The Biggest Threats To The Daily Fantasy Sports Industry Right Now

Written By

Updated on

New York DFS

The daily fantasy sports industry, until this year, existed in a niche that didn’t really attract much mainstream attention or scrutiny.

That all changed in the blink of an eye in the DraftKings data leak. When DraftKings Ethan Haskell published some lineup data before it should have been released — everything changed.

The backlash from several corners in the wake of the unknowns surrounding data handling was swift. The story didn’t gain traction until Saturday, and at least one state attorney general announced an inquiry on Tuesday.

So what are the biggest threats to the status quo of the DFS industry in the wake of all of the news? Here is the current landscape:

New York state

The most immediate threat to the industry appears to be the New York attorney general’s office. On Tuesday the New York Times reported that NY AG Eric T. Schneiderman opened an “inquiry” into daily fantasy sports, specifically DraftKings and FanDuel.

Full story here. You can read the letters sent by the AG’s office here and here.

The investigation by the AG’s office is not an indication that any wrongdoing has occurred; after all, it’s just an investigation. It’s very possible that it turns up nothing that is actionable under state law. But Schneiderman had strong words when talking about the inquiry — which FanDuel and DraftKings have about a week to respond to — according to the NYT:

“It’s something we’re taking a look at — fraud is fraud,” Mr. Schneiderman said in a radio interview early Tuesday before the inquiry was announced. “And, consumers of any product, whether you want to buy a car, participate in fantasy football, our laws are very strong in New York and other states that you can’t commit fraud.”

It’s not certain that anything negative will happen in New York. This is just the one thing out there that seems to be moving much faster than any other front.

The third-party reviews

Everyone is assuming that the third-party reviews that DraftKings and FanDuel have asked for (more from their statements here) will result in everything being above board.

DraftKings and FanDuel likely felt that their procedures and systems for data handling are tight. We even learned from DraftKings CEO Jason Robins on Wednesday that the reviews had started before the events of the past week week. At the same time, after Monday’s barrage of media attention, they pretty much had no choice but to undergo an audit.

But it’s at least feasible that one or both of the investigations turn up something of concern. Robins said the results of the investigation will be publicly available in the coming days, and clearly a lot of eyeballs will be parsing whatever information comes out.

The media

The mainstream media dove headfirst into the melee after the initial New York Times report on Monday. Some understand the mechanics of what has happened so far, and some are simplifying it a great deal. And many argue the way the story has been framed has at times has ranged from sensational to outright wrong.

That being said, the damage has been done, and to some extent the blame falls on DraftKings and FanDuel for allowing the narrative to be set without their voice being heard in a meaningful way.

All of that, however, is water under the bridge. The bigger threat might be the fact that major news outlets are now watching the industry like a hawk. It’s likely that some of the larger publications and outlets have assigned investigative reporters to the daily fantasy sports industry now. And that might almost be worse for the industry, if there’s anything that they have to hide, than an investigation from a governmental organization.

On the flip side, if reporters are turned loose and nothing gets dug up, that would obviously be a positive development.

The federal government

What role the federal government will play right now is an unknown. But it seems clear that they will at least consider the issue in Congress, eventually.

Some originally dismissed New Jersey Rep. Frank Pallone’s call for a hearing into DFS as sour grapes as his state has been losing a battle to offer sports betting.

No matter how it started, the idea has gained traction to the point that the hearing could happen this year. That hearing would be only informational, it appears, as there is no legislation currently introduced that would affect DFS. But there are likely a variety of options on the table that would fundamentally alter the industry.

On another front, Pallone and Senator Bob Menendez (D-NJ) also sent a letter to Federal Trade Commission Chairwoman Edith Ramirez “urging the FTC to explore and implement safeguards to ensure a fair playing field for fantasy sports enthusiasts who participate in daily or weekly games.” More from the release on the letter:

“We believe that fantasy sports should be legal and subject to appropriate consumer and competitive protections,” Rep. Pallone and Sen. Menendez wrote.  “Consumers also expect companies to hold online contests in a fair, transparent manner.”

“These reports raise serious questions about the integrity of these online fantasy sports websites, and it raises the question of whether there are sufficient consumer and competition safeguards to protect the integrity of these online games,” the letter continued.

Whether or not the FTC can or will do anything is unknown, so far.