Fantasy sport now illegal in New York. But fantasy finance, well that’s just fine

US Outlook

Fantasy sports site DraftKings has partnered the NFL for its international games - such as the one that took place at Wembley on Sunday (Getty Images)

That all aspects of American life are rife with contradictions and hypocrisy is not exactly news. However, it is difficult to think of a better example than this week’s decision by the attorney generals of New York and New Jersey to try to ban people in those states from playing fantasy sports – particularly when fantasy finance is the foundation upon which both states are built.

Two companies are involved, FanDuel and DraftKings. Both run fantasy multiplesports leagues that allow people to win money based on the performance of the players they select for their team.

American Football lends itself to fantasy sports particularly well because of the endless data the game creates. Every player in every position on the field generates a mindboggling array of statistics, all of which help punters and real life coaches decide if they are any good or not. Competitors pay an entry fee, and in New York and New Jersey there are around 1.1 million fantasy league players generating membership revenues alone worth $384m (£253m) a year.

Having received no notice that a ban was in the works, FanDuel and DraftKings were given just five days to comply. Apart from anything, that is a ludicrously short notice period to, in effect, scuttle a multimillion-dollar business. Having allowed these businesses to operate for several years, both attorney generals now claim they are profiting from an illegal form of gambling.

Using the legislation that resulted in the 2006 crackdown on online poker, the states are seeking to stop the transfer of money rather than playing itself. Banks, wiring companies, credit card providers and other financial institutions in New York and New Jersey were told they should not transfer money into or out of either company’s accounts.

It may seem there is nothing hypocritical about stopping people from making money out of fantasy leagues.

But New York and New Jersey are two states that rely more than any others on Wall Street money, for Wall Street money has created vast wealth for New York and New Jersey through taxation, income and employment. And even though Las Vegas might be thought of as the gambling capital of the world, the truth is that the value of punts being taken via Wall Street makes the Vegas Strip look like a 25 cent blackjack table.

Successfully picking stocks and picking sports rosters both require skill, research and luck in equal measure. Anyone who claims that investing in stocks on the market is all about the first two and not the third has drunk the business school KoolAid. For proof, just have a look at the records of most “long-only” fund managers, never mind the so-called Masters of the Universe who run hedge funds.

Consistently outperforming the market is as rare as hen’s teeth. If it was a game of skill and not chance then outperformance would be more common.

We all know that picking a winner in the financial markets requires more than skill and research. Anything can go wrong and often does. It also requires luck. I am not a gambler, and so long as I don’t have to sit through a self-parodying Ray Winstone encouraging me to “have a bang on” every five minutes during commercial breaks, I am happy to just watch sports.

But I struggle to see why investing time and energy researching players and picking sports teams – just as others research stocks or options or whatever financial instrument it happens to be – should not be considered a game of skill and chance, and therefore legal. FanDuel and DraftKings need to fight back, and fight hard. 

Too busy taking selfies to see the big picture at Snapchat.

On the subject of financial gambling, one day soon investors who base decisions on outdated notions like business fundamentals, revenue and profits will all be correct. Correct about the absurd valuations attributed to tech start-ups like Snapchat. Not that its absurdity has stopped otherwise intelligent people parting with lots of cash, most of which will end up vanishing into the ether like a Snapchat photo.

Fidelity, one of the world’s largest investment companies, cut the valuation of its stake in Snapchat by 25 per cent at the start of last week. It only bought the stake in May, when Snapchat valued itself at $16bn.

As some observers have pointed out, there may be several perfectly valid reasons for that paper loss: perhaps Snapchat has failed to hit super-bullish internal growth targets (they have to be super-bullish to justify its valuation); or perhaps it is a reflection of the struggles endured by some publicly traded tech stocks, such as Twitter, over the past year or so.

Whichever way you cut this, it doesn’t look good. It will certainly be interesting to see what kind of revenue Snapchat has managed to generate over the past year. The news and gossip website Gawker got hold of Snapchat’s financials in August and revealed that it made only $3m of revenue in the first nine months of 2014.

However, that was before it launched the “Discover” news feed and advertising platform, which was supposed to turn Snapchat into a real business. Much of Snapchat’s revenue growth is based on the prospect of users tapping into news stories shared on Discover while sending selfies that disappear after seven seconds.

Forgive me for sounding cynical, but how many people who send selfies that disappear are also interested in CNN? Or National Geographic? Or even Vice? My guess is not as many as Snapchat thought.

Rumour has it that Uber, king of the unicorns, is planning on yet another round of fundraising, this time valuing the company at between $60bn and $70bn. It goes without saying that the valuation is only for the brave or foolish, mostly the latter. But if Uber is able to keep raising its valuation then at least it must be hitting some of its growth targets.

Regardless of whatever Uber is doing right, Fidelity’s move to cut its Snapchat stake valuation might force others to accept reality – and move those stakes from the profit column into the loss. Unless the idea is to just keep on gambling. Which, of course, it is.