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October 14, 2015

A Stark Reality Facing Daily Fantasy Sports Sites

The multibillion dollar daily fantasy sports (DFS) industry finds itself in crisis mode. Earlier this month, research showing how the profits of daily fantasy games are soaked up by a small group of professionals raised questions about the average user’s ability to win. Then the news broke that an employee at DraftKings leaked valuable internal player data and proceeded to use that intelligence to win $350,000 in a FanDuel contest.

While DraftKings has asserted that the employee did not have access to the data before creating his winning team, the two separate events have consumers, law enforcement officials, and regulators questioning the legitimacy of these companies, their policies, and their products.

The two companies have already received an inquiry from New York Attorney General Eric Schneiderman and a class action lawsuit accusing them of negligence, fraud and false advertising. Perhaps more importantly, they are left with a user base that can’t help but question the integrity of the games they are forking over their hard earned dollars to play.

“Policy changes such as this may hurt the bottom line in the short-term, but it beats having to shutter your doors.”

While the circumstances look bleak for DraftKings and FanDuel, they can still act to regain consumer confidence and lessen the almost certain regulatory burden to come. A swift, strategic, and transparent campaign of education and cooperation can help them to achieve both goals.

DraftKings and FanDuel have already taken important steps by no longer allowing employees to compete on other sites, softening their stance on regulation, and bringing in neutral third parties to assess their internal data policies. Now is the time to aggressively engage the public and policymakers to educate them on the policies they have in place to protect their data and the legitimacy of their games.

Being open with consumers is the only option. Trust is broken and if “everyday Joes” don’t think they have a chance to win, they won’t play. This can’t be fixed with some PR spin. It must be addressed with fundamental policy changes within the companies. For example, limit the number of entries each person can submit to negate well-resourced “sharks” that create dozens or even hundreds of lineups to gain an unfair advantage.

Yes, policy changes such as this may hurt the bottom line in the short-term, but it beats having to shutter your doors due to a class-action lawsuit, cratering revenues or stifling regulations.

Beyond education, the DFS industry needs to work with policy makers and regulators to create a framework of regulation that works for all parties. With so much negative attention the question is no longer will there be regulation, but how much?

FanDuel’s and DraftKings’ willingness to work with regulators can help the DFS industry strike a beneficial balance. They can first build a self-regulation framework — to maintain more control over their businesses — through a partnership with an independent third-party regulatory body. Taking a page from the casino industry’s handbook, comprehensive self-regulation built on well-defined policies and procedures can restore credibility.

It might sound like a fantasy at this point, but with the right strategic approach, this crisis could be the best thing that ever happened to the daily fantasy sports industry.

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