The fantasy sports space is about to start policing itself

Companies in the space are creating a control board to set standards, audit and monitor leagues

(Updated with comment from FanDuel and DraftKings)

With the recent betting scandal hitting daily fantasy sports leagues FanDuel and DraftKings, and state governments already starting to look into them, now the industry itself it going to start policing itself.

That will come in the form of an outside control board, which is being set up in order to ensure ethical behavior in the industry, it was announced on Tuesday.

Led by Seth Harris, the former Acting U.S. Secretary of Labor under Obama, the Fantasy Sports Control Agency will monitor daily and non-daily fantasy sports companies, as well as setting industry standards, auditing companies and creating an enforcement mechanism to deal with misconduct.

After that, New York Attorney General Eric Schneiderman opened an investigation into the matter, sending letters to both companies, asking both of them for internal data, as well as details, on how they prevent fraud. He also wants details on any internal investigations that the companies have done into their employees.

In response, both FanDuel and DraftKings banned their employees from betting on fantasy sports leagues, and  created advisory boards to advise the companies and give them recommendations when it comes to the law. These companies are, by far, the two biggest in the space, each having raised over $350 million and paying out hundreds of millions of dollars each year.

Despite those steps, the scandal seems to have opened up the floodgates for state and local regulators to take a closer look at these leagues. On Tuesday a lawmaker in Illinois proposed a bill that would, among other things, prohibit players under 18 from participating, and also allow sites to check to see if players owe child support or have tax liens.

Five states, Arizona, Iowa, Louisiana, Montana and Washington, have already made daily fantasy sports illegal.

There have also been questions raised about the fairness of both companies, with a Bloomberg report in September finding that winnings are heavily skewed toward a very few elite players who use algorithms and software to enter hundreds of contests every single day.

Analysis from Rotogrinders found that the top 100 ranked players enter 330 winning lineups per day. Even more alarming, the top 10 players combine to win an average of 873 times daily, or nearly 99% of contests.  The other 20,000 players win just 13 times per day, on average.

The creation of a control board wouldn't fix all of those problems, obviously, and it also wouldn’t affect the continuing investigations, but it would at least show that the industry is aware of the problem and is interested in at least trying to solve it.

(Image source: bostonherald.com)