonderland, and I show you how deep the rabbit hole goes. Remember: all I'm offering is the truth. Nothing more.

The Matrix, 1999

Dear judges, regulators, lawmakers, fellow thinkers, teachers, and students,

Dear President-elect, and Vice President-elect,

Dear fellow citizens, residents, immigrants and anybody else who is already calling, or planning to call this beautiful country home, 

This is our open letter to you. This is a call to action. A call to action that is very important for the future of the United States of America.

We have all been duped. Tricked into believing daily fantasy sports is a game. 

That turns out to be an opinion, not a fact. An opinion that should have been vetted like any other opinion, but somehow never was.

As a result of a few coincidences (if you believe them), grit, and dare we say, critical thinking, we came to a different opinion: 

DFS is not a game.

Nor is sports betting, by the way.

Ours is an opinion, too. The difference is that we arrived at our conclusion by not assuming but by following every possible path. Dead end after dead end, there remains only one conclusion that logic dictates.

DFS is not a game.

As Sir Arthur Conan Doyle stated, through Sherlock Holmes:

When you have eliminated all which is impossible, then whatever remains, however improbable, must be the truth. 

We have eliminated all the impossible and we are left with the “improbable.” 

DFS is not a game.

Yes, 60 million traditional fantasy sports “players” in North America would likely disagree with us. A lot of people also believe, to this day, that the world is flat. Amazingly, according to one survey, “just 66 percent of millennials firmly believe that the Earth is round.”

Markets can stay irrational for longer than you can remain solvent and dogmas can outlive us under the right circumstances. 

That DFS is a game, is a dogma. It is the 21st-century version of “the world is flat.”

You may ask, “who cares?”

If we are right, and we believe we are, the consequences are enormous. It would mean a potentially illegal industry is flourishing right before our eyes hijacking our future. Our country’s future. Our kids’ future. 

The invasion of Capitol Hill this past week by the mob seems to have strengthened our views that it is important that democracy cannot be taken for granted. That it should be earned. Every. Single. Day. 

See, if we want to be a nation of laws, and if we are sincere, just saying that is not enough. We have to follow through. 

Now, you may tolerate gambling. If so, please understand that casino gambling and sports gambling are different animals. Gambling games, however detrimental to the society they may be, are confined to a limited space. That’s what makes them games in the first place. If a state gets behind that, they, as “laboratories of experiment”, have the right to do so. 

States can authorize gambling within their borders, insofar as they are gambling games. Entertainment claims, on the other hand, is a federal matter. Why? Because those claims cross the state borders in every imaginable way, and the CFTC presumably has jurisdiction. We wrote a Supreme Court amicus brief on it (pdf).

Even marijuana, despite the tension between federal and state laws, is largely a local thing. Somebody smoking marijuana in Colorado has very little impact, if any, on the fisherman who is minding his own business in Maine, just like the roulette addict in Nevada having little impact on the farmer in Minnesota. It is certainly true that in the long term we are all connected: through taxation, through shared morals, through a culture; but if the United States of America is about Life, Liberty and Pursuit of Happiness, then we must respect liberties as long as they do not infringe upon others.

As New York Governor Cuomo pointed out early on, our decisions with respect to the pandemic affect others. It can’t be about just us anymore, and whether or not to wear a mask is not a matter of personal liberty. If a man in a Vegas casino is wasting his family savings, that’s unfortunate, but the farmer in Minnesota does not care. However, if a man is not wearing a mask in a Vegas casino, now the farmer in Minnesota is at risk. The virus can travel to Minnesota as fast as the plane does, after all. 

Sports gambling, then, is a virus. A sports bet made in Colorado, whether that is a traditional sports bet or daily fantasy sports,  does impact the sports fan in Maine by undermining the confidence in sports. 

Equally importantly, a sports bet in any state may be illegal for a variety of reasons. If DFS is a claim, not a game,  it may already be a violation of the state laws (e.g. if the state makes it a crime to take positions on contingent events). It may also implicate the Wire Act, as well as some securities and commodities laws. 

You may say “So what? Those laws are all antiquated. America wants to gamble on sports.” 

If we want sports gambling to be available to everybody in the United States, that is a choice that Congress has to make. It can happen then, but not before.

You may also be of the view that sports gambling doesn’t harm countries. We disagree. America’s biggest competitor on the world stage right now is China and they are undoubtedly, anti-sports gambling. Rather, they are about investing

America’s biggest competitor before we entered the world stage as the undisputed leader of the free world was presumably the U.K. They started to allow and regulate sports gambling in 1960, exactly 250 years after the Statute of Anne, which is arguably the predecessor of most gambling laws in the U.S. 

A popular trend within the gambling community is to present the U.K. as an example, and argue that the U.K. didn’t go down because of sports gambling. Maybe. At the same time, since 1960, the U.K. had 15 negative growth years

The U.S. had one, in 2009, which came right after one of the biggest financial curveballs that the country has seen since the Great Depression. The U.S. jumped back on its feet quickly and posted positive growth every single year since. The. U.K. growth turned into a coin toss; they experienced six positive and six negative growth years over the same period. Four negative growth years in the last five, and then, of course, there is Brexit.

A likely forgotten fact: in 2007, the U.K. actually had a higher GDP per capita than the U.S. In 2019, the U.S. GDP per capita was 50% more than that of the U.K.’s. When faced with the same recession, the U.S. proved to be quite resilient. The U.K. did not, or could not, react in the same way. 

The U.K. is a fine country, but it is safe to say that it is not the economic world power it once was. Did sports gambling play a role? We think it may have. We should invest, not gamble. When we invest in ourselves, in our communities, in our future, we grow. Even when we face adversity, we find a way.  When we don’t, and instead choose to gamble, our growth becomes a coin toss. 

So we all have a choice ...

We can all take the blue pill, assume DFS is a game and sports gambling is just fine. The chances are, not much will happen in the short term in either direction. In the long term, however, America will erode, slowly but surely and our children will pay the price. 

Or, we can take the red pill. We can wake up and start enforcing our laws. We can remember that our gambling laws have roots in a similarly situated Western country, which did not heed its own advice and arguably, is now paying the price.

America has been a successful experiment precisely because we were able to strike a delicate balance. We respected liberties when they didn’t infringe upon others and we enforced the laws when they did. Our leadership position cannot be taken for granted. We must give ourselves the best chance to stay on top and that requires making a choice, right now.

Will we take the blue pill or the red pill?