Close To The Edge

Once again, I am indebted to my old friend Scott for drawing my attention to some breaking news - a sports betting scandal over in the USA.

Unlike the Betfair scandal, which sees UK regulators either incapable or unwilling to address, it's unlikely to take the US authorities long to act, unless guns are involved in which case it's business as usual. Got mental issues? Sure, no problem Sir - how many guns would you like?  13? - unlucky for some, here you go. 

Scott notes that;

According to this article, US federal law accepts that fantasy leagues where you bet on the results produced by individual players constitutes a game of skill rather than chance.

But betting on match outcomes themselves is somehow different.

Totally bizarre.

Legalising sports betting is the only (obvious) solution to the problem.

Equally as bizarre is that internet poker was considered a game "subject to chance" and banned in 2006. Buying stocks, options, futures etc. is all skill then. Right.

Here is the New York Times article on the US Daily Fantasy Sports scandal:

A major scandal is erupting in the multibillion-dollar industry of fantasy sports, the online and unregulated business in which players assemble their fantasy teams with real athletes. On Monday, the two major fantasy companies were forced to release statements defending their businesses’ integrity after what amounted to allegations of insider trading, that employees were placing bets using information not generally available to the public.

The statements were released after an employee at DraftKings, one of the two major companies, admitted last week to inadvertently releasing data before the start of the third week of N.F.L. games. The employee, a midlevel content manager, won $350,000 at a rival site, FanDuel, that same week.

“It is absolutely akin to insider trading,” said Daniel Wallach, a sports and gambling lawyer at Becker and Poliakoff in Fort Lauderdale, Fla. “It gives that person a distinct edge in a contest.”

The episode has raised questions about who at daily fantasy companies has access to valuable data, such as which players a majority of the money is being bet on; how it is protected; and whether the industry can — or wants — to police itself.

The leagues have been swelling in popularity, their advertisements blanketing football game broadcasts.

The industry has its roots in informal fantasy games that began years ago with groups of fans playing against one another for fun over the course of a season. They assembled hypothetical teams and scored points based on how players did in actual games.

But in recent years, companies, led by DraftKings and FanDuel, have set up online daily and weekly games based on a similar concept in which fans pay an entry fee to a website — from 25 cents to $1,000 — to play dozens if not hundreds of opponents, with prize pools that can pay $2 million to the winner. Critics have complained that the setup is hardly different from Las Vegas-style gambling that is normally banned in the sports world.

On Monday, DraftKings and FanDuel released a joint statement that said “nothing is more important” than the “integrity of the games we offer,” but offered few specifics about how they keep contests on the level.

A spokesman for DraftKings acknowledged that employees of both companies had won big jackpots playing at other daily fantasy sites. Late Monday, the two companies temporarily barred their employees from playing games or taking part in tournaments at any other site; they already had prohibited their employees from playing on their own company sites.

“Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs,” the statement said. “Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.”

Industry analysts said the episode could leave the leagues open to further criticism that they are too loosely regulated.

“The single greatest threat to the daily fantasy sports industry is the misuse of insider information,” Mr. Wallach said. “It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place. If the industry is unwilling to undertake these reforms voluntarily, it will be imposed on them involuntarily as part of a regulatory framework.”

Already, there has been intensifying discussion on social media and among lawmakers over whether daily fantasy games are pushing the boundaries of an exemption in a 2006 federal law that has allowed them to operate. The law prohibited games like online poker but permitted fantasy play, deemed games of skill and not chance, under lobbying from professional sports leagues. The games are legal in all but five states.

But because Congress did not foresee how fantasy sports would explode, one member, Representative Frank Pallone Jr., Democrat of New Jersey, recently requested a hearing to explore the relationship between fantasy sports and gambling. “I really think if they had to justify themselves at a hearing they wouldn’t be able to,” Mr. Pallone said in a recent interview.

The data that DraftKings acknowledged was released by its employee, Ethan Haskell, showed which particular players were most used in all line-ups submitted to the site’s Millionaire Maker contests. Usually, that data is not released until the line-ups for all games are finalized. Getting it early, however, is of great advantage in making tactical decisions, especially when an entrant’s opponents do not have the information at all.

A spokeswoman for DraftKings said that Mr. Haskell simply made a mistake and that the company was certain he did not use the information improperly. She declined to go into specifics about the safeguards or the company’s auditing policies.

Representatives of both companies acknowledged that many employees of daily fantasy companies were players first and had continued to compete on other sites. Ben Brown, a founder of Daily Fantasy Sports Report, was first to disclose that Mr. Haskell had posted the information. Mr. Brown also said a FanDuel employee with access to its internal data, Matthew Boccio, had played on DraftKings; a FanDuel spokeswoman confirmed that.

"There’s a significant amount of crossover,” said Chris Grove, an industry analyst and editor of legalsportsreport.com. “The nature of the industry is so specialized and so new that, at the speed which they grew, they relied heavily on the player population.”

Many of these employees set the prices of players and the algorithms for scoring. In short, they make the market.

As daily fantasy sports has blossomed into a multibillion-dollar industry in the past year, DraftKings and FanDuel have become cherished sponsors of M.L.B. and N.F.L. franchises.
Eilers Research, which studies the industry, estimates that daily games will generate around $2.6 billion in entry fees this year and grow 41 percent annually, reaching $14.4 billion in 2020.

So high are the potential financial rewards that DraftKings and FanDuel have found eager partners in N.F.L. teams, even as league executives remain staunch opponents of sports betting.

Jerry Jones of the Dallas Cowboys and Robert K. Kraft of the New England Patriots have stakes in DraftKings, which recently struck a three-year deal with the N.F.L. to become a partner of the league’s International Series in Britain, where sports betting is legal. In addition, DraftKings has tapped hundreds of millions of dollars from Fox Sports, and FanDuel has raised similar amounts from investors like Comcast, NBC and KKR.

Adam Krejcik, a managing director at Eilers Research, said early missteps were often part of booming growth in a new and often misunderstood sector like daily fantasy sports. He said whether Mr. Haskell, the DraftKings employee, made an innocent mistake or not, the damage was done.

“Certainly does not look good from an optics standpoint, and it strengthens the case for additional oversight and regulation,” he said.

Mr. Grove, of legalsportsreport.com, said this may be a watershed moment for a sector that has resisted regulation but now may need it to prove its legitimacy.

“You have information that is valuable and should be tightly restricted,” Mr. Grove said. “There are people outside of the company that place value on that information. Is there any internal controls? Any audit process? The inability of the industry to produce a clear and compelling answer to these questions to anyone’s satisfaction is why it needs to be regulated.”