Daily fantasy sports should have been a great thing. A form of betting just shiny and different enough from handing a brown bag of cash to a guy named Fingers at the local dive bar to be treated as respectable enterprise, it had the potential not just to make insane amounts of money, but to change the debate about gambling in this country. Over the course of just a couple of days, though, what started as confusing claims making the rounds on enthusiast sites blew up to the point where New York’s attorney general announced an investigation, and the industry now looks like Wile E. Coyote after he’s run off a cliff but before he’s looked down. What happened?
Make no mistake: if the accusations are true, this is a massive scandal. But it’s also a slightly opaque one, so the particulars are worth going over. It’s been likened to insider trading, but that’s not quite right. What the employees of DraftKings and FanDuel are accused of doing is using information obtained through their jobs, but unavailable to the public, to increase their chances of winning on the competing sites.
Winning at fantasy sports isn’t about drafting the best players; it’s about getting the best values, because users have a limited payroll to build their teams. Those values are determined by in part by popularity: players drafted to the most teams will have the highest price tags. But Ethan Haskell, a midlevel employee of DraftKings, had access to data on which players were started most often on DraftKings. Assuming that those numbers are roughly the same on FanDuel (a safe assumption), Haskell would have been able to figure out which players offered the best values there, and which less-drafted players would have set his lineups apart from the pack. Haskell the won $350,000 in an NFL Week 3 contest.
(The game has gone both ways: FanDuel confirmed that its employee, Matthew Boccio, has played on DraftKings. Statements from both companies claim that neither employee made use of their privileged information.)
Using insider information to put the public at a disadvantage would be nothing short of fraud—and that’s the exact word New York’s attorney general said he’d be looking for when announcing the investigation. And it’s almost certainly not limited to a small number of rogue employees. On Outside the Lines, Darren Rovell passed along a statement from FanDuel saying that 0.3 percent of the total money won on its site has gone to DraftKings employees. Given the amount of money in play and the size of DraftKings’ staff, that’s an enormous, anomalous amount of money—well into the millions of dollars—won by people who may have access to information not available to other players. And it doesn’t begin to count any friends, family, and associates of employees who they could have shared that information with.
DraftKings and FanDuel released a joint statement saying that they have policies and safeguards in place to prevent fraud, and there is absolutely no reason to believe them, especially because those safeguards have allegedly been in place all along. There is no oversight and no regulation, and users are forced to trust employees no more qualified than those at any startup. One person who interviewed to be a recruiter at DraftKings told us that the company’s anti-fraud department consists largely of young, inexperienced employees fresh out of undergrad. “If they can use Excel and fog a mirror,” this person says, “they’re qualified.”
There’s a simple way to fix all of this—strong federal regulation to insure things stay on the up-and-up. But there’s a problem with that. By definition and by choice, daily fantasy sports can, as of now at least, only exist outside of regulatory scrutiny.
“Daily fantasy is not gambling.” That’s what the companies have been insisting from the very beginning, and—legally, at least—they’re correct. Fantasy is specifically separated from sports betting by the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, which defines it as a contest that
“reflect[s] the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple realworld sporting or other events.”
The act, quietly tucked into a bill about seaport security, was lobbied for by counsels and executives for all major sports leagues, because they recognized how much money and interest they gain thanks to the existence of fantasy sports. But daily fantasy, with the volume and speed of wagering that it offers, wasn’t considered at the time.
In every practical sense, daily fantasy is gambling. And that’s absolutely okay: whatever retrograde laws say, there is absolutely nothing wrong with sports betting. It ought to be legal nationwide, and daily fantasy is exactly the kind of half-measure that could have opened the door for the real thing.
Though sports betting is restricted to Nevada, you can still do it online—to the detriment of both the government and bettors. It exists on shady offshore sites beyond the ken of regulators, and by all accounts is even shadier than it was before the feds got involved. Their periodic crackdowns merely pushed the bookies and online poker sites further underground, where they’re more open to abuse—the sort of abuse that daily fantasy appears ripe for as long as it remains unregulated.
The logical answer is to legalize all sports betting and let the government regulate it and tax it. Daily fantasy, which has existed quietly but relatively untroubled for years, should have been the way in, showing lawmakers—among others—that society won’t crumble if people are allowed to openly wager money on sports. But it’s obviously having the opposite effect. A number of politicians are calling for legislation that would specifically address daily fantasy, and it’s a certainty that an increasing number will want to ban it. So what went wrong?
The ads. Those goddamned ads.
Online daily fantasy has existed since 2007. FanDuel launched in 2009. DraftKings was founded in 2012. And no one cared until last month, when you couldn’t turn on your TV, go online, listen to a podcast, or attend a game without being bombarded with ads. In Week 1 of the NFL alone, DraftKings and FanDuel spent $100 million on television commercials.
That ad blitz achieved two things. First, awareness of the two companies has skyrocketed, and the number of users along with it. Second, the public is fucking sick of hearing about daily fantasy. Take a look at just a sampling of the reaction to this week’s scandal—it is vicious, unrepentant, uncut glee. A massive number of people are actively rooting for the biggest daily fantasy companies to fail, just so they don’t have to see those stupid commercials anymore. If the public has turned on daily fantasy—and if it’s now tainted in a way that will lead reactionary politicians to bring it down—DraftKings and FanDuel have only themselves to blame.
Here’s the thing, though: these companies aren’t evil, or at least not any more evil or more capitalist than legal sports books or casinos. Yes, the system is set up to take your money, to make you keep playing “until extinction.” Yes, the odds are overwhelmingly against you; Bloomberg research indicates that roughly 0.5 percent of players account for 98.5 percent of winning lineups. If you come at this casually—as someone without the time, bankroll, or system to make it your fulltime job—you will be eaten alive. And even without the sharks, the house will get its cut. (It wouldn’t be in business if it didn’t.) You will almost certainly lose money playing daily fantasy sports.
But the same goes for any sort of gambling, from state-run lotteries to blackjack at Bally’s to whatever DraftKings is shilling this week. As long as the odds are public, consistent, and untainted—as long as the games are honest—there’s no reason adults shouldn’t be able to choose to take the chance. They should be able to bet and lose their money on daily fantasy, just as they’re allowed to lose their money on horse racing or slots.
The ideal world, then, is one where daily fantasy is categorized as betting on sports, and betting on sports is legalized and effectively regulated to ensure honest dealing.
This is daily fantasy’s true potential: a form of gambling as pervasive and innocuous as March Madness brackets or season-long fantasy. And with institutions as staid as ESPN and the NFL having bought in on one form of sports gambling, it’s not hard to picture some state—New Jersey has repeatedly tried—legalizing the whole shebang. Daily fantasy, for all its flaws, could be the wedge that facilitates real gambling with good laws.
That seems unthinkable now, though, because that would require running a long game, and there’s too much money in play here for anyone to think long-term. The daily fantasy bubble feels like nothing so much as your bog-standard VC scam. The companies’ valuations have been pumped up to irrational levels from a rush of outside capital—each is valued at more than a billion dollars, according to the latest rounds of fundraising—and some people are going to become very, very wealthy when they cash out. (DraftKings cofounder and CEO Jason Robins argued strongly yesterday that the industry should not be regulated.) The growth is unsustainable, and whether the bubble pops from a federal probe or death-by-a-thousand-legislations or a loss in public confidence caused by reports like this week’s, that won’t trouble the people who got out in time.
The public won’t mourn the loss of daily fantasy, because there’s nothing quite so American as the paranoia that someone, somewhere is getting rich unfairly, and it’s not you. But it will be a shame, because whatever fills its void in that shadowy unregulated zone between fantasy and betting will likely be much sleazier. There was the chance here to usher in comprehensive, rational legislation that would allow for safe, secure, and harmless sports betting, until DraftKings and FanDuel got too careless and too greedy. Instead, another crappy scam will pop up in daily fantasy’s place and then be beaten down in turn, all because the government and the sports leagues refuse to treat Americans like adults.
Photo via AP; graphic by Jim Cooke.