The meteoric rise of daily fantasy sports games has been the story of the gaming world in 2015, and figuring out how to accommodate this new product has caused no shortage of headaches. But with yesterday’s revelations of a data leak and what amounts to insider trading by DFS employees, the gravy train may be derailing in front of our eyes.
Because FanDuel and DraftKings, the two largest DFS operators, operate in an unregulated landscape, it would be a stretch to accuse either company or their employees of any legal wrongdoing. However, the incident is a major blemish on the public perception of the industry. Taken within the context of other recent events, the timing couldn’t be worse: the editorial board of the country’s most influential newspaper has now set its sights on DFS, Congress is beginning to bestir itself, state attorneys general and gaming regulators are scrutinizing the games more closely, many players are getting tired of consistently losing to quants living in their parents’ basement, and regular sports fans are fed up with being bombarded by FanDuel ads every time they turn on the television.
The industry’s publicity blitzkrieg in the run-up to NFL season has exposed it to the very questions it has long sought to avoid. While the ad barrage has achieved its primary purpose of drawing in multitudes of new customers, it has raised eyebrows over whether unregulated operators that came into existence almost overnight should be able to handle billions of dollars’ worth of transactions. It has exposed some of the arrogance with which the industry has come to operate, especially considering that DFS was birthed out of a law that was, ironically, intended to keep Internet wagering out of peoples’ homes.
The joint statement issued by FanDuel and DraftKings yesterday makes it clear that both firms understand the importance of internal risk management (how much of a priority this has been in the past is questionable). Hopefully they will seize this opportunity to ensure their respective houses are in order, and perhaps that will be enough for current issues to be seen as an aberration.
The opposite scenario is that this scandal produces a domino effect, leading to a death blow for the operability and legality of DFS games. Should this scenario play out, the fantasy sports industry would have no one to blame but itself. These firms have risen to where they are by aggressively pushing boundaries. But in their furious pursuit of growth, they have acted with reckless abandon, cut corners and have lost sight of the fact that their entire existence is rooted on a very questionable legal grounding.
Rather than walking on eggshells, the industry has proceeded with arrogance and delusions of grandeur – proclaiming itself the next big thing in sports while making absurd analogies to chess when comparing DFS to traditional sports betting. If one is running a quasi-legal sports wagering operation, the last place that person should want their brand name is draped over buses in Washington, D.C., directly in the view of people powerful enough to mount a crackdown.
Over the past two to three years, the mission of the Fantasy Sports Trade Association has transformed from promoting fantasy sports more generally into largely pushing daily games, which are seen as the future of the business. While it has vigorously fought to protect its carve-out in the 2006 Unlawful Internet Gambling Enforcement Act, even expelling members whom it felt pushed the envelope too far, the association has been toothless as an industry policeman or consensus builder on other issues, such as internal risk management, game integrity and customer protections.
Even more telling is the fantasy industry’s silence on problem gambling. Clearly DFS players can have the same addictive tendencies as problem gamblers, and such tendencies can lead to huge monetary losses, as with problem gamblers. But so far there has been only silence from the big players on how to treat high risk players, perhaps because any proposed solution that is similar to problem gambling protections would be an implicit admission that DFS games are gambling.
Both FanDuel and Draftkings have been able to hide behind the nebulous UIGEA exemption until this point, but their critics and skeptics now have a much larger pool of incriminating and embarrassing information to work with. With authorities bearing down, the ball is now in their court to prove that their products are more than a gimmick. But chinks in the armor are quickly beginning to emerge, and we may see the end of this story more quickly than anyone could have imagined.
