Armour: Long-overdue, changes coming to daily fantasy sports industry
The daily fantasy sports industry has two choices right now: Take steps to regulate itself in strict and transparent fashion, or start writing goodbye notes.
It’s that simple. Unless the powers that be recognize they’re no longer working out of somebody’s basement or the back room of a bar, where rules and regulations are more a suggestion than actual practice, the fallout over DraftKings’ recent data breach and the accompanying questions it raised about possible insider trading could be the demise of the industry.
Already, ESPN is pulling back from what has been incessant advertising for daily fantasy sites, announcing Tuesday that it would no longer show DraftKings sponsorship graphics and language within its programming. DraftKings also pulled its advertising from ESPN, though it's not clear if that's a one-day move.
(FanDuel is still running ads so, sorry, you’re still going to be subjected to 8 million commercials during every single game you watch. How this isn’t considered a form of torture is beyond me.)
But the bigger threat to the industry's billions came a few hours earlier, in the form of a press release from Rep. Frank Pallone, D-N.J.
DraftKings pulls advertising from ESPN amid questions of inside trading
“The allegation of ‘insider trading’ by employees of daily fantasy sports operators is a prime example of why we need a Congressional hearing to review the legal status of fantasy sports and sports betting,” Pallone said.
That sound you heard was the shudder coming from the executive suites at DraftKings and FanDuel, which have rapidly grown exceedingly rich while operating with no oversight.
(USA TODAY Sports has a partnership with RealTime Fantasy Sports for a daily fantasy sports game, FantasyScore.com.)
Let’s cut to the chase. Fantasy sports is gambling, no matter how the industry tries to spin it. But a loophole makes it legal, unlike most other forms of sports betting.
See, when Congress was debating the law that prohibits online gambling back in 2006, fantasy sports was still mostly small-time, played mostly by groups of friends who wanted another excuse to talk trash and yell at the TV. The Internet was often used in the form of emails that told you just how badly "Ladies and Edelman" had fared this week or that "That’s Gould, Jerry! Gould!" had won the league title. Again.
But daily fantasy sites have exploded, going from an industry that had entry fees in the “tens of millions” just three years ago to one that will generate $3.5 billion this year, said Chris Grove, editor of legalsportsreport.com, a trade publication for the industry.
“The story here is a broader one, and it’s of an industry that grew at such a rate that complex questions that underpin an industry like this didn’t get the attention they deserved,” Grove said.
In other words, because it wasn’t subjected to regulation or oversight, daily fantasy sports was allowed to make up the rules as it went along. Or not have rules at all, judging by what went down at DraftKings.
While Ethan Haskell’s release of data showing which players were used most often in fantasy lineups appears to be inadvertent, it raised questions about how easily accessible the information was. Hearing that Haskell had made $350,000 on FanDuel – employees cannot play on their own site – raised eyebrows.
Though Haskell had set his lineup before the data breach, it sparked suspicions about insider trading. If employees had access to data, what was to stop them from using it to wager on other sites, thereby making a sham of the entire industry?
“This is a blessing in disguise for the daily fantasy site industry,” Grove said. “(It) now has the benefit of a broader conversation, an opportunity to embrace regulation, an opportunity to embrace the controls … without having had to go through a truly existential threat. This time it was a mistake. The next time it could be proof of fraud, which would be disastrous for the industry.
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“This raises awareness of the problem and raises the pressure to the point so something gets done.”
Except that the industry has never shown much interest in annoyances like rules and operating standards. But others have, and this will only add fuel to their argument.
Pallone has been calling for Congressional hearings about the industry for months. New York Attorney General Eric T. Schneiderman began an inquiry Tuesday into possible insider trading at DraftKings and FanDuel, according to the New York Times. And Massachusetts Attorney General Maura Healey, who made strict enforcement of gaming laws a centerpiece of her campaign, said last month she was “reviewing” the legality of DraftKings, which is based in Boston.
“It’s certainly within the realm of possibility that other states may take a closer look at this activity,” Grove said. “They could shut off play in their state.”
Others say there’s no way that will happen, that there’s too much money involved and fantasy sports is too engrained in our sports culture. Even the professional leagues dead set against gambling are into fantasy, with New England Patriots owner Robert Kraft and Dallas Cowboys owner Jerry Jones both having stakes in DraftKings.
But the industry is in for major changes, with or without the cooperation of the fantasy site operators. On that you can bet.