Skill vs. Gambling in Fantasy Sports and in Life

There has been a lot of discussion in the news recently about whether or not Daily Fantasy Sports(DFS) is a game of skill or if it should be considered gambling.  In Daily Fantasy Sports players pay an entry fee and choose a team of professional athletes for a set period of time (say one week for football) who earn points based on their performance with the teams with the most points winning a share of the prize pool.

The idea that skill and gambling are two distinct realms and that an activity must fall into one or the other is incorrect because almost every activity has both elements of luck and elements of skill.  Take driving for example.  Driving more safely is a skill that can be learned, however every time someone gets behind the wheel, there is a chance that they might get into an accident.  Another driver could be distracted, fall asleep, or make a mistake that causes an accident that the safe driver cannot avoid.  In addition, there are unforeseen things that could happen such as the safe driver’s brakes malfunctioning, them sneezing and taking their eyes off the road, as well as a hundred other things could go wrong.  In other realms, some would call driving to the store to get milk “gambling with your life,” since over 30,000 people are killed yearly in vehicular accidents.

So what is the above example trying to show for the skill vs luck argument?  First, it is important to acknowledge that there is both luck and skill in driving, since most people suffer from the Black Swan Effect, which is the tendency to underestimate the likelihood of highly improbable, “unlucky” events, like accidents and to explain them away once they happen.  Most people only consider luck (or lack thereof) when they get into an accident, and consider it their skill when they avoid accidents without evaluating the risk from a broader perspective.  It is important to think of risks as ever present, and that each time you drive, you are making a calculated decision that assesses and accepts that risk. You can take steps to reduce the risk of activities, but you will never reduce them to zero.

For example, you can reduce your risk of getting into an accident by increasing your driving skill by taking driver safety classes or by having your brakes checked regularly, but that will only reduce the likelihood of getting into an accident, but not guarantee it.  In the same way you might prefer not to drive at night on the 4th of July (lots of drunk drivers and increased risk of getting “unlucky”), when you drive home after the fireworks, you are merely increasing your risk of getting into an accident not guaranteeing it.

So, where do you draw the line between something that is skill based and luck based? Since there is a measurable chance you could be a fatal accident, does this mean that people shouldn’t be allowed to drive? Drive excessively? Be forced to take 5 hours of driver safety? 50 hours? 500 hours?  Where is the line drawn?  I don’t want to comment on where I think the line for drivers should be drawn, but I will say that most things that people consider to be skill based have much more of a luck element then most people realize.  You got the job you interviewed for? That means that someone who was better qualified than you didn’t apply and that the subway didn’t break down on the way to the interview so you got there on time.

How does this apply to Daily Fantasy Sports and also to poker?  It can often seem that there is an overarching amount of luck involved, and in one hand, one game or one event there surely is.  In one week of Fantasy Football, there may only be only a 55% chance that the “better team” or “better player” will win and surely you can point to anecdotal evidence where you won or lost at the last second due to a “lucky” or “unlucky” play.  However, the 55% number by definition shows that there is skill involved since if it were pure luck, then all players would have a 50% chance of winning. The player with a 55% winning percentage will have a significant edge if many games are played.  People with more skill (the person winning 55% in the above example) increase the likelihood of winning money in the same way that taking a driver safety class,decreases the likelihood of getting intp an accident.  That doesn’t mean that you won’t get into an accident the day after you take the class, in the same way that picking Tom Brady doesn’t mean he won’t throw 3 interceptions.

You must  evaluate the luck vs. skill argument from a long term perspective because in one game or short period of time there is a lot of luck.  Anecdotal evidence does not substitute for long time framed reasoned analysis.  You wouldn’t say football is a game of luck because Tom Brady threw 3 interceptions.  You would say that there is a lot of skill involved because the Patriots are 12-3 and because Brady has been a successful quarterback and had good statistics for years. If Daily Fantasy Sports does not have an element of skill and is purely gambling, then your wife should win at fantasy football as often as you you do, and all of your sports watching and analysis has been for nothing.

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