Daily Fantasy Football Scandal Opens the Door for Gaming Regulations

Last updated on November 2nd, 2018

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The daily fantasy football scandal surrounding DraftKing and FanDuel this week has led to lawsuits, op-ed articles, and calls for regulations from U.S. officials. It would be hard to give a quick recap of the various opinions published, but a review of the possible regulations might be feasible, and is certainly important for the industry.

For those who’ve been away from the computer all week, a controversy erupted on Monday about Ethan Haskell’s 2nd place finished in FanDuel’s Week 3 NFL Sunday Millions event. Ethan Haskell happened to be an employee of DraftKings, the major rival to FanDuel. When Haskell posted on his Twitter account the percentage drafted (“% Draft”) statistics for his starting lineup, which won $350,000, it caused a reaction from fans of daily fantasy sports.

People naturally assumed Ethan Haskell had inside information to draft percentages, which might have given him an unfair advantage in gaming for real money. Much of the discussion this week centered around how much of an advantage he had, and what his revelation meant for the DFS industry. Toward the end of the week, a man filed a class action lawsuit against FanDuel and DraftKings.

Dina Titus of Nevada

Meanwhile, politicians came out of the shadows to give their solutions to the perceived problem. Prominent among them was U.S. Representative Dina Titus, a Democrat whose district straddles the Las Vegas Strip. Rep. Titus wrote the chairman of the House Committee on Energy and Commerce, saying it was critical for the House to “investigate this growing committee”.

She added the common refrain that daily fantasy sports not only might be a form of gambling, but it might be an illegal form of gambling. Her letter read, “Many experts in gaming law believe that the (daily fantasy sports) business model violates the Unlawful Internet Gambling Enforcement Act.”

Eric Scheiderman of New York

Eric Scheiderman, the New York Attorney General, is considering an investigation into the Ethan Haskell case itself. Scheiderman wants access to the company policies, gaming revenues, and key statistics involved in the controversy.

The New York AG wants a list of the “names, job titles and descriptions” of the employees at DraftKings and FanDuel who compile and aggregate such statistics. While the two companies have maintained that Ethan Haskell had no inside information, he is not the one under the spotlight in this case. A major danger lurks here, and that danger has been underreported.

Neither of the companies seem to have had policies against employees playing in contests on competitors’ sites. It would seem each company would have more than one single person compiling and aggregating such data. If only one of those people who handled the statistical information for weekly contests also played in a DFS contests somewhere else, then it would be a bombshell when that information became known. This seems to be a likely outcome of the New York state investigation.

A. Lee Bentley III in Florida

SI.com reported that the United States Attorney’s office in Tampa, Florida, which is headed by A. Lee Bentley, is investigating the daily fantasy sports operators to see if they are guilty of violations of the Unlawful Internet Gambling Enforcement Act. When the UIGEA was passed in 2006, even the most anti-gambling lawmaker seemed to agree that fantasy sports was made legal under federal law, so it is extraordinary for a US Attorney to be revisiting that subject now.

Lee Bentley’s office appears to be investigating to see whether DFS violates the Illegal Gambling Business Act of 1970, a federal statute. The attorneys are also making certain the relatively new form of gaming doesn’t violate Florida laws.

Sports Illustrated’s Mike Florio speculated that the Tampa office’s interpretation is likely to hinge on whether daily fantasy sports is considered a game of skill or a game of chance in Florida. By implication, the same standard might apply to states across the United States–if DFS is seen as a game of chance, then it might violate state laws.

Federal Grand Jury

The US Attorney’s office in Tampa is likely to convene a federal grand jury to study whether DraftKings and FanDuel violate IGBA, which was written decades before this type of gaming was invented. A grand jury has a stacked deck against those who are being investigated, because it is conducted in private and the accused cannot have their representatives present their side of the case.

A grand jury would be problematic for several reasons. It likely would take a long time (perhaps 18 months), keeping this story in the press long after most people forget who Ethan Haskell is. Also, executives and employees would have to testify under oath, with the threat of perjury charges always in the background. The grand jury also can subpoena unflattering details on financial information and business practices. For instance, it was revealed this week that DFS site employees have won about $6 million in contests. While that sounds like a lot, it’s a tiny percentage of the winnings. Still, such releases could damage the industry.

Also, in high profile cases, the danger of this material being leaked is high, thus creating all sorts of perils the probed industry might face. The Ethan Haskell situation appears to have opened a Pandora’s box of government oversight for the daily fantasy sports industry. It appears unlikely FanDuel and DraftKings can close that box without their industry dealing with serious consequences. Regulation was already becoming an issue before Ethan Haskell. It might now become inevitable.