DFS Players Should Just Say No to Self-Regulation
In the very same week that iovation, a company with strong ties to the now-defunct and utterly reviled Ultimate Bet online poker site, was approved by Nevada regulators, a daily fantasy sports website, FantasyHub, appears to be unable to meet its obligations to its customers. And if that wasn’t bad enough, there is this part of the story:
Lessons from online poker
For those of us who lived through online poker’s unregulated self-regulated days, the current situation occurring in some pockets of the daily fantasy sports industry is far from surprising. During the self-regulation era, dozens of online poker sites absconded with money; online poker players were cheated by insiders; and given the run around during the ensuing investigations.
It was to the point that if it weren’t for PokerStars, Full Tilt Poker would have left the poker community with about $300 million of I.O.U.’s, despite the company being licensed and regulated by a the Aldernay Gambling Control Commission.
More alarming, was the findings that Aldernay regulators did nothing wrong, and despite Full Tilt Poker’s inability to pay $300 million, this was, “an example of regulation working as it should.” I don’t know what world this is considered regulations working.
Self-regulation has already failed
The DFS industry is claiming to be altogether different, and while they are in many respects, when it comes to the need for regulation, DFS and online poker are mirror images of one another. The notion that the DFS industry only needs light-touch regulations, as the Fantasy Sports Trade Association is lobbying for minimal regulatory oversight in several statehouses, most of which will be performed by third-parties, is anathema to online poker players.
The situation at FantasyHub (which isn’t the first DFS site to suffer this fate) is a stark reminder that self-regulation leaves the door open to all sorts of malfeasance, and leaves paper tiger regulatory bodies unable to prevent problems; like Aldernay and Full Tilt, there only option is to react after the fact, when it’s already too late.
DFS players are currently at the mercy of the operators, and must trust them that they’re doing the right thing. And this will only get worse as Vantiv cuts the cord, and DFS operators have to turn to other, less conservative payment processors.
The problem with self-regulation is, you’re only as strong as your weakest link. In an ultra competitive industry where billions of dollars are shuffled around every year, the potential for fraud (whether it was purposeful or not) is rife, not just from an employee, or a company, but from third-party payment providers as well.
Online poker followers have seen this movie before, and the DFS industry should listen when these people say it’s going to get worse before it gets better, unless real regulations are put in place.
DFS industry thinks the status quo is fine
As troubling as this is, the real problem as I see it is, FantasyHub was (is?) a member of the FSTA and therefore required to meet the trade association’s guidelines, which may, or may not, include third party audits. In two back-to-back statements, the FSTA first said they require third-party audits, but then walked that back to say that the legislation they are proposing in several states would require these audits – under pain of a $1,000 fine – and these audits are more voluntarily right now.
So what appears to have happened with FantasyHub and the FSTA is this:
- The company was a member of the FSTA, which ostensibly gave them some legitimacy, and while never expressly stated, the FSTA was seen as providing some level of consumer protections;
- FantasyHub allegedly comingled player funds with operating expenses and is now unable to pay their customers;
- We later learned that the FSTA’s consumer protections are apparently more of a suggestion than a requirement;
- The FSTA is lobbying several states to let the daily fantasy sports industry continue to be more or less self-regulated with only minimal oversight, oversight that would include a third-party audit with failure to comply resulting in $1,000 fine.
Not only is the status quo simply unacceptable, as many people have been saying just such a situation was almost assuredly going to occur, and calling on the DFS industry to be more transparent with how funds are segregated, but anyone who was around during the salad days of the online poker industry knows what self-regulation and outside audits are worth. As noted above, third-party oversight, without some level of governmental oversight, has little teeth until things have already gone south.
Wishy-washy regulatory agencies were willing to sign off on the legitimacy of several online poker rooms until the bitter end, and when the sites went belly-up (taking millions in player funds along with them) these same regulatory bodies simply shrugged their shoulders.
Chris Grove is hoping the FSTA doesn’t do the same, and takes control of the FantasyHub situation now:
If DFS is serious about giving their customers strong consumer protections and insuring that another FantasyHub doesn’t occur they simply must submit to real regulations, not self-imposed regulations that request third-party audits (and who chooses the third-party that performs these audits, the site?) where noncompliance results in an easily paid fine.
We’ve already seen that DFS sites needed to be dragged kicking and screaming before they enacted strong geolocation methods.
Steve Ruddock is the content director for BettingUSA and the Editor-in-Chief of Gaming Law Review.
Steve has covered the legal and legislative developments in the US gambling sector for more than a decade for online and print publications.
