FSTA Ignoring Lessons Of FantasyHub Scandal
Legal Sports Report

As FantasyHub Scandal Deepens, DFS Lobbyists Are Pushing Bills That Would Let It Happen Again And Again

DFS wheel of fortune
FantasyHub is a daily fantasy sports site that is refusing to pay players or provide players with any concrete information regarding their money.

FantasyHub is a member of the Fantasy Sports Trade Association (FSTA), the legislative advocacy arm of the DFS industry.

Members of the FSTA are required to keep player funds segregated from operational accounts to remain in compliance with the FSTA’s paid operator charter (which has since been removed from the website).

At the same time that FantasyHub is refusing to pay players, the FSTA is aggressively pushing bills in almost half of the United States that would either:

  1. Exempt DFS from state gambling law and require no regulation whatsoever (e.g., this bill in Missouri), or
  2. Exempt DFS from state gambling law and require minimal regulation, compliance with which would be assessed not by a state regulator, but by a third party of the DFS operator’s choosing (e.g., this bill in Alabama).

The upshot: The FSTA is advocating DFS bills that would do absolutely nothing to prevent the FantasyHub scandal from unfolding over and over again.

FSTA regulation worse than no regulation

Regulation has an important role to play in the fantasy sports industry.

While regulation may not have prevented the collapse of FantasyHub, a strong regulatory structure – such as the one developed by the New Jersey Division of Gaming Enforcement for NJ’s regulated online casino market – would be, at a minimum, capable of anticipating and mitigating such situations.

But the type of regulation advanced by the FSTA – effectively self-regulation by another name – would accomplish neither.

Consider: The FSTA model bill would require nothing more an annual third-party audit to ensure that DFS operators are holding player funds in a segregated, protected account.

It gets better. The third party auditor is selected and paid not by the state, but by the operator being audited.

That is worse than no protection. It is no protection while providing the illusion of protection.

At least in an unregulated environment, players understand that they’re on their own and can adjust accordingly.

Why can’t FantasyHub pay?

With no transparency, it’s impossible to say for sure. But the logical explanation is that they aren’t paying because they don’t have the money.

Why wouldn’t they have the money? Weren’t they supposed to be keeping player balances segregated?

I don’t have any direct insight. But I can envision a plausible scenario.

Imagine a DFS site raised money in a favorable environment (pre-October) and then those backers got cold feet about actually sending the checks once the environment became less hospitable following the DraftKings data leak and NY Attorney General Eric Schneiderman’s action against the DFS industry.

Left without the funds they assumed would be available to operate, it’s not hard to imagine a DFS site raiding player balances as a stopgap measure.

It’s worth noting that such a lack of transparency would never exist in a tightly regulated environment, but almost certainly would emerge under the FSTA’s proposed self-regulatory approach.

What about the contributions FantasyHub was supposed to make to charities?

FantasyHub’s represented that players could support charitable endeavors while playing DFS at the site, as a slice of the contest money was said to be directed to various charities.

While the full picture is still emerging, there have been questions raised about whether FantasyHub completely fulfilled the promise to players that funds would be donated to various charities.

That’s despite the fact that FantasyHub’s terms of use (now inaccessible) asserted that “donations will be held in a non-operating bank account until such time as FantasyHub forwards the donations to the nonprofit or payee of funds.”

FSTA’s claims to advocate for players ring hollow

The FSTA consistently puts fantasy sports players at the locus of their push for bills that would legalize DFS.

The organization bills itself as “committed to protecting the rights of all Americans who play fantasy sports,” and cites “the best interests of customers” and the need to “protect fantasy sports players” as its driving motivation behind shaping legislation and regulation.

An organization that would advocate a regulatory approach that would do nothing to prevent theft of player funds like the one we’re seeing with FantasyHub cannot credibly make such claims.

Lawmakers and fantasy sports players should recognize the organization for what it is: not a true voice for the average fantasy sports consumer, but a cynical mouthpiece for the commercial interests of a few companies.

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Chris Grove
- Chris is the publisher of LegalSportsReport.com and OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.