Last week I wrote an about the inevitability of Congress regulating fantasy football (see link below). In a nutshell, classifying fantasy football as anything other than gambling is absurd and intellectually dishonest. Yet, a carve out in federal law has allowed a multibillion dollar fantasy football industry (i.e. gambling industry) to operate free from any government oversight or regulation.
There is no legal or logical principle that would explain why fantasy football should be treated differently than other for-stakes contests, such as poker. The point of my earlier post was that legal observers (and Congress) are finally taking note of this arbitrary exception, mostly because the larger fantasy football outfits such as DraftKings and FanDuel are aggressively advertising million dollar payouts. That sort of money will inevitably draw the attention of the government and rightfully so.
But the sure-fire fastest way for a large, big money industry to become regulated is to give the appearance that it is rigged (see Wall Street…it is still rigged, but regulated). Earlier this week, DraftKings took a big step in that direction.
On Monday, DraftKings released a statement after one of its employee’s won $350,000 playing fantasy football at rival FanDuel. The controversy arose because the employee won that hefty amount immediately after it was discovered that confidential inside information regarding week three’s most utilized players was accidentally released by DraftKings. Having inside information about which players are being played the most gives fantasy football participants a huge competitive advantage. And really, its not much different than insider trading which has been illegal and aggressively prosecuted for decades.
DraftKings released a statement Monday claiming it conducted an internal investigation and found no evidence that its employee used insider information to his advantage (“trust us guys”). Nevertheless, it has temporarily prohibited its employees from participating in online fantasy football leagues.
Even if the DraftKings employee didn’t use insider information, the optics certainly don’t look good. It gives the appearance that the game is rigged. The fact that sensitive information capable of exploitation was released in the first place underscores the need for regulation. And with stakes as high as $1 million, the temptation to access and use this insider information is enormous. So is the risk of being targeted by computer hackers.
This weeks “insider information” controversy may be a tempest in a teapot, but it really highlights why the fantasy football industry needs regulation and ultimately will be regulated.
Rather than wait for a big scandal to erupt and have draconian regulations thrust upon it, it may be wise for DraftKings and FanDuel to get a head of the curve and control the process. If the industry voluntarily agrees to regulations and works with lawmakers now, it has a much better shot of securing favorable laws. Today it still has some leverage, which means it is the ideal time to negotiate. But once the next scandal hits, that leverage will be gone and Congress may very well regulate the industry into extinction, or perhaps into the waiting arms of Las Vegas casinos.
Photo credit: FreeImages.com Nikki Johnson