The difference is that hobby expenses are subject to the 2% limitation. Gambling losses are not.
Unfortunately, there is no clear answer which one is correct. If I remember correctly, by the old IRS definition, it is gambling. However, the actual Law Code, NOT in the Tax Code, says that Fantasy Sports is NOT gambling FOR INTERNET GAMBLING PURPOSES.
There has not been a clear ruling on this, but I would probably go with Gambling because that uses the IRS definition AND it results in a better tax outcome. 🙂
