Final Fantasy? Scandals Keep the Fantasy Sports Industry on Edge
With an insider-trading scandal and regulatory scrutiny at the state and federal levels causing major headaches for the two largest daily fantasy sports companies, the Fantasy Sports Trade Association finds itself working overtime to defend its members.
Daily fantasy sports (DFS) are increasingly popular, and with that popularity comes increasing scrutiny.
However, calling it scrutiny might be putting it rather lightly. Here are a few challenges that the popular fantasy sports websites DraftKings and FanDuel are currently fielding:
- A scandal that broke earlier this month involving a content manager for DraftKings reportedly having access to insider data, then winning a large amount of money on the rival FanDuel. In a New York Times article, sports and gambling lawyer Daniel Wallach compared the action to insider trading on the stock market.
- A class-action lawsuit filed against the two sites last week, accusing them of false advertising, fraud, and negligence.
- A report that the FBI is looking into the popular sites to figure out whether their business models violate federal law. The news comes on the heels of a separate report that the U.S. Attorney’s Office in Tampa is starting a probe of its own, analyzing whether the industry is violating the Illegal Gambling Business Act of 1970.
- A move by Nevada regulators to shut down daily fantasy sports sites in the state, arguing that the websites need gambling licenses to operate.
An Association in the Middle
Those negative headwinds put the primary group representing the world of fantasy sports, the Fantasy Sports Trade Association, in a difficult spot. When the initial scandal hit, FSTA was quick to defend the two sites for their transparency.
But the group, in a joint announcement with DraftKings and FanDuel, noted that its charter requires members to “restrict employee access to and use of competitive data for play on other sites.”
“At this time, there is no evidence that any employee or company has violated these rules,” the association and companies said in a news release. “That said, the inadvertent release of nonpublic data by a fantasy operator employee has sparked a conversation among fantasy sports players about the extent to which industry employees should be able participate in fantasy sports contests on competitor sites.” The industry is working to develop more detailed policies to clarify the issue, according to the news release.
Part of the problem for the industry is that DFS companies have seen fast growth—something that represents a double-edged sword of success and scrutiny.
“Both companies have really been very impressive in terms of how much they’ve been able to do so quickly,” FSTA Chairman Peter Schoenke told Boston.com last week.
In many ways, the strategy being taken by the companies is similar to the approach by Uber, Airbnb, or similar companies with a disruptive tech focus. For example, FanDuel has hired a lobbying firm and has recently joined the heavy-hitting Internet Association, a trade group that represents the likes of Google and Facebook, according to Politico.
No Love From Casinos
But the biggest problem facing fantasy sports may come from the legalized gaming industry, which has not warmed to the upstart industry despite its growing popularity. For example, the American Gaming Association was quick to cheer Nevada’s decision to treat daily fantasy sports as gambling.
“The casino gaming industry has repeatedly called for greater legal clarity on daily fantasy sports. We appreciate that the Nevada Gaming Control Board has provided that clarity as well as a road map for DFS companies and casinos to provide popular fantasy sports within Nevada borders,” AGA President and CEO Geoff Freeman said in a news release.
Despite that decision, FSTA remains wary of promoting FanDuel as equivalent to going to a casino. While Schoenke has previously suggested that the fantasy sports industry would be willing to work with the casino industry on regulatory issues, he emphasized, according to a Lexology white paper, that it couldn’t come “at the cost of admitting or having the connotations that [DFS] is gambling or has to be regulated as gambling because that’s not how we feel the industry should develop.’”
An ad for DraftKings, one of the sites currently facing scrutiny over an insider trading scandal. (YouTube)