Too Big to be Fair? The latest DraftKings and FanDuel controversy exposes shady dealings in fantasy football.

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The house always wins.

That’s the first cardinal rule of gambling, a commandment much revered (yet often discarded) by gamblers. But it seems in the case of NFL fantasy football and sports giants FanDuel and DraftKings, the house is winning big – even though it now appears that the deck is rigged.

The two biggest fantasy sports are facing a controversy akin to being caught with an ace up their sleeves, as last week, reports surfaced that a DraftKings employee won $350,00 in a fantasy football pool using inside information obtained in the course of their job. Although DraftKings prohibits company employees from taking part in their own fantasy football contests, the employee simply used the inside information to register with FanDuel, earning the hefty payday. That leaves us with an interesting moral quandary – and the whole nature of the unregulated multi-billion dollar fantasy sports industry in flux, with both of the companies pointing an accusing finger at the other.

DraftKings CEO Jason Robins, for one, said that the winning employee did not do “anything ethically wrong.” Yet it doesn’t take an NFL referee to blow the whistle on a slew of issues about the fairness – and maybe legality – of the industry as presently instituted.

If you happen to be among the .0001% of Americans who have never heard of FanDuel or Draft Kings (the companies will spend an estimated $250 million this year on about 130,ooo ad spots – outpacing the entire beer industry just by themselves) let me give you some quick background about the companies and the fickle nature of the industry.

In 2006, lawmakers passed the Unlawful Internet Gambling Enforcement Act that effectively made Internet gambling illegal, including online poker, online bingo, online casinos, and other online games of chance, sending companies overseas to places like Costa Rica as rogue operators. The major sports lobbied for the ban, too, seeing online betting as a threat to the integrity of their leagues. But within the 2006 Act, a small provision was thrown in at the last minute that allowed people to win money online in fantasy football leagues, the major sports realizing that it would boost interest and usher in a new segment of fans.

Little did they know that fantasy football and sports would erupt in this country over the next few years, and new internet sites like DraftKings, founded in 2011, and FanDuel, founded in 2009, would transition from season long pools for true fans to daily play that attracted more serious gamblers. Now, the companies have grown so exponentially that they’re valued at over one billion dollars each, attracted hundreds of millions in financing, and partnered with media giants like ESPN, FOX Sports, and even twelve NFL teams, eight NBA teams, seven NHL teams, and twenty-five MLB teams.

DraftKings and FanDuel users can sign up and play in pools, competing against other players for a chance to win daily cash prizes. It’s a great way for participants to test their knowledge and strategy of playing amateur general manager. Players can enter as many pools with as many “lineups” as they’d like, as long as they pay to enter. They run the contests daily, giving away millions of dollars of winnings for the best-performing lineups (amassed from the entry fees).

The companies earn their income by taking a small cut of the entrance fee – about 10%. Even that fractional amount amasses to tens of millions in profits for the companies.

The problem is that employees are using information about the overall trends and statistics of fantasy football player lineups to give themselves better chances of winning. How does that information aid them? By seeing which players were not selected – information not released to the public until after the games are underway but accessible to employees ahead of time – they can choose those players for their lineups, and therefore increase their odds of winning and winning big money.

“This is about statistics and probability and trend analysis and patterns,” says Seth Young, COF of Star Fantasy Leagues, a rival fantasy sports site.

Of course having this data doesn’t guarantee that an employee, or anyone with the inside information, of winning. But just like counting cards, it gives you a greater chance of winning. The key point is that in a fantasy football or sports league you’re playing in head to head competition against others, so if you have any restricted information they don’t, you’re gaining an illicit advantage.

There are even “professional” fantasy sports players who make a healthy living on the gaming sites, often using their own custom analytical software to identify and post the lineups that give them the best odds.

When the scandal of the FanDuel employee who won $350,00 first broke, FanDuel’s head of PR reported to news outlets that the company’s employees have won “only 0.3 percent of the money FanDuel has awarded in its entire history.” That may sound insignificant, but consider even that small amount adds up to millions of dollars.

It doesn’t take a conspiracy theorist or Jimmy The Greek to speculate how else they may be easily brokering that information for big money. They could easily sell it to gamblers, or just have their friends or associates open up accounts in their names and play based the inside information.

Just like the horse racing and casino gaming industries have been trying to thwart criminals and cheaters through their history, it seems like fantasy football’s meteoric growth has predicated the same response. The companies have done a song and dance about regulating themselves since day one (does that remind you of the banks during the meltdown preceding the recession?) but based on this current scandal, that ship has sailed.

Some might ask, how is betting and making money on fantasy football even legal, since betting on football directly is not, nor are other online games like poker?

“The legality of daily fantasy sports is the same as that of season long fantasy sports,” FanDuel reports. “Federal law and 45 of the 50 U.S. states allow skill-based gaming. Daily fantasy sports is a skill game and is not considered gambling.”

So games of chance and random elements – like dice games and roulette – are illegal. But it’s hard to argue that their isn’t skilled involved in playing poker or blackjack, certainly not less than picking a fantasy football lineup. Yet the controversial law remains, much to the chagrin of the casino industry, which is loosing billions of dollars to online daily fantasy sports companies who don’t have to play by the same rules.

The story also became a hot political topic as the Attorneys General of Massachusetts and New York launched separate inquiries into industry practices and both companies hired their own lawyers to conduct internal audits.

This scandal only reinforces the growing call for regulation of the companies and the industry. A member of the Energy and Commerce is calling for a hearing to explore “how participation in fantasy sports differs from gambling, as well as the relationship between professional leagues, teams, and players and the fantasy leagues.”

The Attorney Generals of both New York and Massachusetts have initiated inquiries intro industry practices, spearheaded by their own lawyers to conduct external audits. Shortly after the scandal was confirmed as fact, a class-action suit was filed in federal court against both fantasy sports companies.

Even though DraftKings and FanDuel are comfortably snuggled in bed with some of the wealthiest and powerful media outlets, events centers, sports leagues, teams, and owners in the U.S., there will come a time where they can’t circumvent the law and keep dealing from a loaded deck.

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