Fantasy sports betting invaded living rooms at the start of the NFL season with an onslaught of never-ending commercials.
Now fantasy sports betting is headlining the NY Times, but not about winning $2 million on a $35 deposit, as a scandal has come to light that raises the question of insider trading by a DraftKings employee who won $350K at rival site FanDuel.
Ethan Haskell, a midlevel content manager with DraftKings, accidentally published the Millionaire Maker line-up data that showed the ownership allocation of players for games that had yet to start in Week 3 NFL. Haskell released a statement shortly after the accidental breach and stated "I was the only person with this data and as a DK employee, am not allowed to play on site".
Haskell went on to win $350,000 at FanDuel that same NFL weekend.
Fish vs. Sharks & Unfair Advantages
Daily fantasy sports players are divided into two distinct groups: fish and sharks. The fish make up 99% of the field – some are minnows, others giant salmon, but all are casual players that frequently lose. The sharks are the professionals that spend hours studying, researching and preparing their rosters and invariably gobble up all the fish’s cash.
Ethan Haskell would have to categorically be considered a different species altogether: as he was more like a man armed with a stick of dynamite, casually tossing it into the ocean and blowing up all the fish and sharks in one fell swoop.
Above is a photo of the player line-up used by Haskell used to haul in $350,000 from FanDuel (credit to DFSReport.com, who originally broke the story of the leak.
It is absolutely akin to insider trading. It gives that person a distinct edge in a contest.
The data Haskell may have possessed as a DraftKings employee would have given him an outrageous advantage over the fish and the sharks and the jets and anyone else trying to scoop the jackpot.
Games like Millionaire Maker and Guaranteed Prize Pool are all about finding gaps in the market. It’s what the sharks do so well.
But if he armed himself with data unavailable to the public for personal use, Haskell wouldn’t need to guess: he would actually be able to see which typically high-scoring athletes had been largely overlooked by the majority of competitors, thus making them great value.
“It is absolutely akin to insider trading,” Daniel Wallach, a sports and gambling lawyer at Florida-based Becker & Poliakoff, told the New York Times. “It gives that person a distinct edge in a contest.”
Even more concerning is that Haskell is by no means a senior executive with DraftKings - with his title that of a content manager - so the question then becomes how many employees have access to this information? Can they all just lounge around on canoes, drinking beer and tossing dynamite into the ocean to obliterate the fish and the sharks and take everyone’s money? Will they just identify the most successful players – the biggest, baddest sharks – and simply copy their selections?
It's a bit like someone working at a sportsbook taking a bet on an unraced juvenile from a sharp sports bettor and then jumping straight onto an odds monitoring site like an SBR Odds, finding the best price, and betting big on the horse. The privileged position held by sportsbook workers in the information chain has historically been an unwritten perk of the job. You regularly see information that puts you ahead of the market, allowing you to strike bets at beneficial prices before the line changes.
How Licensed Online Sportsbooks police their Industry
In the UK for example — a licensed and regulated jurisdiction — a trader for a bookmaker spotted strange bets placed with his company and got wind of a betting coup. He then placed personal bets on the same races with a rival bookmaker and won a lot of money. When the second bookmaker learned of this, it complained to the UK Gambling Commission and tried to have the bets voided on the grounds of fraudulent trading.
The UK Gambling Commission teamed up with the Association of British Bookmakers to pass a law change to “vary betting terms and conditions to make the contravention of sports or other professional or employer rules on betting a breach of the operator’s own [betting] terms and conditions”. This essentially removed the perk sportsbook employees had enjoyed and made such insider dealing a fireable offence if discovered.
Legality of Fantasy Sports Betting vs. Traditional Sportsbook Play
The Unlawful Internet Gambling Enforcement Act of 2006 or "UIGEA" is a federal law that was added onto the SAFE Port Act. The UIGEA prohibits bookmakers from knowingly accepting wagers from the United States and tasks financial instutitions with blocking transactions to and from betting sites. Following the passage of the UIGEA, many online sportsbooks pulled out of the US market to not run afoul of the US law, and such was mandatory in jurisdictions with regulatory gambling commissions.
Following what's referred to as "Black Friday" on April 15, 2011, the three largest poker sites that served US players were forced to leave the market (PokerStars, Full Tilt Poker, and Absolute Poker) after being indicted by the US Justice Department.
Fantasy sports wagering however received a specific exemption in the UIGEA by meeting the definition of a skill game, and was deferred to the governance at the local state level. Fantasy sports wagering is legal in all US states except Arizona, Louisiana, Iowa, Montana, and Washington.
Online sports betting is considered a game of chance and restricted (unlike the lottery, go figure). Sports betting in general is prohibited throughout the United States, with the sole exceptions to federal statute PASPA (The Professional and Amateur Sports Protection Act) being Nevada, Delaware, Oregon, and Montana. Nevada is the single largest beneficiary under PASPA. New Jersey & Chris Christie have tried challenging this archaic 23-year-old federal law but have been stopped in federal court and opposed by the professional US sports leagues and the NCAA, who believe that sports betting threatens the sanctity of their games.
SBR Members React to Fantasy Sports Scandal & Weigh in on Legality
SBR community member "Harry N. Loyd" posted the following on the SBR Forum after news of the fantasy sports betting scandal broke: "Still can't figure out how sports gambling online is illegal but fantasy sites aren't! Somebody is making a killing...and it ain't (sic) the average Joe!"
DraftKings has since released a statement downplaying the talk of insider trading and stated that after their own internal investigation it was found that that employee Haskell could not have utilized the data he had on FanDuel, as line-ups were locked 40 minutes prior to Haskell having the player ownership data.
The fact remains that fantasy sports betting is no more a game of skill than traditional sports betting. As it relates to the United States market, which is painfully behind the times on the latter, regulation has been proven to be effective in other first-world nationals where sports betting is legal.
Fantasy sports betting badly needs this same type of regulation, regardless of what FanDuel or DraftKings tell you their next commercial.