In response to growing calls for government regulation of the daily fantasy sports sites, the DFS industry announced it will set up an independent control board to monitor ethics.
The proposed Fantasy Sports Control Agency would monitor daily and non-daily fantasy sports companies. The board will led by a former Obama administration official, lawyer Seth Harris, who was deputy labor secretary from 2009 to 2014, according to the Wall Street Journal.
“We’re going to develop a set of industry standards,” Harris told the paper. “We’re going to ask all of the companies that are engaged in cash games to establish controls, processes, and leadership that will ensure compliance with those standards.”
Harris also said the board would be able to audit companies and have an enforcement mechanism to deal with misconduct.
The DFS industry has been under intense scrutiny from both law enforcement and government entities after an “insider trading” scandal broke. An employee of DraftKings accidentally published a list on player ownership before week three games were played in the NFL. It was later disclosed he had won $350,000 on rival site FanDuel that week. The two sites are the largest daily fantasy sports sites.
That led to charges that fantasy site employees were using insider information to win money on rival sites. It was also disclosed that DFS employees regularly played on competing sites.
That soon prompted reports of investigations into the industry by a host of states and by the federal Department of Justice, the FBI and by US. Attorney Preet Bharara’s office, the same U.S. Attorney responsible for “Black Friday,” which shut down illegally operating online poker sites in 2011.
DraftKings Chief Executive Jason Robins told the Journal in an email that the new control board “will help our industry establish best practices” to ensure a level playing field for customers.
Analysts liken the board to the Financial Industry Regulatory Authority, or Finra, which monitors the securities industry.
The board would be launched through the industry group the Fantasy Sports Trade Association. Paul Charchian, president of association told the Journal that the industry wants to act before changes are imposed on it.
“We can establish and enforce these systems ourselves, or we can put our industry in the hands of outside entities who do not understand the industry as we do,’’ Charchian said.
However, such a board wouldn’t be able to block federal or state regulations which continue to threaten the industry. Illinois lawmakers last week introduced legislation in the state to regulate the industry and the Nevada gaming Commission has already ruled that daily fantasy sports is sports betting and the site’s need a state gaming license to operate in Nevada.
Federal investigations are focusing on whether the daily fantasy sports system violates any federal gaming laws. Fantasy sports were exempted from a 2006 federal ban on online gambling, but that was before the daily fantasy sports model emerged.
FanDuel and DraftKings officials have said they feel daily fantasy sports are legal and constitute a game of skill. They have also said that internal investigations have proven that the DraftKings employee did not have to list of player ownership before he made his plays on FanDuel.
Both sites have also blocked their employees from playing other fantasy sites.
Though details of the proposed board have not been finalized, Harris said his agency would be independent and not under the control or influence of any company or group.
“The reason that the FSTA established an independent authority and asked me to lead this organization is to ensure that it’s not a sham, that it’s not a fake, that it’s not just a publicity stunt,” Harris said in another interview with Bloomberg news. “The new entity will have a staff that’s independent from the companies and the FSTA, he said. “It’s a freestanding ethics and integrity agency.
“The goal is prevention, rather than punishment,” said Harris. “If we have large numbers of violations and penalties, then we haven’t set the system up right. The goal is instead to prevent and preempt violations that will put players’ money at risk, put the integrity of the games at risk, and also put the reputation of the industry at risk.”
“We are confident that an independent control agency can prevent any unethical, dishonest, or unfair behavior,” Harris further added in a press statement. “In the process, we can save lawmakers and regulators the cost and effort of intervening so that they can expend their limited resources on bigger and more societally important challenges.”
Harris said the new board will take between three to six months to pout a system of ethics in place.
States Respond
In Illinois, state Representative Mike Zalewski announced he has introduced a bill in the state Legislature to regulate DFS sites.
The bill would not classify daily fantasy sports as gambling, but would require companies to have policies for audits, would bar their employees from playing other sites and would prohibits players under 18. The bill also allows sites to check players for child support or tax liens.
Zalewski said the main concern of the bill is to keep players from overspending.
“Illinois could be a leader in the country in developing these standards and be something of a point of pride of how we allow this technology while at the same time protecting players,” Zalewski said in a press release.
Both DraftKings and FanDuel said they support the legislation.
“FanDuel has always focused on maintaining the integrity of our games and the trust of our players,” the company said in a press statement. “We welcome the opportunity to work with Rep. Zalewski and lawmakers in Illinois to safeguard consumers, introduce best practices that the entire fantasy industry can adhere to, and ensuring that sports fans across Illinois can continue to play fantasy sports.”
Similar legislation has also been proposed in Minnesota, where Democratic Representative Joe Atkins said he’ll introduce a bill in 2016—when the state Legislature is back in session—that would recognize daily fantasy sports betting as a lawful activity but require site operators to be licensed in the state, according to a report in the Associated Press. The bill would require DFS sites to undergo background checks and other audits.
In Massachusetts, the Gaming Commission last week for the first time discussed fantasy sports, and whether it should ask for jurisdiction over them.
The week before Attorney General Maura Healey urged a statewide discussion as to whether fantasy sports should be allowed to operate.
She told the News Service, “What I have said is important is that there needs to be a decision as to whether or not this industry be permitted to continue here in Massachusetts.” She noted that DraftKings and FanDuel, are already operating with Bay State customers.
When she made her comments the issue was already on the agenda of the commission, whose Chairman, Steven Crosby, said, “We’re going to give them our advice. They’ll make the decision, the Legislature and the governor.”
Crosby said he “leans away from regulation. The question is – are the same factors at play that make us regulate casinos, in this business? Are there similarities? I don’t know.”
During the hearing Commissioner James McHugh said that in addition to watching DraftKings and FanDuel that the agency should also keep a weather eye on eSports betting, which he said is “lurking in the shadows.”
McHugh, a former judge, in a memo to fellow commissioners wrote that the future of eSports betting is murky. “What is clear is the size of the audience it currently enjoys and the certainty that it is an area the Commission ought to watch carefully.” McHugh is retiring soon from the commission. Attorney General Healey will be naming his successor.
The commission’s staff has advised it that it would need to ask the legislature for authority over fantasy sports because it lacks that authority now.
Commissioner Gayle Cameron commented that gaming regulators universally support regulating the practice.
Anti-gaming groups support regulating fantasy sports. According to a letter to the commission by Stop Predatory Gambling and the Public Health Advocacy Institute: “The lack of any action to stop this illegal enterprise and either to tolerate it or wait until some future legislative action allows it sends the wrong message: that it is acceptable to engage in an illegal enterprise now and, if it generates enough revenue, wait until lobbyists and corporate interests change its legal status.”
Watchers of the commission will be interested in the person that Healey chooses to replace McHugh. Healey, who opposes gaming, has said she won’t necessarily name someone of like mind to the panel.
Last week she told the Milford Daily News, “There is no litmus test. The only thing that we were looking for is somebody of utmost integrity, somebody with experience and by statute somebody with experience in criminal investigations and law enforcement.”
Regarding fantasy sports, she said, “Clearly this is an industry that cries out for a more robust legal and regulatory framework than currently exists. That’s really important. And the things I continue to be focused on are ensuring that there is no fraud in the business or in the conducting of business, ensuring that consumers are protected, protecting against problem gamblers, protecting young people from gambling addiction, and making sure there’s a level playing field for participants.”
In Florida—site of an already disclosed federal grand jury investigation into whether daily fantasy sports violates federal law—State Senate President Andy Gardiner said he has asked state lawyers to explore the DFS industry and see if they can be shut down in the state.
“I have asked staff to kind of start the process of researching as much as we possibly can,” Gardiner told The News Service of Florida. “I would remind you we ran the internet cafes out of the state of Florida because they were outlawed and they were bad. You have the Nevada Gaming Commission saying that FanDuel and DraftKings are gaming and gambling. So we have an obligation, if we’re going to be consistent, that we need to look at them, and, if it is gaming, then we need to react to it.”
A similar request has reportedly been made in Florida’s House of Representatives.
Florida is somewhat unique for daily fantasy sports since it has a law that makes betting on games of skill illegal.
Pennsylvania’s legislature is also planning an investigation of fantasy sports.
The state House Gaming Oversight Committee has scheduled a hearing on fantasy sports betting this month. The chairman of the committee, Republican John Payne, told CBS that the committee isn’t looking to ban fantasy sports, but said the recent betting scandal has caused concern that the sites should be as regulated as the state’s casinos.
“So that we can verify,” he said. “Who are the principals of the organization? Let’s do the background checks. And where’s the revenue going? The commercials always show the one guy that won two million bucks. They don’t show you the two million guys that lost a hundred bucks.”
Casino Interest
As fantasy sports has grown in popularity, so has wagering at legal sports books, according to the American Gaming Association (AGA).
“Sports betting demand has never been greater,” AGA President and CEO Geoff Freeman said. “Fantasy sports may be serving as a catalyst for sports betting growth and helping the casino industry to attract new customers. As the daily fantasy sports community establishes greater consumer protections, we’re optimistic that our industries can achieve symbiotic growth.”
In 2009, Nevada sports books reported $2.55 billion in total money wagered, according to the AGA. That amount has increased every year since, including an about 20 percent jump in 2012, when bettors wagered $3.45 billion in Nevada Sports Books.
Last year, the amount wagered rose to $3.9 billion, and this year is poised to be the best yet, with a reported 14.6 percent increase over 2014, according to the AGA.
Nevada sports books also kept $277 million from sports wagering, which was a 61 percent increase from their yearly take in 2011, the Nevada Gaming Control Board reported.
Although the AGA reports increased sports wagering along with arise in fantasy sports participation, it does not take into account alternative explanations.
Many sportsbooks in Nevada, including those run by Cantor Gaming, William Hill, and others, have rolled out mobile sports wagering applications in recent years and improved them.
Now, sports bettors can lay virtually any legal sports wager from their computers, cellphones, or tablet devices from anywhere inside Nevada’s borders and never set foot inside a casino, other than to deposit or withdraw money from their sports betting accounts, resulting in increased wagering.
FanDuel was founded in 2009, during the Great Recession, and DraftKings in 2012, as the nation’s economy began to recover. With economic recovery has come increased gaming of all kinds, including at sports books and with online daily fantasy sports.
Still, the AGA has maintained a relatively supportive stance toward daily fantasy sports and defended it in light of recent allegations of potential insider trading and a federal investigation targeting FanDuel and DraftKings and its employees.
Along with the federal investigation, Nevada in October banned daily fantasy sports sites as unregulated gaming, giving casinos in the Silver State a local monopoly on fantasy sports, but none have embraced it.
“No brick-and-mortar wants to put their license at risk,” Union gaming industry analyst Chris Jones told the Associated Press. “I don’t think the operators will get involved until there’s much better clarity.”
Casino operators also say daily fantasy sports appeals to a completely different clientele that is much younger and more into professional sports than their older casino patron counterparts.
Still, the AGA suggests Nevada sports books could benefit from daily fantasy sports, which the association says is much more acceptable to the NFL and Major League Baseball, both of which ardently oppose sports betting but embrace regulated daily fantasy sports for the interest it generates among fans without the potential for fixing games and shaving points.
Other Developments
In another matter, New Jersey Congressman Frank Pallone—one of several Congressman to call for Congressional hearings on daily fantasy sports—has asked FanDuel and DraftkKngs for a list of all NFL players, coaches, referees, training personnel and team staff and owners who had used the websites in the last year.
Pallone supports New Jersey’s efforts to offer legal traditional sports betting, a fight that has often led to accusations that the NFL is hypocritical in opposing the state’s efforts. Pallone has also said the NFL’s policy allowing employees to play fantasy sites is hypocritical. The league, however, limits winnings to $250 according to The Hill newspaper.
Pallone also asked the sites to disclose how they track participants in their contests who may have links to the leagues and the National Collegiate Athletic Association, according to The Hill. The NCAA is also fighting New Jersey’s efforts.
DraftKings confirmed it had received the request and said it was “committed to working with all relevant authorities to ensure that our industry operates in a manner that is completely transparent and fair for all consumers, so that they can continue to play the games they love,” The Hill reported.
Pallone and Sen. Bob Menendez (D-N.J.) have also called for a Federal Trade Commission investigation into the industry.
Also, FanDuel has advised the NCAA that it will continue to offer games based on NCAA contests, despite a request by the association for the DFS sites to stop, according to ESPN.
ESPN reported that FanDuel’s chief legal counsel, Christian Genetski, notified the NCAA that FanDuel does “not plan to make changes to our games at this time, and certainly not without further conversations with you.”
The NCAA has already moved to block advertising for DFS sites at its events.
Daily Fantasy Sports did pick up some support from Major League Baseball as baseball Commissioner Rob Manfred told the New York Daily News that the league will continue to support fantasy sports.
“I think that fantasy is an important source of fan engagement, it has been for a long time,” he told the paper. “We did thoroughly investigate the games that were available on the site. That was a major factor in terms of selecting a partner in the fantasy space. And we were completely comfortable with the idea that those games were consistent with the existing federal law. I’m quite convinced it is a game of skill, as defined by the federal statute. And I’m comfortable with the idea that it’s not gambling.”
Daily fantasy sports also was mentioned in the third Republican presidential debate when former Florida Governor Jeb Bush—who plays traditional fantasy sports—was asked a question about regulating the DFS industry.
“This is something that needs to be looked at in terms of regulation,” Bush said “Effectively, it’s day trading without any regulation at all.”
And finally, DraftKings has reportedly asked that the World Series of Poker remove any DraftKings logos and sponsorship activities from its upcoming “November Nine” broadcast, in light of its withdrawing from the Nevada market.
