Scandal Erupts In Unregulated Online World of Fantasy Sports

HughPickens.com writes: Joe Drape and Jacqueline Williams report at the NYT that a major scandal is erupting in the multibillion-dollar industry of fantasy sports, the online and unregulated business in which an estimated 57 million people participate where players assemble their fantasy teams with real athletes. Two major fantasy sports 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. "It is absolutely akin to insider trading. It gives that person a distinct edge in a contest," says Daniel Wallach. "It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place."

In FanDuel's $5 million "NFL Sunday Million" contest this week, DraftKings employee Ethan Haskell placed second and won $350,000 with his lineup that had a mix of big-name players owned by a high number of users. Haskell had access to DraftKings ownership data meaning that he may have seen which NFL players had been selected by DraftKings users, and by how many users. In light of this scandal, DraftKings and FanDuel have, for now, banned their employees from playing on each other's sites. Many in the highly regulated casino industry insist daily fantasy sports leagues are gambling sites and shouldn't be treated any differently than traditional sports betting. This would mean a high amount of regulation. Industry analyst Chris Grove says this may be a watershed moment for a sector that may need the legislation it has resisted in order to prove its legitimacy. "You have information that is valuable and should be tightly restricted," says Grove. "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."

Comments

Outsider

[Luthair]

I'm not sure this would qualify as insider trading since they aren't betting on their own sites. This would be more akin to Apple employees investing in Microsoft based on their internal market research about the Surface.

Re:Outsider

[Anonymous Coward]

Actually, the public does have access to that data. They just choose not to do the work necessary to gather it.

If I understand correctly, the person in question made the assumption that the players who were picked by the most people were probably the best players, and that an optimal team would contain those players. This turned out to be correct, though it was not necessarily so. He got that information by looking at the private data of users of his site. That's certainly a violation of the users' trust, which makes it ethically (and maybe legally) wrong.

Insider trading is illegal because it involves making money by knowing secret information that would materially affect the performance of a security if known. Ignoring the fact that the information, if known, would materially affect the number of people choosing particular players, and thus the maximum possible gains, it would not affect the fundamental performance of the player—how many points they make, running yards, etc.—so it isn't really in the same category.

Besides, anyone in the general public could get that same information with enough effort by taking a poll of fantasy football players and aggregating the results. If anything, that would likely result in a more statistically accurate result, because you'd be taking a random sampling of players on every site rather than only the players who happen to play on a single site.

Re:Ethan?

[tripleevenfall]

How this is not considered gambling I will never understand. If you bet on teams to win (thereby playing, through the odds, with or against every other bettor), that's sports betting and therefore gambling. If you bet on individual players and play against every other bettor, it's somehow not gambling?

(It's also the same model as the online poker sites which were banned...)

Either it all should be legal or all illegal. I'm not taking a position on that, but if I worked at one of these companies, I wouldn't be getting too comfortable in my current environs.