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fantasy sportsHard-charging daily fantasy sports sites are suddenly embroiled in controversy that includes discussion of something akin to insider trading. While there is no evidence of anything fraudulent occurring, the incident has shined a bright light on a potential lack of transparency and external regulation over the industry.

Both FanDuel and DraftKings issued statements on Monday affirming the importance of the integrity of their platforms in response to a growing controversy about employee access to non-public information and its potential use to gain a financial advantage. Then on Tuesday, the sites said employees are temporarily banned from participating in online fantasy sports for money.

Here’s what happened in a nutshell: Last week, a DraftKings employee inadvertently leaked information about most commonly-used players in a contest before that information should have been public. Such lineup data would be valuable to fantasy players, who could gain an edge by filling their rosters with athletes that others are unlikely to use. Prior to Tuesday’s ban, while DraftKings employees were not allowed to play in DraftKings contests, they could and often did play at FanDuel. The reverse is also true.

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The incident showed that fantasy employees might have access to data that the public does not, and then “trade” on that data at other sites — something a bit like insider trading.

Complicating the story further, the DraftKings employee who leaked the data had won $350,000 on FanDuel earlier. There is no evidence that non-public information was used as an aid in that win, the two firms say. And some fantasy website discussions say the data that was leaked would not have been an aid in the contest the employee won anyway.

Still, it creates a lot of questions in players’ minds, wrote Ben Brown at DFSreport.com.

“With no transparency for the industry in place, similar situations like this could easily occur. And with no regulatory board or anything in place to police this sort of activity, we as players are left in the dark,” he wrote. “Now is it possible to simply state that all (daily fantasy) employees should not be able to participate in … contests at other sites with the general public? No, probably not, but this is again where a regulator would be beneficial to the general daily fantasy sports player. Right now we are playing in the Wild West.”

It should come as no surprise that employees of fantasy sites are active fantasy players, and are among the most successful. That creates all kinds of potential conflicts concerning who has access to what data and how it can be used. Right now, there are no real external rules about that. And statements from FanDuel and DraftKings have been vague so far.

“Nothing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers,” DraftKings said in a statement. “Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs. Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.”

The two firms took an additional step Tuesday, temporarily banning employees from playing for money anywhere online. Here’s a statement from FSTA, a trade association that represents FanDuel and DraftKings:

“Member companies must restrict employee access to and use of competitive data for play on other sites. At this time, there is no evidence that any employee or company has violated these rules. That said, the inadvertent release of non-public data by a fantasy operator employee has sparked a conversation among fantasy sports players about the extent to which industry employees should be able participate in fantasy sports contests on competitor sites. We’ve heard from users that they would appreciate more clarity about the rules for this issue. In the interim, while the industry works to develop and release a more detailed policy, DraftKings and FanDuel have decided to prohibit employees from participating in online fantasy sports contests for money.”

Recently, a member of Congress called for hearings into the operation of the suddenly-ubiquitous fantasy sports industry, and this incident shows why that’s a good idea.

For new players, it’s important to understand that while advertisements hawk the potential for life-changing winnings, fine print on TV ads reveals the average win is about $22, and heaven knows what the median winnings amount is. Those big pots likely skew the average a lot.

It’s also a good idea to read this great story on Bloomberg, “You Aren’t Good Enough to Win Money Playing Daily Fantasy Football.” It’s all stuff veteran gamblers know, which generally could be filed under the wisdom of, “If you don’t know who the sucker is, you are the sucker.” Fantasy sports games are dominated by “whales,” who win all the big money — many aided by sophisticated computer programs. And whales need food to keep making money. That’s you, fantasy newbie fish.

If that sounds a bit like how the stock market works, you are right. But however imperfect, the stock market has external rules and audits that at least attempt to make the game straight.

I’m not against adults playing games with entry fees hoping to win a lot of money; I do wish we just got on with it and called that gambling.

And I know any time you put this much money in a fast-paced environment, you aren’t playing a game — you are playing with fire. This is an industry which better let the grownups do their thing, and fast.

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