A few weeks ago, I wrote in Real Money about the explosion of daily fantasy sports (DFS) leading up to the new NFL season.
Yesterday, a huge story broke that employees at the two biggest sites, DraftKings and FanDuel, had been making a lot of money betting on their competitors' sites.
Being industry insiders, it appears those employees used their knowledge to their personal financial advantage and at the expense of novices attracted to DFS by the onslaught of TV ads.
When a story like that comes out in The New York Times and you have companies like DraftKings and FanDuel that have raised a lot of money privately and will likely need to IPO soon, you can expect some heavy damage control, and we started to see that almost immediately.
Both DraftKings and FanDuel announced last night in response to the story that none of their employees will be allowed to play on other DFS sites going forward.
That will probably help this event blow over. The big TV networks benefiting from all the new ad money coming their way from the DFS players are incented to keep the party going. And this is unlikely to affect any of the casino names that feature sports gambling. However, if this problem causes a short-term blip to the revenues of DraftKings and/or FanDuel, a Sirius XM-type (SIRI) merger shouldn't be ruled out.
But the incident helps to shine a spotlight on the entire industry and makes one wonder how much the "little guy" can actually win at DFS compared to the sharks. But, then again, hasn't that always been the question hanging over online poker or gambling in general?
One of the most interesting conversations I've had recently was with Rahul Sood, co-founder and CEO of Seattle-based Unikrn, on my podcast.
Unikrn is a big private e-sports company. It allows betting on e-sports in geographies where it is legal. If the U.S. and Canada one day allowed sports and e-sports betting, it would be great for Unikrn.
That said, he believes DFS exists in part because of strange U.S. laws preventing some kind of gambling but allowing others. Sood thinks DFS is gambling, even though the industry says it's a game of skill.
If the U.S. one day did allow sports betting, Sood wondered aloud, how well would these DFS players be able to adjust to that new world? He thinks his e-sports company with the algorithms he's built for overseas betting would put him in the driver's seat.
There's a lot of money at stake in DFS right now. We'll have to watch how things shake out with these new revelations over the coming days.