Our view on the DraftKings-FanDuel insider controversy
Fantasy Golf

Our view on the DraftKings-FanDuel insider controversy

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When you walk into a casino, you know there's a good chance that whatever cash you lay on the felt or drop in a slot machine isn't coming home with you. Or perhaps only a percentage of it.

Casinos have an edge over every gambler. The edge is pretty clear. Every casino player knows they're -- and pardon the pun -- not playing with a full deck. But at least they know, or should know.


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Even the most skilled blackjack player -- which is the only game you should play in the casino, by the way -- will tell you that their potential edge is only temporary; identifying it is how they make money. (Mistakenly timing it is also how they lose a lot of money, too.)

Which brings us to daily (or weekly) fantasy sports. You've seen the ads. DraftKings and FanDuel offer players short-term fantasy games for entry fees ranging from a buck to $10,000, covering practically every relevant American sport. The companies label themselves as purveyors of a fantasy game of skill -- as opposed to, say, roulette, which is all luck -- because that's what makes them legal under the 2006 Unlawful Internet Gaming and Enforcement Act (UIGEA). But, make no mistake, it's legalized gambling.

The same research that goes into sports betting goes into short-term fantasy sports: recent trends, weather, venue, injuries, tendencies and more. The difference is how the gambler wins. Instead of simply caring about the outcome of the game as in sports betting, daily fantasy players are forced to care about the minutiae of each player's performance. Every little thing counts.

When it comes to sports betting, it's the sportsbook -- or your local bookie -- that sets the market. They set the lines, moving them as money comes in one way or another. Moving the line gives the sportsbook a chance to hedge their bet that the collective sports-gambling population will guess wrong on the opening line. The sportsbook doesn't care who wins so long as more money -- not necessarily more people -- is wrong than right.

That's not the case in short-term fantasy sports. DraftKings and FanDuel each set the market prices for each player in each competition. The prices don't change based on how often a player is used in an entry, primarily because it wouldn't give each player an equal chance to set the lineup of their choice. It's also because neither site cares at all about which players do well. Both, like the online poker sites on which they were constructed, designed and presented, make their money as a conduit for the games. They take 10 percent of each entry fee, so they win no matter the outcome. There is no edge to speak of.

However, folks who work at these sites, until this week, haven't been barred from playing short-term fantasy at their employers' competitors, according to Legal Sports Report. That means that these employees potentially have access to the information that would offer the biggest edge over the competition: player usage rates. You see, in contests that feature hundreds of thousands of entries, the path to victory is to pick the best-performing-least-used players. The right mix is that of players who typically produce a lot of points with a few who have an unexpected high-scoring game (or tournament, or race, etc.). The sleepers make a lineup standout and reduce the likelihood of a tie. Knowing who the larger population is picking would give any player a huge edge in trying to create a unique, high-performing lineup.

Perhaps it's no surprise, then, that the DraftKings employee who released that usage data before the NFL Week 3 Sunday kickoff won $350,000 playing in a football contest on competitor FanDuel. The games are exactly the same. And while the two companies do not share data, there are plenty of players who use both sites. The usage data from one site is more than statistically significant enough to represent the other. There's the edge.

Now, DraftKings says that usage data, released by employee Ethan Haskell in a blog post on the site's Playbook, wasn't used improperly, but it also admits other employees have won big at FanDuel and vice versa. It's hard to imagine those are mutually exclusive statements.

“Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs,” read a joint statement from DraftKings and FanDuel, according to the New York Times. “Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.”

Were we to give both companies a tremendous benefit of doubt in regard to player usage rates, there's still the huge problem that DraftKings and FanDuel employees set the player salaries for each game. That means they could conceivably steer the broader community to particular players because they set the prices, they set the market.

Here's the thing: even assuming that employees of these companies, which, they both say are often plucked from the pool of players themselves, use their internal data to their benefit, there has been no crime committed here. It's completely legal because short-term fantasy sports are unregulated. There are no government restrictions on how these contests operate or standards which dictate employee access to data, how that access is audited. These revelations will likely expedite government action.

Even before these reports, House Representative Frank Pallone Jr. (D-NJ) called for a Congressional hearing to dig into the relationship between short-term fantasy sports and gambling. Pallone does not believe DraftKings and FanDuel can supply enough data to demonstrate short-term fantasy is different from sports betting. (It's not.) That may ultimately lead to declaring short-term fantasy illegal. (Even if it makes more sense to keep it legal, as well legalize sports betting, and regulate both heavily.)

How are we supposed to react?

The cynic in me says to run. Run away until the government steps in and offers more regulation. We saw this movie in the unregulated world of online poker, with numerous scandals of insiders gaining access to other players' hole cards through software hacks, giving them perfect information. Of course, the players have to play, but seemingly unfettered access to this data has been ongoing and it took a publishing error to bring it to light. It could be the tip of the iceberg.

However, and this brings us back full circle, now you, the short-term fantasy player, have a better awareness of the even steeper odds you face. It wasn't enough that 10 percent of short-term fantasy players rake in 90 percent of the winnings -- primarily through re-entries and flooding the market to take advantage of guaranteed-jackpot overlays -- but now the casual and even dedicated player knows it's an even tougher game to win on a routine basis. If you're comfortable with that and are willing to risk a little money to make watching sports a little more enjoyable, fine. You know the edge.

As for us at GNN, we'll continue to offer our weekly fantasy golf advice. Our weekly top 10 has always been agnostic of the game you choose to play -- for money or not. However, we can't in good conscience further encourage folks to sign up for short-term fantasy until we see the proper steps taken to regulate this industry, so we will temporarily cease using our affiliate agreement with DraftKings.

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