Fantasy sports is getting slapped back to reality
The blossoming daily-fantasy-sports industry was supposed to be enjoying its victory lap. A multimillion-dollar carpet bombing of prime-time-TV ads, as well as mega-deals with some of media's and football's most prominent names, had attracted thousands of new bettors to its turbo-charged style of cash-prize online games.
Instead, the industry's Pepsi-and-Coke power duo, DraftKings and FanDuel, are swatting back allegations that an employee profited off insider data and grueling through a fight for their lives. A scandal-fueled crisis of confidence among fans, swelling resistance from lawmakers, and fresh doubts from even some of its top allies have given the fantasy sites their biggest reality check yet.
Sparked by a short post on a daily-fantasy message board, the controversy now threatens to undermine an industry that exploded over the last year to become one of the nation's most unavoidable forces in advertising, even as critics questioned whether the unregulated game was online gambling in disguise.
The billion-dollar businesses now face a critical question: Will any of these embarrassments stop people from playing?
If the industry 'can't recreate the grassroots consumer friendliness that is the signature characteristic of traditional, season-long fantasy sports, investors will be betting a $500 million advertising bankroll on (a) long shot,' wrote Kevin Braig, a partner with law firm Shumaker, Loop & Kendrick, in a note to clients Wednesday. 'One does not have to be the sharpest gambler at the table to see that is a risky bet.'
The sites' fast-cash contests are designed around a simple concept: Bettors pay an entry fee between 25 cents and $5,000, build an imaginary team of real-life players and then compete with others over how well their chosen athletes performed in a day on the field.
The games, which are legal in all but five states, have survived with help from a federal law passed in 2006 – three years before FanDuel was founded and the industry was born — that cracked down on online gambling but carved out an exception for fantasy sports, then known mostly for their slower, season-based gameplay popular in workplace leagues.
Industry boosters defend the games as tests of skill, not luck. DraftKings chief executive Jason Robins, who has often equated the game to chess, told the Washington Post last month that daily fantasy's legality is 'really, honestly not a debate.' But now, a data scandal has inflamed exactly that kind of debate and renewed lawmakers' calls that the industry face its first real oversight.
'This is not the Wild West,' U.S. Rep. Hakeem Jeffries, D-N.Y., said this week. 'It is time to determine whether permitting a multi-billion dollar industry to police itself serves the best interests of the American people.'
A DraftKings content manager named Ethan Haskell last week accidentally published internal data tied to the site's biggest contest, Millionaire Maker, earlier than usual, before bettors' lineups were entered and National Football League games had kicked off.
The leak showed how often players had been chosen for bettors' lineups — highly valuable information, for a game based on scouting out undervalued talent — and raised alarms when Haskell won $350,000 off a $25-entry contest at competing site FanDuel that same week.
DraftKings denied the win was related to Haskell's early data access, saying he didn't get the numbers until after locking in his lineup, and both companies said Wednesday they'd permanently ban their employees from playing for money in contests on any site.
DraftKings said Wednesday it had previously hired an outside investigator to review its practices, and FanDuel said it will create an advisory board and launch an internal review led by a former federal judge, adding, 'It's our job to ensure … our fans can be confident in the sanctity and integrity of every game.'
But the firestorm that erupted over the past week has proved much of the damage had already been done. And for the games' growing fan base, many big uncertainties remain: Who has access to this prime information? How many employees had already struck it big?
And if a select crew of elites held a jackpot of data, what were the odds of winning for everyone else?
New York Attorney General Eric Schneiderman has called for an inquiry, demanding both companies hand over the names of employees with access to sensitive data as well as the results of their internal investigations. So, too, did the Senate's top Democrat, Nevada native Harry Reid, who on Tuesday decried the leak's 'absolutely scandalous conduct' and said, 'Online gaming is a real scary thing and we'd better look at all of it.'
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