“A storm of online criticism has roiled the two largest fantasy-sports companies in North America,” writes Wall Street Journal reporter Sarah E. Needleman.
DraftKings employee Ethan Haskell said on a message board that by accident he prematurely published data to the company’s blog from the lineups of players submitted to the DraftKings site for its Millionaire Maker contest.
“I’ve fixed the error and we’ll be putting checks in place to make sure it doesn’t happen again,” Mr. Haskell wrote on RotoGrinders. “I was the only person with this data and as a DK employee, am not allowed to play on the site. 100% my fault and I apologize for any issues.”
Mr. Haskell won $350,000 on a $25 buy-in on rival site FanDuel the same week, DraftKings and FanDuel said.
DraftKings Chief Executive Jason Robins said Mr. Haskell won the money fairly because the employee, a content manager who joined the company in June 2014, received the data at a time when it was no longer possible to change his FanDuel lineup to his advantage. FanDuel confirmed Mr. Haskell wouldn’t have been able to change his lineup at that time.
In her lede, Needleman writes that this episode “cast[s] a spotlight” on the fantasy sports gambling business, though she does not reveal why. She says only that the industry is “already under scrutiny.” Why? For “lacking government oversight.”
The usual justification for regulation is market failure: private costs are less than social costs, probably because of an externality, such that more than the economically efficient amount of the activity is going on. And this might be so, if there are substantial social costs caused by fantasy sports betting. To be justified, government regulation would have to target the externality, not the just target the industry.
Another justification for regulation is to protect consumers from fraud. It’s an entirely different argument. Social costs are irrelevant. Indeed, there is at least an implicit assumption that consumer protection is needed because the activity is beneficial rather than harmful. (Sometimes the purpose of regulation is to prohibit a market-driven activity based on the belief that it is harmful. Needleman does not say this is why legislators in New Jersey, California and Massachusetts are keen to regulate; only that they have “recently proposed initiatives aimed at regulating fantasy sports in some fashion” [emphasis added].)
This incident provides little or no support for regulating based on either market failure or fraud. Mistakes happen; their commission is not an externality. And apparently no one has made a credible allegation that Haskell’s actions were fraudulent.
Based on Needleman’s account, in New Jersey, California and Massachusetts it is the absence of regulation that is the justification for regulation.