For-profit fantasy sports have taken a huge leap forward in the last year or so, with ads for daily/weekly fantasy competitions blanketing the airwaves. Earlier this month, a scandal erupted over employees of two of the sites using insider information to get an advantage over other players. Although largely not regulated as gambling (based on the skill/luck distinction), Nevada has stepped in to characterize these fantasy competitions as gambling and thereby require the websites to get a gambling license (or shut down). Other states seem likely to follow with additional regulation.
In the wake of this legal and media scrutiny, the industry has created a new Fantasy Sports Control Agency to begin a system of self-regulation. The press release lists four parts to the system. They are (quoting the release):
- Standards: Develop a system of standards for the fantasy sports industry founded on transparency, integrity and ethical behavior.
- Company Controls, Processes, and Leadership: Every FSTA member company will be expected to respond to the FSCA’s standards by establishing a system of controls and processes to ensure compliance. In addition, every member company will be expected to appoint a senior leader reporting to top executives and overseeing compliance efforts.
- Auditing Policies and Procedures: Implementation of a sound, regular auditing process to measure and report on company compliance.
- Enforcement: Establishment of a system that provides incentives and public recognition for compliance with FSCA guidelines and penalties for failure to comply.
Heading up the FSCA will be Seth Harris, former Acting Secretary of Labor and Deputy Secretary of Labor in the Obama Administration. Prior to his service to DoL, Harris was a professor at New York Law School and a beloved member of the labor & employment law academy. On his new position, he said that "[t]he 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." You can hear Seth being interviewed by his brother (KTRS host Paul Harris) about his new position here.
The creation of the FSCA and the hiring of Seth are smart moves by the nascent industry. Regulations will be coming at the state and possibly federal level, and the industry should get out in front of them and hope to blunt their force with a credible effort to self-police. For new industries, especially those along the "vice" spectrum, regulation can actually help prevent a market for lemons and can facilitate greater consumer participation. But prohibition can't! They key is finding the regulatory sweet spot that prevents attention-grabbing abuses but allows the industry to grow. The creation of this new agency demonstrates a recognition by the fantasy sports industry that there is likely "no freedom without regulation."