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Best of Dan Podheiser

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Top 10 takeaways from the DraftKings data leak

12 October 2015

The burgeoning daily fantasy sports (DFS) industry was flipped on its head last week when the details of an "insider information" scandal gained traction in the mainstream media.

A DraftKings employee named Ethan Haskell inadvertently released player ownership data for the site's Week 3 Millionaire Maker tournament after the contest had closed, but while players still had the ability to change their lineups for the late Sunday and Monday night games. That same week, Haskell won $350,000 on rival site FanDuel, prompting many to wonder whether Haskell used that leaked information to gain a competitive advantage.

The scandal picked up a head of steam when the New York Times reported on the issue last Tuesday, quoting a gambling attorney who called Haskell's actions "absolutely akin to insider trading."

Once that story broke, the scandal had hit critical mass. Late last week, a class-action lawsuit was filed against DraftKings and FanDuel. A Nevada congresswoman requested a hearing on the legality of DFS, saying it was "critical" Congress "investigate this growing industry." And New York Attorney General Eric Schneiderman called DFS sites " totally unregulated gambling venues."

The scandal had officially gone viral, and the major sites went into damage control mode. The dust still hasn't quite settled, but with the weekend passing and the nature of the world's 24/7 news cycle, the DFS industry is not in the same state of crisis it was just a few days ago.

In the coming weeks and months, we'll surely see plenty of changes in the DFS industry, including multiple calls for government intervention and outside regulation. In the meantime, here are the top 10 takeaways from the story that may have changed daily fantasy sports forever.

10. Maybe all press is good press

Surely you'd think that this "insider trading" scandal would be a public relations nightmare for the DFS industry, right? In the online gambling world, consumer confidence in a site's ability to 1. pay players promptly and 2. provide fair gameplay is absolutely crucial to that site's success. This scandal would theoretically forever damage that second part.

Except it didn't. DraftKings and FanDuel posted their best week of the NFL season in Week 5, as both sites set new records for entries in their guaranteed prize pool (GPP) tournaments.

After spending an insane amount of money on television and radio advertising leading up to the start of the football season, it was clear the industry's top priority was customer acquisition. To do that with a product that most people have never heard of, you have to educate the hell out of the public.

The public seems to be educated now, maybe even more than the sites would have hoped. But it seems to be working. The bottom line is that DFS is fun to play, and it's easy to get hooked. Most importantly, it carries the illusion that everyone can be a winner.

9. It was only a matter of time

With popularity comes scrutiny. It was only a matter of time before politicians, lawyers and lobbyists came charging at the DFS industry with their tin cups in their hands. When an industry is generating as much revenue as the DFS industry, people in power will find a way to profit from it. This scandal, combined with the site's furious advertising campaign in recent weeks, only expedited the process.

8. No formal accusation has been made against Haskell

It's important to understand that the reason the DraftKings leak is a scandal is not because Haskell released information or because he won money, but rather because his actions created awareness that an employee at one of the major DFS sites could potentially use such information to their advantage.

There is currently no evidence that Haskell's monster win on FanDuel has any connection to his data leak, nor is anyone actually making a formal accusation against him. Remember, even if Haskell had access to DraftKings' data at some point before the site's contests closed, if he received that data after the start of the 1 p.m. games, he would not have been able to use that information to his advantage on FanDuel (which closes its lineup changes promptly when the contests begin). To wit, DraftKings explicitly claimed that Haskell did not have the ability to exploit any data to his advantage.

7. This is not comparable to the Ultimate Bet scandal

The super-user online poker scandal at Ultimate Bet involved a player being able to see other players' hole cards. In poker, when you know exactly what your opponent has, it is almost impossible to lose. The UB incident was akin to blatant theft.

This DFS scandal, if anyone was or has actually abused insider information, simply would provide a small, albeit statistically significant edge to the user. If one really wanted to make a comparison to cheating in poker, a better analogy would be if an employee at a poker site was able to review any hand history they wanted (all hole cards included), and then used that information to play against those players.

6. DFS is gambling, but who cares?

For months now, several people in the gambling industry – including many who are pro-online gambling – have made it a point to demonstrate that DFS is blatant gambling. Their point is that, because DFS is gambling and is legal, that all other forms of gambling (or at least skill-based games like poker and sports betting) should be legal, too. And they're right . . . but who cares?

The worst thing that could happen to the DFS industry would be for the federal government to shut it down. There is no chance in hell that regulators would listen to the logic that "DFS is gambling too, so let's legalize everything." The much more likely outcome would be for those regulators to simply say, "DFS is gambling too, so let's ban it like all other forms of online gambling."

When it comes down to it, "gambling" is a negative buzzword for politicians on a national level. Making a point of showing that DFS is a form of gambling will not serve anyone well.

5. Sports betting won't be legalized

To second that last point, many believe that a review of DFS by Congress that comes out favorably for the DFS industry would also open the door for legalized sports betting. But the two things have nothing to do with each other.

First, it's already been made clear to New Jersey by the federal courts that sports betting is illegal in all but four U.S. states. Second, the key difference between sports betting and DFS – and in my opinion, the reason why sports betting is not legal – is the backing each receives from the major sports leagues.

DraftKings and FanDuel have partnerships with three of the four major sports leagues, and both companies have deals with nearly all of the teams in the National Football League, not to mention DraftKings' deal with ESPN. There are simply too many major stakeholders interested in keeping the DFS cash cow afloat.

Sports betting, on the other hand, carries a strong albeit strange opposition from the major sports leagues. It's still a mystery to me and many others why the leagues wouldn't want to capitalize on the massive revenue opportunity that legalized betting would provide, but the bottom line is that they have consistently fought against legalization for decades now. And until they change their minds, I don't see sports betting being legalized any time soon.

4. Banning employees from playing isn't the answer

In the wake of this scandal, both DraftKings and FanDuel have decided to ban their employees from playing DFS games on any site. I understand this move from a PR perspective, but I don't think it's the right one.

Successful companies thrive when their employees are invested in the company's product. DraftKings and FanDuel employees probably perform better at their jobs because they are actually interested in what the company produces on a daily basis. If you ban them from playing, I wouldn't be surprised to see their productivity suffer. Furthermore, if those employees then quit so that they can continue to play DFS, you'll have far inferior products because your in-house staff won't care as deeply about the product as they could otherwise.

That said, there is a fix to this problem.

3. DFS employees should care less about playing

Incentivize your employees to not play by paying them more! According to a recent New York Times article, employees at both DraftKings and FanDuel made more money playing DFS than they did at their jobs. So what incentive do they have to stop playing?

Of course, the article didn't specify if these were one-time winnings or consistent side incomes for these DFS employees. But it stands to reason that if a successful DFS player had to choose between working at DraftKings or continuing to make more money playing, they'd continue to play.

2. The industry needs third-party regulation, but not from Congress

Can you imagine Congress dipping its sweaty paws into the DFS industry? The last thing any industry needs, much less a thriving, youth-oriented one like DFS, is a bathtub full of bureaucracy yanking revenues, casting down unneeded regulations and creating unintended consequences.

Rather, the DFS industry needs a third-party watchdog group to step up. In my opinion, the folks over at Legal Sports Report are already doing that job pretty well. They were the first real news organization to break the DraftKings leak story, and because of their efforts, the DFS companies swiftly made moves to fix their products and restore consumer confidence. And now that these companies know they are being watched by the mainstream media, they have all the incentive in the world to self-regulate themselves.

1. DFS will not be shut down

Don't worry, your weekly Millionaire Maker sweat isn't going anywhere. At the end of the day, there are simply too many stakeholders and too much money invested in this industry for Congress to shut it down. Plus, an industry shutdown would essentially require a re-writing of the 2006 Unlawful Internet Gaming Enforcement Act, which created a specific exemption for fantasy sports and allows it to be legal today.

We're not going down that road.
Top 10 takeaways from the DraftKings data leak is republished from Online.CasinoCity.com.
Dan Podheiser

Dan Podheiser has covered the gambling industry since 2013, but he has been an avid poker player for more than a decade, starting when he was just 14 years old. When he turned 18, he played online poker regularly on U.S.-friendly sites until Black Friday in April 2011.

Since graduating from Emerson College with a degree in journalism in 2010, Dan has worked as the sports editor for a chain of newspapers in Northwest Connecticut and served a year as an Americorps*VISTA, writing and researching grant proposals for a Boston-based charity.

Originally from South Jersey, where he still visits occasionally to see his family (and play on the state's regulated online poker sites), Dan lives in Brighton, Mass. with his wife and dog.
Dan Podheiser
Dan Podheiser has covered the gambling industry since 2013, but he has been an avid poker player for more than a decade, starting when he was just 14 years old. When he turned 18, he played online poker regularly on U.S.-friendly sites until Black Friday in April 2011.

Since graduating from Emerson College with a degree in journalism in 2010, Dan has worked as the sports editor for a chain of newspapers in Northwest Connecticut and served a year as an Americorps*VISTA, writing and researching grant proposals for a Boston-based charity.

Originally from South Jersey, where he still visits occasionally to see his family (and play on the state's regulated online poker sites), Dan lives in Brighton, Mass. with his wife and dog.