The FBI has opened an investigation into the daily fantasy sports companies FanDuel and DraftKings — but as of now the site’s up and working. And you should still play.
The ship may be sinking publicly, but it’s still floating beautifully online. Currently, there are no signs of users being denied their winnings. The average Joe isn’t an inside trader, so he’s not committing a crime.
The news of an investigation via an exclusive report by the Wall Street Journal, caps off a whirlwind week for the industry, during which the New York state Attorney General also opened an investigation.
The sites have come under extreme scrutiny after a DraftKings employee accidentally released private information about a contest on the site. Based on the unintentional leak, it appears that company employees know who the most-used players are for a given contest. The same employee then won $350,000 in a FanDuel contest, so it looks like he greatly benefitted from the insider information.
That type of insider knowledge is crucial to success in daily fantasy sports games because the customer can differentiate himself from the rest of the crowd. On the sites, customers buy into contests of varying prices (ranging from 25 cents to $10,000) and select lineups of real-life players who will play that day or week, depending on the sport. So, simply put, if a million customers start Player A, the employee is better off starting Player B (regardless of who has a better actual game) because his odds of unique success are much greater.
Daily fantasy sports websites look a lot like betting, but remain legal because they’re considered games of skill, not chance. A cursory look at the site, however, reveals there’s a whole lotta guesswork involved. Even for a hopeless sports addict, it’s not easy to find a quick route to success.
For one, the site provides no guidance for those who are more interested in gambling than sports. In the graphic above, you can see that Jamaal Charles of the NFL’s Kansas City Chiefs is the third-most expensive running back a customer can play — more expensive means the player’s likely to perform better than his opponents. Thing is, Charles is out for the season, and the only warning DraftKings provides is a small red “IR,” which stands for Injured Reserve, indicating the player is, in fact, out for the year. A less-informed gambler, though, could see Charles’ value and play him, wasting real money on a player with no actual value. That type of unspoken deception can help explain why, in baseball daily fantasy sports, a mere 1.3 percent of players won 91 percent of profits. Professionals win these contests at the expense of amateurs.
The answer to the recent problems with daily fantasy sports is not shutting it down. Just legalize betting! The leagues, obviously, took a liking to daily sites as a way to drum up interest and earn profit. Major League Baseball, the National Basketball Association, and NFL owners Robert Kraft (New England Patriots) and Jerry Jones (Dallas Cowboys) are investors in the sites. Plus, any casual fan can see they’re bombarded more than ever by commercials for the sites. Seriously, the only thing saving your eyeballs from a FanDuel commercial is a DraftKings commercial; they’re marginally funnier.
Since daily fantasy games potentially require a level of skill for success, they’re more easily exploited than traditional gambling. Insider trading isn’t really possible with gambling because the customer doesn’t have nearly as much control of the game’s outcome. The profit would remain for the leagues, but without the worry of internal collusion.
For now, the best thing people can do is actually sign up for these sites. It’s more likely that the government will better regulate the sites than eradicate them completely. They might be misleading wastes of money, but so is the very legal lottery. Might as well enjoy them while they last in their current form!