Facing scrutiny, fantasy sports industry creates control board

A former Obama administration official was tapped Tuesday to lead the creation of an independent control board for the fantasy sports industry, as it takes fire from policy makers inside and outside of Washington.

Seth D. Harris, a lawyer who previously worked at the Department of Labor, will lead a group developing “a system of standards for the fantasy sports industry founded on transparency, integrity and ethical behavior.”

The outside group, the Fantasy Sports Control Agency, is the creation of the Fantasy Sports Trade Association, which represents traditional fantasy sports services as well as more contentious daily fantasy sports operators such as DraftKings and FanDuel. The standards will apply to both types of services.

{mosads}The group’s formation comes as the industry looks to show it can police itself in the midst of several federal and state probes into the daily fantasy sports industry.

While competitors in a traditional fantasy sports leagues accumulate wins for a virtual team over the course of a season, users on daily fantasy websites compete in single-day games.

Critics of the websites, led in Washington by Rep. Frank Pallone Jr. (D-N.J.), have said they act as venues for gambling, not for “games of skill,” and should face harsher regulations than they do currently.

Those concerns gained more traction after it was revealed last month that a DraftKings employee with access to inside data had won a $350,000 prize on FanDuel. DraftKings says he did not have access to the data before he finalized his FanDuel team for the day in question.

Still, the industry is likely to be the subject of a hearing from the House Energy and Commerce Committee, Chairman Fred Upton (R-Mich.) has said. The House Judiciary Committee is also looking into the websites, according to an aide. Pallone, who initiated the call for hearings, has also asked for the Federal Trade Commission to examine the industry.

The companies are also reportedly facing an investigation from the Department of Justice and scrutiny from Preet Bharara, the aggressive U.S. attorney for the Southern District of New York.

Harris is a former deputy secretary of Labor who led the agency on an acting basis in 2013. He is now a counsel at Dentons, the large law firm that is the fantasy sports trade group’s outside lobbyist.

Harris said that he viewed regulators and lawmakers as “stakeholders in this process.”

“If [the standards] are effective in preventing and preempting unethical or illegal or irresponsible conduct, then it may well be that government will choose to invest their limited resources elsewhere,” he said.

“We are confident that an independent control agency can prevent any unethical, dishonest, or unfair behavior,” he said in a statement.

“In the process, we can save lawmakers and regulators the cost and effort of intervening so that they can expend their limited resources on bigger and more societally important challenges.”

In addition to the standards, the trade association said the control board will build a system to incentivize companies to abide by the standards and that each “member company will be expected to respond to the FSCA’s standards by establishing a system of controls and processes to ensure compliance.”

The group will create a certification, which Harris compared to the famous Good Housekeeping Seal, that tells consumers and regulators which companies have practices in place to abide by the standards.

Though the group will be “lean and mean to start,” Harris said it was likely to grow once the standards are in place.

He estimated that it would take between three and six months for the group to develop the guidance. It could include measures to protect user data, guard against company employees using insider information to gain an advantage in fantasy games and stopping minors from playing the games for cash, Harris said.

FanDuel said it was “pleased” with the announcement.

“We’re pleased that the FSTA is leading this effort for self-regulation and forming an independent agency for the entire fantasy industry,” said FanDuel CEO Nigel Eccles in a statement. “We look forward to working with the FSTA and all of their member organizations to ensure that our collective products adhere to a baseline of best practices.”

Harris said that the growing prevalence of fantasy sports meant it was more important for the industry to implement checks against wrongdoing.

“The fantasy sports business has grown up,” he said. “It is a big player, and I think there is widespread recognition in the industry that there is a need to ensure players that the games are honest, that they have integrity and that they’re fair.”

This story was updated at 5:13 p.m.