Facing the likelihood of government oversight, fantasy sports companies have agreed to create a self-regulatory group.
The Fantasy Sports Trade Association, a group of companies in the industry, elected to establish the Fantasy Sports Control Agency, an organization that will have an independent staff tasked with creating a program of ethics and integrity led by former acting U.S. Secretary of Labor Seth Harris. “The reason that the FSTA established an independent authority and asked me to lead this organization is to ensure that it’s not a sham, that it’s not a fake, that it’s not just a publicity stunt,” Harris toldBloomberg. “The goal is prevention, rather than punishment.”
Specifically, the FSCA will launch a program with a four-point focus: standards (founded on “transparency, integrity and ethical behavior”); company controls, processes and leadership (every FSTA member will be expected to establish a compliance program to meet the FSCA’s standards and appoint a senior leader to oversee the company’s efforts, reporting to top executives); auditing policies and procedures (the implementation of a sound, regular auditing process to measure and report on company compliance); and enforcement. The last component will include penalties for failure to comply and public recognition for compliance.
The impetus for the self-regulatory body can be traced to the recent scandal with news reports that employees of DraftKings and FanDuel, two of the largest fantasy sports companies, regularly played on each other’s sites and won significant amounts of money. Although the companies have said their workers did nothing wrong, the allegations of insider trading led to the companies banning employees from participation in online daily fantasy sports (DFS).
In addition, the revelations triggered multiple probes into the industry, including investigations by the Federal Bureau of Investigation and multiple state Attorneys General, as well as consumer class actions and letters from lawmakers. The Nevada Gaming Control Board responded by declaring that DFS is a form of gambling under state law that requires a license issued by the state’s Gaming Commission to conduct business in the state.
Given the situation, the industry is facing a “pivotal moment,” the FSTA said in a letter to members. “We can establish and enforce these systems ourselves, or we can put our industry in the hands of outside entities who do not understand the industry as we do—outside entities who are not as able or as committed to establishing rules and regulations that ensure integrity and transparency while allowing the industry to continue to thrive,” the group wrote. “Simply put, the leadership of the FSTA believes that we cannot and should not allow the future of our industry to rest in the hands of others.”
To read the FSTA’s press release about the FSCA, click here.
Why it matters: Will the creation of a self-regulatory body satisfy inquiring governmental entities and stave off regulation? Only time will tell, but the group is not wasting any time. Harris told Bloomberg that he has already met with representatives from media companies and professional sports leagues to discuss the plan for the FSCA. “It’ll be very lean and mean in the beginning,” he said.