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USA Today sports
By: Nate Scott | October 7, 2015
Here’s the thing about loopholes: Eventually, they are closed.
Daily fantasy sites sprung up a few years back and exploded in popularity over the last year because they promised sports fans a chance to pick daily lineups of players and win big cash rewards if those players performed well. It was a beautiful combination of fantasy sports and gambling, two of America’s favorite pastimes.
This week, though, the precipitous existence of unregulated daily fantasy was threatened by a scandal in which an employee of DraftKings, one of the largest daily fantasy sites, had access to insider information and then won $350,000 at FanDuel, a competitor. DraftKings says the employee did nothing wrong, but this is the exact type of scandal you’d expect to happen in a completely unregulated industry.
It also spells the beginning of the end for daily fantasy as we know it.
Before we continue, it’s worth taking a moment to address a specious argument and say that, unequivocally and without doubt, daily fantasy is gambling. You give someone money, and based on outcomes outside your control, you can win more money. That is gambling.
But it wasn’t regulated like gambling. Due to a loophole in a 2006 law which classified fantasy as a game of skill and not chance, daily fantasy sites existed in an unregulated world. For users, this presented a nice experience: No bookies, no offshore gambling sites. You deposited some money, you set fantasy lineups (which almost everyone knows how to do), and often, you won. Most people didn’t win a lot of money, but they won enough, just enough, to keep them coming back for more.
That is how gambling works.
It was also wildly unfair for an average user. The majority of major daily fantasy prizes are won by sharps, people equipped with sophisticated algorithms that allow them to play a wide variety of lineups that give them the best shot at winning.
It also turns out that some of these prizes were being won by DraftKings and FanDuel employees themselves. An employee at DraftKings, Ethan Haskell, had access to non-public information about the most picked players in fantasy at his company, which he could then use to then pick more original lineups that would give him a better shot at winning a major prize. Because he was an employee at DraftKings, and not allowed by company policy to play on his own site, he played at FanDuel, and won $350,000.
The players on the field still had to play, but it was a distinct advantage. And it’s hard to argue with the results:
Update: In an appearance on Fox Business Network, DraftKings CEO Jason Robins said that the employee, Ethan Haskell, did nothing wrong.
“We have great records of when data is pulled, when communications are sent, so it was quite easy for us to go pull those records and what we found was that he sent this data after his lineup was locked on FanDuel so he had no ability to edit it, so it couldn’t possibly be a situation where that data was useful to him in setting that lineup,” Robins said.
“We also contracted a third part law firm,” he continued, “that’s conducting an independent investigation and as soon as we have a summary of those findings we will come and publicly share them, but we are very confident from our internal investigation that this person did nothing wrong and his name was dragged through the mud. It’s really sad. He’s a young kid, he works really hard and when someone who is innocent is vilified it’s tragic to watch”
DraftKings and FanDuel tried to manage the crisis by banning all employees from playing daily fantasy sites, prompting some to declare the matter settled. But what if a FanDuel employee has his brother play for him? Or his wife? Or if a DraftKings employee calls her friend and gives him the scoop?
There’s no regulation and no possible punishment, except by the company, which has an interest in keeping this sort of thing hidden from the public.
This scandal may have not been the one we predicted would happen, but it’s here. The New York Attorney General has already opened an inquiry into the two companies. Investors are pulling out and, in a bit of awful news for these companies, the pro leagues that have stakes in them (the NFL, NBA, MLB and MLS all have invested in daily fantasy sites) are beginning to distance themselves from the companies.
This was bound to all come falling down eventually. DraftKings and FanDuel found a loophole in the gambling laws in this country, and that loophole will be closed. Whether or not you agree that gambling on sports should be legal, it’s not hard to see that these daily fantasy sites couldn’t go on existing with a different set of rules than everyone else.
Daily fantasy will continue to exist in the future. But the world we know now, where DraftKings and FanDuel operate in world without regulation, is fast on its way out. It couldn’t go on like this forever.
http://ftw.usatoday.com/2015/10/this-is-the-beginning-of-the-end-for-draftkings-and-fanduel
By: Nate Scott | October 7, 2015
Here’s the thing about loopholes: Eventually, they are closed.
Daily fantasy sites sprung up a few years back and exploded in popularity over the last year because they promised sports fans a chance to pick daily lineups of players and win big cash rewards if those players performed well. It was a beautiful combination of fantasy sports and gambling, two of America’s favorite pastimes.
This week, though, the precipitous existence of unregulated daily fantasy was threatened by a scandal in which an employee of DraftKings, one of the largest daily fantasy sites, had access to insider information and then won $350,000 at FanDuel, a competitor. DraftKings says the employee did nothing wrong, but this is the exact type of scandal you’d expect to happen in a completely unregulated industry.
It also spells the beginning of the end for daily fantasy as we know it.
Before we continue, it’s worth taking a moment to address a specious argument and say that, unequivocally and without doubt, daily fantasy is gambling. You give someone money, and based on outcomes outside your control, you can win more money. That is gambling.
But it wasn’t regulated like gambling. Due to a loophole in a 2006 law which classified fantasy as a game of skill and not chance, daily fantasy sites existed in an unregulated world. For users, this presented a nice experience: No bookies, no offshore gambling sites. You deposited some money, you set fantasy lineups (which almost everyone knows how to do), and often, you won. Most people didn’t win a lot of money, but they won enough, just enough, to keep them coming back for more.
That is how gambling works.
It was also wildly unfair for an average user. The majority of major daily fantasy prizes are won by sharps, people equipped with sophisticated algorithms that allow them to play a wide variety of lineups that give them the best shot at winning.
It also turns out that some of these prizes were being won by DraftKings and FanDuel employees themselves. An employee at DraftKings, Ethan Haskell, had access to non-public information about the most picked players in fantasy at his company, which he could then use to then pick more original lineups that would give him a better shot at winning a major prize. Because he was an employee at DraftKings, and not allowed by company policy to play on his own site, he played at FanDuel, and won $350,000.
The players on the field still had to play, but it was a distinct advantage. And it’s hard to argue with the results:
Update: In an appearance on Fox Business Network, DraftKings CEO Jason Robins said that the employee, Ethan Haskell, did nothing wrong.
“We have great records of when data is pulled, when communications are sent, so it was quite easy for us to go pull those records and what we found was that he sent this data after his lineup was locked on FanDuel so he had no ability to edit it, so it couldn’t possibly be a situation where that data was useful to him in setting that lineup,” Robins said.
“We also contracted a third part law firm,” he continued, “that’s conducting an independent investigation and as soon as we have a summary of those findings we will come and publicly share them, but we are very confident from our internal investigation that this person did nothing wrong and his name was dragged through the mud. It’s really sad. He’s a young kid, he works really hard and when someone who is innocent is vilified it’s tragic to watch”
DraftKings and FanDuel tried to manage the crisis by banning all employees from playing daily fantasy sites, prompting some to declare the matter settled. But what if a FanDuel employee has his brother play for him? Or his wife? Or if a DraftKings employee calls her friend and gives him the scoop?
There’s no regulation and no possible punishment, except by the company, which has an interest in keeping this sort of thing hidden from the public.
This scandal may have not been the one we predicted would happen, but it’s here. The New York Attorney General has already opened an inquiry into the two companies. Investors are pulling out and, in a bit of awful news for these companies, the pro leagues that have stakes in them (the NFL, NBA, MLB and MLS all have invested in daily fantasy sites) are beginning to distance themselves from the companies.
This was bound to all come falling down eventually. DraftKings and FanDuel found a loophole in the gambling laws in this country, and that loophole will be closed. Whether or not you agree that gambling on sports should be legal, it’s not hard to see that these daily fantasy sites couldn’t go on existing with a different set of rules than everyone else.
Daily fantasy will continue to exist in the future. But the world we know now, where DraftKings and FanDuel operate in world without regulation, is fast on its way out. It couldn’t go on like this forever.
http://ftw.usatoday.com/2015/10/this-is-the-beginning-of-the-end-for-draftkings-and-fanduel
