Player Pricing Mechanisms and the Daily Fantasy Sport Chance Versus Skill Debate

Abstract

Differentiating and defining games of skill versus chance have major legal implications when classifying gambling, especially in relation to daily fantasy sports in the United States. This paper provides a theoretical discussion and introduces an empirical approach to analyzing game player pricing mechanisms. If game pricing mechanisms are fully efficient—player prices fully reflect the expected contributions from players—then that game is one of chance since there is no opportunity for skill to play a role in outcomes. This paper examines player prices from DraftKings’ daily fantasy football product. Empirical results show that there are strategies deriving from the pricing mechanism that can be incorporated by skilled participants to increase their expected performance and improve their chances of winning. This provides evidence that daily fantasy sports are skill-based—a necessary condition for skill to be a predominant factor in game outcomes as part of the legal debate.