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Skill, chance, gambling, legality: They're all separate

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On Tuesday, the state of New York issued a cease-and-desist letter to the major daily fantasy sports operators, saying their activity is a form of online gambling and is illegal as a result.

FanDuel and DraftKings say they will fight the order, saying that daily fantasy sports is a game of skill and therefore not gambling.

That leads us to the central question: Is it gambling?

Regulators and casinos say yes because there is chance involved, and because people are betting on the outcome of sporting events. The only difference is whether people bet on the outcomes of a team versus an individual player, but the fundamental activity is still the same.

The daily fantasy site operators say their games are not gambling, because there is skill involved in picking the right lineups.

Some people will point to the fact that just 1 percent of participants win the vast majority of profits, saying that's because they are very skilled. Yet at the same time, these same people win a lot because they bet a lot; they enter hundreds of lineups, so a lot of their wins come from big participation.

But here's the thing: Skill versus chance doesn't matter. You can have one or the other or both — and it can still be gambling — or not.

And whether you define it as gambling might not even correlate with its legality.

Look at three contrasting examples: online poker, horse racing and the lottery. They all have different levels of skill and chance, but that doesn't relate to their legality. The lottery flourishes across the country, and nobody claims it's a skill-based game. Online poker has a lot of skill involved, but clearly there's some chance, too. Yet the country has broadly defined it at as gambling, and in almost every state it's illegal. With horse racing, whether or not you think it's more skill or more chance, it's pretty clearly defined as gambling. Yet it's broadly legal, and you can bet on horses online across the nation.

Even stranger: The Borgata casino recently held a basketball free throw shooting contest, where contestants bet money to win big. The difference here is that they were betting on themselves, not on the outcomes of somebody else's free throws. That's clearly a skill-based game, but obviously there's some chance involved in hitting free throws at your full potential. But it's not gambling. But it's at a casino. So take all that and try to decide what should be legal or not.

In the end, whether something has more skill or more chance is almost unrelated to whether it will be considered gambling. And the follow-up question then is even clearer: Just because it's gambling, does that make it illegal?

The answer will be decided by politicians, lawyers, judges and lobbyists. The underlying core questions almost don't matter.

Some people might think the government is pushing back on daily fantasy sites as a way to negotiate more tax revenues. But look at the example of online poker. It was a rapidly growing industry in the U.S. several years ago, and eventually got wiped out. That wasn't a ploy to raise taxes.

Gaming insiders say the daily fantasy story has entered unpredictable territory. Where it goes from here is anybody's guess. It might end up disappearing like online poker, or flourishing like the lottery and horse race betting.

Another issue to watch for along the way: if the legal status of daily fantasy sites becomes murky enough, it will be the payment processors who could bail first, rather than taking a chance of running afoul of the law.

Also adding to the gray area: While DraftKings and FanDuel say they will fight the New York order, they aren't taking the same approach in Nevada. In that state, the regulator said they could operate as long as they were approved for a gaming license. Experts believe the companies don't want to apply for the license because it would signal to other states that they are indeed admitting their activity is gambling.