How Regulation Could Have Prevented Mistakes In Daily Fantasy Sports

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DraftKings Regulation

The past week was one that daily fantasy sports companies would prefer to forget.

It started out with a data leak that rocked the industry. There were also other issues recently that seem minor, by comparison:

The daily fantasy sports industry is currently not regulated like any type of gaming in the U.S. Regulation could have been applied to all of these instances.

DraftKings data leak

The DraftKings ownership data leak scenario would be an issue addressed in regulation, especially after seeing its potential abuse and reaction by the daily fantasy community.  A gaming commission could address exactly how this data would be stored and what security procedures would be in place to protect it.

Regulations could define how this data is distributed and used by key employees. This type of employment would require a gaming license. Key employees would go through a licensing process that would ensure that they are qualified for the job. This would include a background check into criminal and credit records, as well as researching the reputation of the applicant.

Regulations would also address what type of behavior is expected from these key employees. One rule that regulation could address is whether employees with access to sensitive information not available to the general public, including ownership percentages, should play at any daily fantasy site.

Doing so could be a gaming violation, if a gaming commission concluded that proprietary data could be abused for personal gain. It could also be illegal to share this information with anybody else, as well as trigger enforcement actions that would apply to any third party that used information supplied by an insider. It would also allow for an independent investigation into these types of allegations.

Want to see how thorough a licensing procedure is? You have to look no further than the investigation New Jersey recently completed into Amaya for an online gambling license.

FanDuel erroneous single-entry contest

FanDuel advertised an event as a single entry that it accidentally programmed as a multiple entry (more on Twitter). This is a big deal to participants, as some recreational players prefer not to enter contests where professionals with large bankrolls enter possibly hundreds or thousands of entries covering multiple outcomes. Some players circumvented the policy and spirit of the contest after discovering the flaw in the contest’s design.

Regulations could cover this scenario. Gaming commissions could have an open policy about this type of error, or sites could submit one and have it approved by regulators. If a scenario was so unusual that is was not considered during drafting of the rules, the gaming commission would have the final say as to whether the proposed resolution is acceptable. This would end any debate as to whether the site acted fairly in resolving the dispute.

One scenario could be removing any player that entered multiple times from the contest. Current software may not be capable of this ability, but regulations could require this feature before approving its use in a regulated market.

More importantly, regulations could be in place to prevent this mistake from occurring in the first place. A law might require multiple employees to sign off on every event to guarantee that it is created as advertised.

These types of rules would give players full disclosure of what happens when there is an error. It would also give players an avenue of challenging a decision made by a daily fantasy site by filing a complaint with regulators.

UFC 192 DraftKings debacle

For last weekend’s UFC 192, fights began before any of DraftKings’ guaranteed contests locked, including one that had a prize pool of $125,000. This allowed players to alter lineups after early events were decided. This destroyed the integrity of the contest.

Many players were angered that the events were canceled. DraftKings refunded the buy-in to players and awarded free tickets to a future event as an apology. The terms of use that players agree to cover scenarios like this one.

However, the outcome was not good enough for some players. Many participants wanted the show to go on. One question posed was why DraftKings could not roll back the event and remove those that entered late and either remove cards that were altered or change them back to how they were when the event started.

Regulations would decide the fair outcome in this scenario. If the law stated that the event must be rolled back, the software used would be required to have that function, something daily fantasy sites may not be capable of today. The software would be tested to ensure the function properly operated.

Like the FanDuel multi-entry error, a requirement that multiple employees sign off on an event would have prevented this mistake. Fines and the potential of license suspension would motivate employees and the site to have a system in place to prevent these errors. This would create a better user experience.

Prize pools could adjust based on number of entries

There is an obstacle that prevents daily fantasy sites from making the best decision for their players when a mistake is made. The prize pool is not flexible. This is due to the exemption under the Unlawful Internet Gambling Enforcement Act. That law mandates that a prize pool cannot directly reflect the number of participants.

Regulation would change that. The sites would be considered gambling entities. Once that status is established, daily fantasy contests could create prize pools using the same format as poker tournaments.

A minimum prize pool could be advertised, but the size of the pot would increase with every buy-in. This would prevent companies from having to eat the loss on their mistakes when having to remove entries that violated the rules.

And those are just a few examples

The items listed above are just cherry picked from the past few weeks. There are surely dozens of other issues where regulation would be of benefit to players and DFS companies alike. This story doesn’t even touch on scripting, a sore subject for many regular DFS players, and one the general public isn’t even aware of.

The bottom line? Regulation would provide a lot of answers — and certainty — that the DFS industry doesn’t have now.