U.S. show examines daily fantasy sports

Tuesday night’s much anticipated PBS “Frontline” examination of the daily fantasy sports phenomenon provided a useful platform for New York Attorney General Eric Schneiderman to pre-publicise his judicial action against leading operators (see previous reports).

The program, presented after a joint Frontline and New York Times investigation, was joined on the US airwaves by a separate CBS 60 Minutes show on the same topic, ensuring that DFS received plenty of not entirely favourable coverage.

Schneiderman revealed that DFS first caught his attention during the $31 million advertising blitz that industry leaders unleashed on the public during the first week of the NFL football season. When that was followed by “insider” gaming allegations against a DraftKIngs employee, Schneiderman ordered an investigation, leading to a cease and desist order and the start of a court process that is currently ongoing in New York state.

Schneiderman continues to claim that DFS betting constitutes illegal gambling, whilst market leaders FanDuel and DraftKings defend their activities on grounds that the games are highly skill-based and not predominantly matters of chance.

During the Frontline presentation Schneiderman detailed to presenter Walt Bogdanich of The New York Times why he chose to investigate the industry, why he thinks the odds are stacked against users, and why he characterises DFS sites as “a particularly pernicious form of gambling.”

“The fact is, we just don’t know what’s going on in there,” Schneiderman said. “So our investigation is ongoing. It’s clear to us that what they’re doing is gambling, And there are people who have gambling addiction problems. And for them to contend that it’s not gambling, you can almost lure people who know they have gambling addiction problems into getting back involved in betting. And gambling addiction experts have come forward to say this is a particularly pernicious form of gambling.”

“The standard in New York is not whether or not there’s some skill involved. In fact, our laws make it explicitly clear that if there’s a material element of chance, even if skill is involved, it’s still gambling,” Schneiderman added.

He goes on to explain his view that the traditional fantasy sports carve-outs under the Unlawful Internet Gambling Enforcement Act of 2006 did not envisage the current DFS scene and levels of wagering

“Now in 2006, of course, the technology for DraftKings and FanDuel didn’t exist,” Schneiderman claims. “All that exists were the season-long rotisserie baseball leagues and things like that, where traditionally, the sites made money from administrator fees and advertising. They weren’t online gambling enterprises here, where FanDuel and DraftKings described themselves with poker terminology. They take a rake, they take a portion of each betting pot. These are not a new version of traditional fantasy sports. This is just a new version of Internet gambling, more in common with Internet poker than with traditional fantasy sports leagues.”

The New York AG also expressed concerns about the lack of regulatory oversight on DFS and the paucity of corporate reportage, an issue which has become an object of state-by-state studies in the wake of the insider scandal and the political and enforcement attention that ensued.

“State regulators have just started to look into this. They’ve not filed reports, there is no regulatory agency like the Securities and Exchange Commission, which regulates stocks, so we don’t know what they’re doing,” Schneiderman said. “We know some of their misrepresentations out there are clearly false and we’re looking at the fraud issues there.”

Questioned on the issue of problem gambling in relation to DFS, the New York AG revealed that his department’s investigation has found evidence of DraftKings and FanDuel requests from players to “Take me off, shut my account, I’ve got a gambling problem.”

These incidents had been noted and included in the court filings from the AG’s office, Schneiderman revealed.

Another element in the investigation has been the question of game fairness at DFS sites, and the ratio of inexperienced and lower-skilled “fish” who are preyed upon by experienced professional players using sophisticated feeds and software tools. Schneiderman alleges that DFS sites market to attract “fish” by suggesting that winning is easy, whereas for the average “fish” that is not the case, and almost 90 percent reportedly lose money.

He says that the professionals have a “huge” advantage over casual players and this is something his staff is examining.

“According to DraftKing’s own statistics, fewer than 11 percent are winners, and a small portion of those winners win the overwhelming majority of the money,” Schneiderman claims. “There has been some of these circumstances documented in investigative journalistic reports. One in the Sunday Times Magazine, about these professional operations that use computer scripts and that can bet hundreds of lineups, pick hundreds of lineups for a game, every day, much more nimble than a regular, casual player, about adjusting their lineups right before the deadline. And the allegations are that the fantasy sports sites sometimes cater to these high rollers, to these folks whose business they really are dependent on.”

Asked to comment on whether DFS would go underground if banned and classified as an illegal activity, Schneiderman opined:

“My first job is to enforce the law, and I think it’s really misleading to suggest that we can’t vastly reduce the number of people who are online gamblers by enforcing the law that makes gambling illegal. In the online poker industry, they refer to the day that the U.S. Justice Department went after the big online poker sites as Black Friday, because it shut them down.

“The casual bettors, the people we are the most worried about, are not going to seek out illegal offline sites. It would make a big difference. The extent that there are states where there are processes in place, which, it really is true in most states, to regulate and legalize gambling, they just have to go through the same process that racetracks went through, or casinos have gone through, to make sure that it’s regulated, and they’re not committing fraud.”

Our readers can view the full transcript of the PBS interview here:

http://www.pbs.org/wgbh/frontline/article/eric-schneiderman-why-daily-fantasy-sports-is-gambling/

In related news, DraftKings took another knock Tuesday when US SEC filings from the Fox media group suggested that the DFS market leader’s valuation may have slumped 60 percent.

“Fox reported that it has written off $95 million of the $160 million it has invested in DraftKings, “based
on information concerning DraftKings’ current valuation in a recent financing transaction.”

The news correlates with DraftKings allegations that the New York AG’s anti-DFS activities have adversely impacted its performance and ability to raise investment, damaging relationships with both investment houses and payment processors.

And in another blow, Yahoo Finance writer Daniel Roberts published an article revealing that Walt Disney Co.’s ESPN and DraftKings Inc. exlusive agreement on advertising and content has ended less than two months after the exclusive portion of the deal began.

Citing multiple sources “close to the situation”, Roberts says the exclusive element in the ESPN – DraftKings deal kicked in January 2016 and excluded ESPN from carrying other DFS adverts.

The deal made DraftKings the official daily fantasy sports offering across ESPN’s platforms and that included, “branding and promotional opportunities across multiple ESPN and DraftKings platforms including integration into digital properties and television programming.”

As part of the ESPN deal, DraftKings reportedly had to commit upwards of $200 million per year in ad spend on the network, Roberts reports, noting that since the political and enforcement uproar over DFS broke out late last year DraftKings has had to devote substantial sums of money to fighting legal and lobbying battles, making it likely that the DFS operator was the party most interested in ending the exclusive deal.

So far, DraftKings, FanDuel, and ESPN have declined to comment on the record, Roberts observes.