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Fantasy Sports Blows it

Peter Jennings, a former stock trader from Fort Collins, Colorado, took home a $1 million prize after a five-day fantasy baseball event.
Courtesy DraftKings
Peter Jennings, a former stock trader from Fort Collins, Colorado, took home a $1 million prize after a five-day fantasy baseball event.

Well, it was fun while it lasted.

I've never been a fantasy sports website customer, but I've always defended the public's right to gamble and for all of us to use our leisure time as we see fit. But the erupting scandal in the fantasy football world today is a sure sign the unregulated party for companies like DraftKings and FanDuel is about to end.

Why? Because this story has the two key elements that politicians cannot resist: money and public attention. The money part comes from the billions of dollars Americans have wagered on their fantasy teams on and off line since fantasy sports began as rotisserie baseball in the 1970s. Almost all professional sports have a form of fantasy leagues but the NFL is the dominant leader, drawing millions of hardcore to very casual sports fans into the mix. Wait, did you say "billions of dollars and millions of people?" Talk about an irresistible combination for Uncle Sam. Throw in the inevitable coming stories of college kids or poor working people losing big money playing fantasy sports and you have the perfect storm.

The chances were never really good that state governments and the feds would keep their hands off fantasy sports. But those chances are nil now that we have reports that employees at each of the leading online fantasy betting sites were using insider information to make money for themselves. Remember, the feds essentially killed online poker sites for U.S. customers in 2011. That crackdown was based on the fact that the poker sites were gambling sites and basically the same as casinos. The argument that fantasy sports is also a form of gambling hasn't convinced everyone, but now regulators can use the "protecting the public" line because the fantasy sites' own employees are now apparently using insider information.

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If DraftKings and FanDuel, (disclosure: CNBC parent Comcast owns a stake of FanDuel), are lucky they'll only face regulation and not the virtual death penalty on U.S. shores the poker sites suffered. But my prediction is that it's going to be an uphill battle to survive. Five states already ban playing fantasy sports for money, but those bans have been widely ignored by citizens of those states for years. Now more states and the federal government will not only have an excuse to enact bans, but enforce them.

A large segment of the population is about to learn a lesson libertarians have been trying to teach the public for decades. Governments simply cannot accept a person's right to spend or lose his or her money as they see fit without some regulation and taxation. The state's craving for power is just too great to give private businesses that much control over billions of dollars of revenue and so much of the public's time. While some statist moderates are content with just taxing the revenues that come from those pastimes, the entrenched political class knows taking control of them is a better racket. And a racket it is, as anyone who plays the state lotteries or patronizes state-controlled off track betting can tell you. All the fantasy sports sites needed to do was give the government an opening to do the same thing to them. And they just did.

But remember, it's always "for our safety."

Commentary by Jake Novak, supervising producer of "Power Lunch." Follow him on Twitter @jakejakeny.