18 Nov 2015

Gambling is fun!

Ferdinand writes:*

In my pursuit to find a suitable topic for this blog post, I may have gotten a bit side side-tracked and started watching “Last Week Tonight” with John Oliver instead. Among the more recent topics was a piece on “Daily Fantasy Sports”.

To join in you have to pay, though there are potential monetary benefits should you beat your opponents. Like the video argues, this sounds a bit like gambling, which is not necessary wrong – gambling is fun! However, not being labelled as gambling provides them with more freedom, both in terms of operating within the market and in terms of how they are allowed to advertise themselves. Hence they have an advantage against other firms operating within the gambling sector.

In this particular piece it is also mentioned that “Daily Fantasy Sports” supporters had staged a protest in support of the game and that they called it a “skill based game”. “Last Week Tonight” also claimed that many of these were employees at one of these fantasy sports companies. To certain extent it may very well be a “skill based game”, however then so is poker and it wouldn't exactly be a radical step to say poker is gambling.

What I would like to take from this is how the case of “Daily Fantasy Sports” is an example of public choice theory and rent seeking. It is a display of a particular gambling “sector” which is attempting to protect and maintain a legal framework which benefits them by providing certain advantages relative to other forms of gambling and a situation in which it is the government's fault for favouring this particular form of gambling.

Bottom Line: Rent-seeking firms will take advantage of government failure to make profits.

* Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.


Olivia K said...

Hey Ferdinand,

The topic of your blogpost is intriguing, but I struggle a bit in understanding one of your points: you say that "not being labelled as gambling provides them with more freedom, both in terms of operating within the market and in terms of how they are allowed to advertise themselves." Which advantages in "operating within the market" do "Daily Fantasy Sports" have exactly? And how does this then relate to a failure of the government to act? (Are there any specific connections between the company and policy makers?)

Anonymous said...

I think you brought up an interesting topic for your blogpost.
Not all of your points make perfect sense to me though.
1) I don't know if this is wrong on my part but I always thought of rent-seeking as actively manipulating the environment and using political tools for your own benefit. In this fun sports example, it seems more like the firm is acting within existing constraints by finding loopholes in the existing legal framework to maximize their profits/pursue their own objectives. So maybe this is not as much rent-seeking but a matter of shrewd entrepreneurship?
2) moreover, I thought labelling this as government failure is a rather bold statement, because the government does not seem to necessarily favor this game on purpose, but rather created general institutions which were circumvented by the game firm. Government failure is always a failure to fix market failure right? I don't think government failure is necessarily relevant in this example or is it? I am not sure about this, maybe I just understood your last point (bottom line) incorrectly but I feel like it would make more sense if you would have elucidated this 'government failure' a little more.
- Anna-Maria R.

David Zetland said...

@anna-maria -- I added the govt failure tag b/c it seemed to be an example of inconsistent regulation (if intentional, then def. GF)

Ferdinand said...

Hi Olivia,

You are pointing out some problems with this post, mainly regarding aspects that I should have communicated better or elaborated on a bit more.

Firstly, advantages ranges from the fact that in some states state-sponsored sports gambling is illegal or will need to meet certain conditions to remain legal. Hence they are facing less restraints in the US sports gambling market.

Secondly, though this may very well be unintentional, the government has still allowed for "Daily Fantasy Sports" to operate relatively freely so far despite laws arguing against it. In addition the demonstration for instance suggests that there certainly is rent-seeking involved.

Ferdinand said...

Hi Anna-Maria,

Firstly I very much enjoyed your response but here are my thoughts:

1)Shrewd entrepreneurship, yes, but they still rent seek. The demonstration in New York is an example of rent seeking, they have certain advanteges and in this case paid employees to hold a demonstration essentially "faking" public support in order to influence law makers. Certainly not the worst case of rent-seeking however I would still choose to classify it as such, since they are earning additional profits through legal protections on partially state-sponsored sports.

2)As the original point of anti-gambling laws were, at least in part, claimed to correct negative issues associated with gambling - so what we would call negative externalities - this is an example of law making in which specific firms have been favoured. Now if this is intentional or not is where I would say it becomes difficult, yet even if it is not intentional this could still be government failure in my view though it may be more difficult to say for certain.

Thank you for your response, hope this makes at least parts of the post more understandable.

Jeff said...

The idea that sports betting is a "game of skill" is just a complete joke. There's far more skill involved in poker and yet we still call that gambling.

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