DraftKings, FanDuel come under scrutiny by Congress
By Associated Press | May 11, 2016, 12:59 EDT
WASHINGTON (AP) — Congress on Wednesday launched a fact-finding mission into the loosely regulated world of fantasy sports games — a multibillion-dollar business that seemingly advertised everywhere during the pro football season.
Lawmakers at a House hearing were generally supportive of the industry as they explored whether federal safeguards are needed to protect players in daily fantasy leagues. Most players ending up losing at the hands of better-informed players who often have a technological edge.
States are beginning to enact a patchwork of laws regulating the industry and its dominant companies, DraftKings and FanDuel.
Fantasy sports games involve choosing an imaginary roster of players from different teams, accumulating a score based on the players’ performances and matching up against one or more opponents. Fantasy games long have been a rec room favorite of friends played out over entire seasons, with the best teams determining shares of a jackpot.
But daily fantasy sports works at a much faster pace, permitting gambling every day or weekend, either in head-to-head matchups against other players or at tournaments offering the promise of bigger payouts. The companies generally make their profits by “raking” a percentage of entry fees.
The explosive growth of commercial fantasy sports games has meant greater scrutiny — of multimillion-dollar ad campaigns, of allegations of insider trading of information, and of the widespread losses by casual players at the hands of “sharks” armed with sophisticated computer analyses.
“It is crucial that consumers know what they are purchasing when they sign up for (daily fantasy games) and that they understand the risk of losing money in the process,” said Rep. Frank Pallone, D-N.J., who requested the hearing by a House Energy and Commerce subcommittee. “For example, there are reports that 90 percent of payouts were won by just 1 percent of winners.”
The companies maintain that daily fantasy sports games are not gambling but games of skill.
The hearing did not represent a rush to impose federal regulations on the booming industry. Gambling is generally regulated by the states, which have stepped up their activity. Four explicitly legalized the games this year, with varying degrees of consumer protection.
But New York has cracked down on DraftKings and FanDuel as illegal gambling operations and about a dozen states are challenging the legality of commercial fantasy sports.
“We must keep in mind that a patchwork of differing and contradictory state laws has the potential to negatively impact consumers, and harm further growth and innovation in the process,” said the committee chairman, Rep. Fred Upton, R-Mich.
States permitting the games have adopted different degrees of consumer protections. They include prohibiting minors from playing, restricting the use of computer programs that can generate large numbers of entries, acting to protect players with compulsive gambling problems, and segregating players’ money from company operating funds.
Fantasy sports have been a boon for major sports leagues such as the National Football League, in great part because fans watch more games and often continue to watch lopsided games that involve their fantasy players. While the NFL does not have a stake in either DraftKings or FanDuel, the vast majority of NFL teams have sponsorship or marketing deals with the companies.
The National Basketball Association, Major League Baseball, and the National Hockey League each have ownership stakes in either DraftKings or FanDuel, and prominent NFL owners Jerry Jones of the Dallas Cowboys and Robert Kraft of the New England Patriots have equity in DraftKings.
Representatives from DraftKings, FanDuel and the major professional sports leagues did not accept invitations to testify before the subcommittee.
Written by Andrew Taylor