Feds need to lay off fantasy gambling

That’s billions with a B.

Not be confused with hypocrisy with an H. Or maybe with a $.

As Powerball lottery frenzy reaches unprecedented levels, the somewhat twisted and disingenuous role of government in enforcing sports gambling laws deserves a look.

After all, government is simultaneously promoting state-run gambling like Powerball, with its $1.3 billion projected payout, while studying how to clamp down on privately-run fantasy sports sites and NCAA basketball pools.

There is a difference, the pseudo do-gooders claim.

Sure, the primary difference is the government’s lottery pays off so poorly that any bookie would blush.

Should all gambling be illegal? You decide. That’s not my beef.

If the government is going into the gambling business, though, it should steer clear of lining its pockets while investigating private ventures that do essentially the same thing.

New Jersey Congressman Frank Pallone says that, while online sports betting and online gambling are prohibited under federal law, fantasy leagues are taking advantage of a loophole known as a “carve out.” That allows internet wagering to thrive, and he is seeking an investigation.

More importantly, though, it deprives New Jersey of potential casino income through taxes and licensing fees.

That makes the cries of Pallone and several states looking into fantasy sports suspect.

Is the real motive here to protect the public or to thwart competition?

If you look at the odds for consumers, the answer is clear.

For all its attractiveness, at its heart Powerball (played in 44 states) is essentially a voluntary tax. Participants pay a 100 percent sales tax on each ticket. That is because only half of the proceeds actually go into the payout pool.

If gamblers wish to take those tilted odds, that is great. Hey, buy all the tickets you want. After all, at odds of 292 million-to-1, why wouldn’t you? (If those odds seem higher, you are correct; they were increased from 175 million-to-1 in 2015 by adding another number to the equation.)

“The lottery managers say ‘you can’t win if you don’t play,’” said Indianapolis CPA Mike Clark, who calculated the net payout on a $1.3 billion jackpot at $452 million. “It is also true that you can’t lose if you don’t play.” And, we might add, you still have your dollars in your pocket.

If state-sponsored gambling is allowed, don’t seek to shut down those competing with games that involve some modicum of skill and substantially better odds.

Regulate it. Tax it. Recognize that this is not gambling in the lottery/slot machine form that is pure chance. But don’t prohibit it.

Again, I don’t endorse it; indeed, I do not play. But recognize that there is a market.

Fantasy sports have become a billion-dollar business, and since 2005 the number of fantasy players has nearly quintupled to 56.8 million. The two biggest sites have raised more than $700 million in capital and are valued at more than $1 billion each. Investors include Fox Sports, Turner Sports, NBC Sports Ventures, Comcast Ventures, Google Capital and KKR.

That is sure to capture attention. (The issue of whether athletes should be entitled to compensation for use of their names is quite another matter and a subject for another column.)

The sites have operated with minimal government regulation or intervention. The 1992 federal ban on sports betting didn’t include simulated teams, and Congress exempted fantasy sports in the 2006 Unlawful Internet Gambling Enforcement Act. That law carved out “any fantasy or simulation sports game” whose outcome “is determined predominantly by accumulated statistical results of sporting events” and not by any one real-world team or a single performance of an athlete.

This is essentially the grown-up version of the NCAA tourney office pool.

As the Powerball frenzy continues, with its obscenely impossible odds, government should back off fantasy sports.

Certainly, we all would be well-served to recognize that get-rich-quick schemes like lotteries are today’s con games.

They may be of questionable value, but the consumer can decide.

If gambling is allowed, though, competition should not be outlawed. After all, this is really just entertainment in different forms. Don’t blame consumers for betting on a game with better odds like fantasy sports or NCAA tourney pools.

Better yet, don’t blame consumers if they don’t bet it all.

At a glance

Lottery math

The math of the Powerball lottery will cause that $1.3 billion prize to shrink to $452 million. Here’s what would happen to a Johnson County winner who took a lump sum payout:

Prize: $1,300,000,000

Lump sum: $ 806,000,000

Fed tax: $ 351,000,000

IN tax: $ 26,598.000

JoCo tax: $ 8,060,000

Net proceeds: $ 452,166,000

Figures are rough estimates compiled from Wall Street Journal data

Author photo
Bob Johnson is a sports correspondent for the Daily Journal.