It was all good a year ago: My take on the Daily Fantasy Mess
It seems that state and federal governments have taken aim on the Daily Fantasy industry. You wondered when this would happen. Because sports gambling is one of the final frontiers of revenue for the state coffers. Publicly, most politicians try to distance themselves from gambling. But the facts are gambling brings big money to municipalities whether it is the lottery or casinos. Here in the Philadelphia area, there are no less than 4 casinos, with a 5th one being talked about. Ten years ago there were none. This sudden interest in daily fantasy by government agencies isn’t about protecting consumers like you or I. It’s about the money. Because as John McClane said in Live Free or Die Hard, “It’s always about the money!”.
Governments have had to have been licking their chops when looking at what these sites bring in. Draft Kings reported $304 million in entry fees according to the Boston Globe in 2014. That same year, according to the New York Business Journal, Fanduel, Draft Kings’ chief competitor, boasted entry fees of $621 million, with a profit of $57.3 million. That’s almost a billion dollars being brought in between the two market leaders. Not bad for a business with little to no overhead or regulation.
Until now, that is.
New York Attorney General Eric Schneiderman has taken the first of many steps to start milking the cow that is daily fantasy sports. The end game here is simple: Finally classify daily fantasy as gambling, which it is by the way, and then hold the DFS websites over a proverbial skyscraper railing, threatening to drop them a la “Big Red” in the movie, the Five Heartbeats. The states would essentially tax the living daylights out of these sites in order for them to stay in business. Which of course they will do, because too much money is at stake.
I was a participant in daily fantasy sports for about a year. It’s fun and provides a nice detour from normal life. Where I began to have a problem was with the allegations of insider trading. Allegedly, a DraftKings employee headed over to the FanDuel website, and won himself $350,000 in a tournament. It was later discovered that he may have received some information not available to the public. An internal investigation by Draft Kings cleared him but you and I know where there’s smoke, there’s fire. For what it’s worth, employees of both DraftKings and FanDuel are no longer allowed to play daily fantasy anywhere. My question is: What took so long?
My problem with this is two-fold:
First, Why didn’t anyone at these companies think that an entity that sponsors major sports teams would need to have some sort of internal protections from potential conflicts?
It’s hard to believe that people who played in the contests that this employee and others like him played in, weren’t put at a dis-advantage. When you cheat people, that’s where I check out. The cheating and the lack of proactive steps taken to rectify the situation is what invited the wolf (the state governments) in. And I don’t feel the least bit sad that Draft Kings and FanDuel (who had also allowed its employees to play daily fantasy) have to go through this mess.
Secondly, why is this man still employed at DraftKings? People have been fired for lesser transgressions. There’s no way to prove that this hasn’t happened before and certainly I would not count on Draft Kings to come clean of their own accord. Their sloppiness and lack of foresight will cost them dearly especially if they want to stay in business.
I look at Fanduel and Draft Kings like Napster, the file sharing service that upended the music industry. Napster served a need. The hungry consumer that wanted on demand. The consumer that tired of paying $15 for a substandard album with 2–3 good songs and the rest being filler. The government stepped in and drove Napster out of business but its existence and business model created things that are integral in our lives now. There would be no Pandora, Spotify or Apple Music without Napster. Napster was one of the first to offer unlimited music for $10 a month, before it was all trendy.
These legal battles will change the way daily fantasy looks but don’t think for a minute that it’s going anywhere. Daily fantasy may be the bridge that brings sports gambling to everyone. Because if you can bet on players you can bet on teams too. It’s only a matter of time. Because there is too much money to be made. When Attorney General Schneiderman tells you it’s not about the money. Don’t believe him. Because it’s always about the money.