Posts Tagged ‘professional sports betting software’

How Elon Musk Is Using Tesla to Kill Big Oil

This has been the planet’s hottest summer in recorded history, so it’s nice to know Elon Musk has commenced his grand scheme to transform the energy business so profoundly that there’s a chance Iceland won’t become the new Jamaica after all.

One small step in Musk’s plan involves merging Tesla, his electric car company, with SolarCity, his cousin’s solar panel maker. That deal—announced in August—has been getting all sorts of blowback from short-term-thinking Wall Street nincompoops, who groan that both companies are losing money and the merger won’t help. Such doubts about Musk are like asking the Wright brothers in 1899 why they were fiddling with bicycle parts.

Future of Energy

There’s so much more at stake than just a company or stock price. The future of energy is coming into view, driven by Musk and a growing number of investors and entrepreneurs. In a decade or two, most homes and buildings will have cheap and superefficient solar panels on their roofs and high-powered batteries in their basements or garages. The batteries will store power generated when the sun shines for use when it doesn’t. Each of these buildings will be connected to a two-way power line that can allow anyone to sell excess energy or buy needed energy in an eBay-style marketplace.

Most cars will be electric, and fewer people will need to own one, since an electric, connected, self-driving car will be able to work for Uber when the owner isn’t using it, which is 90 percent of the time. That way, on-demand transportation is available just about everywhere. Your home solar panels and batteries will charge your electric car, so your home will supply most of the clean power you and your family need. You might not have to buy any electricity from some far-off coal-burning electric plant or ever again fill up at a gas station.

Electric utilities will become a shrinking provider of last resort, like the U.S. Postal Service or telephone company landlines. Some people will drive gas-powered cars, but doing so will become about as unwelcome as riding a turd-dropping horse down New York City’s Fifth Avenue. Gas cars will also get less convenient as gas stations one by one go out of business or convert to charging stations for electric cars.

09_09_ManeyMusk_01 Tesla Motors CEO Elon Musk unveils large utility scale home batteries at the Tesla Design Studio in Hawthorne, California on April 30, 2015. Electric car pioneer Telsa Motors unveiled a “home battery” which Musk said would help change the “entire energy infrastructure of the world.” David McNew/AFP/Getty

Oil will still be needed for things like plastics and jet fuel, although advances in virtual reality might make business travel almost unnecessary, severely cutting demand for airlines. As demand for oil drops and prices plunge further, drilling new wells will become bad business. Before long, the amount of carbon we’re chugging into the air should drop dramatically.

Seem far-fetched? All the relevant trends point to such an outcome, probably sooner than you think.

The technology of rooftop solar is on a trajectory similar to Moore’s Law, which described how computers would get twice as powerful for the same price every 18 months for decades. The cost of solar has dropped 95 percent since the 1980s, while efficiency has rocketed. With today’s technology, solar panels covering just 0.6 percent of U.S. land mass could supply all the electricity needed for the entire country.

Meanwhile, when Tesla unveiled its first sports car eight years ago, a mass-market, all-electric car seemed more unattainable than a comfortable stiletto heel. But when Tesla took preorders for its Model 3 sedan in March, it signed up half a million buyers within weeks. Now General Motors CEO Mary Barra, followed by just about every other major carmaker, is also betting on an electric fleet.

Viable home batteries will be supremely important to make all of this take off. Musk is about to open Tesla’s $5 billion Gigafactory in Nevada, and for the first time giant batteries for cars and homes will be manufactured on a huge scale. Tesla has said that should drive down the cost of battery power by at least 70 percent.

And this is where Musk and his “Master Plan, Part Deux” kicks in. He wrote about it in July, noting that the end goal of Tesla was never to produce hot electric cars (even though Tesla just unveiled the fastest-accelerating car on Earth). Tesla built hot electric cars as an entry point for ending dependence on oil. “The point of all this was, and remains, accelerating the advent of sustainable energy, so that we can imagine far into the future, and life is still good,” Musk said.

Tesla cars will be a part of a sustainable electric system: the solar panels, the batteries, the software to manage power and trade it over networks. “One ordering experience, one installation, one service contract, one phone app,” Musk predicted.

One other factor will be turning one-way power grids into two-way exchanges. Startups such as Gridco Systems and Varentec are building that technology. As more people install solar and demand for traditional power-plant-generated electricity shrinks, it’s a good bet utilities will adopt these “intelligent power grids,” much the way cable TV companies overbuilt one-way broadcast lines with two-way broadband systems as the internet exploded in the 1990s.

Musk Leads the Way

Such a complete system is why Musk thinks the SolarCity deal makes sense, even if others rail against it. Founded in 2006, SolarCity is the biggest solar panel company in the U.S. It was growing like crazy for years, and by 2015 it was adding 12,000 customers a month and was worth $6 billion. Now SolarCity is in a hole, losing maybe $200 million last quarter, according to Bloomberg. But that deficit has little to do with solar technology and everything to do with policy decisions among regulators. For instance, earlier this year, regulators in Nevada protected the state’s utility companies by instituting rules that made solar a bad deal for homeowners. The market dried up, SolarCity pulled out of the state and laid off 550 employees, and its earnings suffered.

Musk learned something important from Tesla: He doesn’t have to change everything himself—he just needs to show the way. He didn’t need to “disrupt” the automakers. He only needed to co-opt them, get them to see electric cars as an industry-rejuvenating product and make them want to whip Tesla’s ass before Tesla blew past them. The result: The whole auto industry is reinventing itself.

Can’t you see—especially you Wall Streeters—that he’s doing the same now with energy? It’s great that politicians sign treaties about climate change, but the energy revolution will happen because of entrepreneurs and technology. At the moment, Musk is the one guy with the chutzpah to show us the way. It’s the most important thing he’s ever done.

Let’s hope it works. Listening to reggae in Reykjavik just doesn’t seem right.

Article source: http://www.newsweek.com/elon-musk-tesla-oil-energy-493905

Is sports betting the industry’s future? – Gambling Insider – In


“Sport has always acted as the gateway into gaming. Usually when people take our sports offering, they take the casino as well, given the platform, the omni-channel approach and the opportunity of converting people from sports to gaming, where most of the profits are generated for bookmakers. Therefore, we believe that going forward, casino will continue to perform strongly, assisted and followed by sports becoming bigger by far and more significant for us.”

When speaking to Playtech CEO Mor Weizer about Playtech’s H1 financial results on Thursday, it was interesting to hear about Playtech’s plans to focus on growing its sportsbook offering. This is despite the fact that casino is clearly the vertical that has been driving success at Playtech up to this point, with casino revenue of €177m (+19%), accounting for 52% of overall revenue of €337.7m (+18%). Sport accounted for 10% of overall revenue with €17.7m (+10%).

There can be little surprise that Playtech is targeting sports betting, particularly if the reports of its interest in acquiring OpenBet, which was sold to NYX Gaming Group for £270m in May, is anything to go by, as well as the acquisition of a 90% stake in Best Gaming Technology for €138m in July. Both Playtech and NYX have realised that sports betting is an important weapon in a battle for supremacy, and with the direction the industry is moving in, it is not difficult to see why sports betting for the providers is becoming increasingly lucrative.

It is not as though sports betting itself is acting as an inspirational new trend that has hit the industry out of nowhere, as it’s been around in a competitive market-space for centuries. What makes it stand out from the crowd in 2016, however, is its ability to embrace new trends before other verticals, with particular regards to i-gaming. Have the other verticals seen innovations such as in-play, cash-out or partial cash-out come along to shake markets up, or developments of games like daily fantasy sports (DFS)?

Poker fans may argue that the likes of rush poker and Spin Go have done their very best to drive that vertical, but then poker operators have not been able to exploit areas such as TV advertising in the middle of Premier League football matches, a luxury sports-betting operators can enjoy.

Even in a market like New Jersey, in a country where there are so few opportunities for sports betting, it is that mode of betting that is seen by some as a potential saviour to a casino market that has reported revenue declines for each of the last nine calendar years. Online gaming has provided some kind of impetus in the three US states where it is regulated, but as Weizer said, they present “small opportunities” for Playtech. There is only one form of betting that can really be seen as a key driver of growth for the US, at least in the regulated sense, with the American Gaming Association predicting that $149bn was wagered illegally on US sports in 2015.

Just ask yourself why fantasy sports are becoming regulated across the US at a rapid pace in comparison with online casino and poker, with the total states regulating the games now being at nine overall and eight this year alone. Yes, there are the age-old arguments about chance vs skill, but let us not kid ourselves into assuming that the dollar symbols have not been rolling in the eyes of state authorities after looking into tax opportunities presented particularly by DFS, a market that has been predicted by Eilers Krejcik Gaming to be worth around $8bn in entry fees in a best case scenario for 2020.

If sports betting as a whole is on an upward curve, then this would be in line with predictions. The European Betting and Gaming Association forecast that regulated betting gross gambling yield (GGY) would be $70bn for 2016, which would be a 21% increase from $58bn in 2012 (14% of the entire gambling market).

Great Britain’s figures also showcase the strength of sports betting, with the land-based GGY total for the period from October 2014 to September 2015 being £3.2bn, 61% of the market, while online sports betting GGY for the 11 months ended 30 September 2015 was £1.46bn, 35% of the market, but behind casino with £2.4bn.

While the operator space, particularly in the UK, has seen a trend of consolidation to combat tax regulations , we may now be seeing a sprint race for providers to get their hands on sports betting software as the M A activity continues.

Article source: https://www.gamblinginsider.com/news/2367/is-sports-betting-the-industrys-future

Welcome to the Big Time

T here’s a game within the game that requires a different set of skills,” actor Edward Norton says in the voice-over as quick-cut video images show young men and women bathing a dog, jogging on the street, sweating in a sauna — all while staring, hyperfocused, into their smartphones.

“There’s no offseason. This is a play-as-much-as-you-want, whenever-you-want fantasy league. And we don’t just play — we are players. We train. And we win …”

Now those men and women are jumping, cheering, fist-pumping — each celebrating mammoth, seven-figure jackpots.

“This isn’t fantasy as usual. This is DraftKings. Welcome to the big time.”

At its peak last summer, a daily fantasy get-rich-now commercial aired every 90 seconds on television. Combined, industry leaders FanDuel and DraftKings plunged more than $750 million into TV commercials, radio spots, digital ads and other promotions. In the weeks leading up to the 2015 NFL season, the two startup companies spent more on advertising than the entire American beer industry.

Daily fantasy’s meteoric rise — breathtaking for its breakneck speed, avalanche of investors’ cash and ever-spiraling valuations — spurred the two companies’ endlessly annoying, record-shattering arms race for new customers and industry dominance. In only three years, DraftKings zoomed from an idea hatched by three buddies in a Boston barroom into a nearly $2 billion company, replete with comparisons to overnight Silicon Valley unicorns like Uber and Snapchat. FanDuel was right there too. The two companies processed a combined $3 billion in player-entry fees in 2015.

The companies were everywhere: logos emblazoned in ballparks, on NBA floors, on NHL boards and in ESPN studios. They became the darlings of the major American sports leagues, media companies, dozens of professional teams and a deep bench of investors — from Comcast and Google to private equity firms and a pair of the NFL’s most influential owners, Jerry Jones and Robert Kraft.

But as quickly as it boomed, the industry bottomed. One year after their headiest moments, FanDuel and DraftKings are still not profitable. Both privately held companies’ valuations have been sliced — by more than half, according to some estimates. The companies have hemorrhaged tens of millions of dollars in legal and lobbying expenses. (DraftKings’ attorneys fees once ran as high as $1 million per week.) And the fog bank of the industry’s uncertain future has made it nearly impossible for either company to raise new money. (FanDuel’s auditors have raised “significant doubts” about the company’s future if more states do not declare daily fantasy sports legal.) Three federal grand juries — in Boston, New York and Tampa, Florida — have alerted one or both companies that they are under criminal investigation. A merger — once unthinkable to many — is on the table.

It has been, by any measure, a spectacular fall.

The industry’s implosion began with a series of tactical mistakes made by a pair of bitterly hostile startup companies that all but dared federal and state authorities to shut down the sites over concerns the games constituted illegal gambling. Outside the Lines interviewed more than 50 company executives, current and former players, legislators, lobbyists, lawyers, investigators and industry consultants and found that the companies’ troubles were triggered, in part, by a toxic combination of young executives’ hubris and ignorance, reckless risk-taking and raw political naïveté. Infused with a false sense of security from FanDuel’s and DraftKings’ surging valuations and soaring revenues, the companies’ co-founders and CEOs — Nigel Eccles, 41, of FanDuel and Jason Robins, 35, of DraftKings — waged a self-destructive, kill-or-be-killed race toward industry supremacy and a life-changing payday that they now acknowledge was crazy for all of the cash it torched, the wrong messages it sent and the legal and media tsunami it unleashed.

For years, the two companies’ leaders had been warned by investors, lobbyists, consultants and even some players about a coming day of reckoning. Yet they relentlessly promoted their games as a means to get rich quick when they knew only a tiny percentage of their customers were winning more often than losing. They failed to aggressively move against big-bankrolled players who dominated newer players, sometimes with predatory behavior or technological advantages. And they allowed their own employees to play — and win millions — on their rivals’ sites, despite their having access to odds-improving proprietary data.

“This industry blew up so quickly — no one adequately planned or prepared for it,” says Gabriel Harber, 29, a former high-volume player at DraftKings and FanDuel. “[The executives] didn’t make the substantial investment on self-regulation and the regulatory side that was obviously needed. … Every PR person and lawyer should be fired. How could you let your client engage in this kind of crazy advertising if every legal loophole wasn’t closed? How stupid can you be?”


THE DAILY FANTASY industry has an unwitting — and unlikely — founding father: George W. Bush.

On Oct. 13, 2006, President Bush signed the Unlawful Internet Gambling Enforcement Act. UIGEA was intended to reverse the momentum of America’s internet gambling boom by prohibiting banks from processing bettors’ credit card deposits with illegal betting operations. With the blessing of the major sports leagues, a carve-out in the law was made for the wildly popular season-long fantasy leagues that an estimated 57 million Americans now play. But the drafters of UIGEA were silent about daily fantasy contests because no such thing existed. By 2007, however, a handful of lightly played daily fantasy websites had opened in the United States, but overseas, things were moving much faster.

A group of sharp entrepreneurs from the United Kingdom, some of whom had worked as online poker executives, started considering the possibilities. An entrepreneur named Nigel Eccles had concluded, correctly, that season-long fantasy leagues were far too slow for action-junkie millennials, who thrived on instant gratification and who’d soon routinely watch sports on TV while glued to a second screen, usually their smartphones.

So in July 2009, Eccles and his colleagues launched FanDuel in Edinburgh, Scotland. It was a spin-off of Hubdub, their failed prediction site on which users bet virtual money. Unlike Hubdub, FanDuel would accept real-money wagers.

A soft-spoken, lanky Brit, Eccles had printed out a copy of UIGEA and studied its fine print. From day one, he concluded that the law would provide “safe harbor” for daily fantasy games. In early meetings with potential investors, Eccles was a passionate evangelist for daily fantasy sports as a game of skill, similar, he liked to say, to a golf tournament, a 5K race, a chess championship or a spelling bee. His initial pitches steered clear of gambling parlance: “Bets” were not wagers but “entry fees,” and competitors were not vying for “jackpots” but preset “cash prizes.” “We can show with FanDuel that the high-skill players will win predominantly,” Eccles would tell investors, the media, anyone who’d listen.

The chase for financing was slow going at first; the initial investors were Ian Ritchie, a Scottish software millionaire, and Kevin Dorren, a Brit who founded a meals-on-wheels diet service. Eccles nearly gave up when investors’ cash dried up. But he and his co-founders pressed on, and by the end of 2011, FanDuel had combined smart product design and savvy marketing to establish itself as the industry leader. The company’s later financial backers, like Mike LaSalle of Shamrock Capital Investors in Los Angeles, were hooked by Eccles’ vision for explosive growth, with a target of 20 million to 30 million active users within several years.

During their first meeting in Manhattan in April 2014, LaSalle says, he was particularly impressed that Eccles wasn’t a daily fantasy player but a disciplined businessman committed to developing new products. Five months later, LaSalle’s firm made a major investment in FanDuel as part of the company’s financing round that raised $70 million.

“We thought the regulatory issues were going to have to be flushed out at some point,” he says. “But no one anticipated the fervor of what happened and the way [the authorities] directed their energies” against the industry.


AS FANDUEL GREW, the three young men who would launch its principal competitor were still working near Boston for Vistaprint, the printing and business cards company. The trio were Jason Robins, a Duke graduate with degrees in economics and computer science who minored in math; Matt Kalish, a Columbia grad and fantasy baseball addict; and Paul Liberman, an electrical engineering and computer science graduate of Worcester Polytechnic Institute in Massachusetts. On a Tuesday in January 2011, Kalish pitched an idea to Robins: an online sports venture that would jam all the excitement of a season-long fantasy league into a single day — even a few hours. Robins was in. They recruited Liberman. They would become discouraged after discovering that FanDuel and other companies already had a strong foothold. But Robins told his pals the crowded field proved there was a marketplace for daily fantasy. They’d just have to find a way to beat FanDuel.

By that weekend, the trio were holed up developing their idea inside the spare bedroom of Liberman’s town house in Watertown, Massachusetts, and, on occasion, over draft beers at Boston Beer Works.

Robins is a quick-thinking, fast-talking entrepreneur, a natural-born salesman who is articulate, supremely confident and a little brash. Some investors call him “the closer.” In the beginning, however, he didn’t close anything. He pitched DraftKings to nearly 50 potential investors, none of whom bit. But after meeting Robins in November 2011, an investor named Ryan Moore says it didn’t take long to hand him a $1 million check. “I’d say within an hour, maybe 90 minutes,” recalls Moore of Atlas Venture.

Three months later, Robins, Kalish and Liberman were still at Vistaprint while moonlighting on DraftKings inside Liberman’s spare bedroom. That’s when Moore challenged them with a difficult question: If they don’t believe in the company enough to quit their day jobs, why would any other investor — or any customer — believe they are serious? It was the push Robins, Kalish and Liberman needed.

They quit, and on April 27, 2012, the trio hosted their first daily fantasy baseball contest at DraftKings. A few dozen family members and friends paid $20 per lineup and competed for a pot worth nearly $400. The three co-founders’ cut was $40.


FROM THE BEGINNING, DraftKings built a reputation for being hyperaggressive, racing to build a user-friendly mobile product and the first to recognize the importance of signing credibility-boosting major league sponsorships. The company also would eventually offer fantasy contests on sporting events that FanDuel wouldn’t touch, like PGA golf tournaments, mixed martial arts, esports and NASCAR. FanDuel had avoided those sports over its interpretation of federal law: that fantasy games must involve multiple contests, such as an evening’s worth of NBA games rather than a single NASCAR race.

But the wider smorgasbord of games proved popular. DraftKings always “shot for the moon — pushed the envelope in every way to make up ground on FanDuel,” says a consultant for both companies.

FanDuel had a three-year head start, but DraftKings broke from the scrum of dozens of startups to establish itself as the Boston-based rival that FanDuel, in New York, would need to reckon with.

The early, relatively low-stakes games being offered were intended to cater to friends playing for fun rather than money. Two months after going live, DraftKings offered its first guaranteed jackpot contest, for $5,000. But on the lightly trafficked site, many contests wouldn’t fill up with enough players to cover the large guaranteed payouts. This meant DraftKings had to defray the difference, a figure that ran into tens of thousands of dollars that executives would come to view as a marketing expense. Gamblers loved the “overlay” because the guaranteed jackpots, with fewer players, improved their odds, and they viewed the cash difference as free money. For the sites, it turned out to be cash well spent: Word of the overlay opportunity in DraftKings’ bigger-money contests ricocheted among frequent daily fantasy players, attracting waves of new customers and helping DraftKings emerge from the pack and close the gap with FanDuel.

Before long, both companies’ executives discovered that the easiest way to lure customers was to offer the long-odds promise of lucrative jackpots. On Dec. 8, 2013, in the FanDuel Fantasy Football Championship, a Sioux City, Iowa, sales manager named Travis Spieth turned $10 into daily fantasy’s first one-day millionaire prize. A year later, in the same contest, a Pasadena, California, personal trainer named Scott Hanson was minted as the first daily fantasy multimillionaire by winning the $2 million grand prize.

By 2014, DraftKings had become the second-largest daily fantasy site, buoyed by its purchase that summer of the third-largest site, DraftStreet. The industry was consolidating in multiple ways. FanDuel and DraftKings had developed similar platforms and offered many of the same products. They also shared a cross section of players.

And investors, businesses, media companies and America’s major sports leagues noticed the two companies’ mind-boggling growth. Even more important, they loved how daily fantasy turbocharged TV ratings and fans’ engagement with all sports, even for something as mundane as a midseason Monday night slate of NHL games. Entry fees in the United States had jumped from $20 million in 2011 to $1 billion in 2014. In a confidential pitch memo to investors, DraftKings projected an astonishing $15 billion to $20 billion in industrywide entry fees in 2017.

Most investors, including the pro sports leagues, weren’t blind to the danger that the gravy train could be derailed by legal challenges. Among the early skeptics were Major League Baseball executives, who conducted a two-year study of the legality of daily fantasy sports. But an outside law firm hired by MLB concluded that DraftKings “overwhelmingly” offered games of skill, not chance.

After that assurance, MLB became the first league to partner with the industry, accepting a small equity stake in DraftKings before eventually naming DraftKings its official daily fantasy game. MLS, the NHL, NASCAR and the UFC followed. FanDuel, meanwhile, became the exclusive partner of the NBA, in exchange for an equity stake.

At the same time, DraftKings and FanDuel did their own diligence on whether their games would survive a legal challenge. To investigate the issue, DraftKings hired a Las Vegas lawyer named Anthony Cabot, who had co-written an article touting the legalization of online poker for the UNLV Gaming Research and Review Journal. Cabot concluded that the company’s “pay-to-play fantasy sports service” was legal in 45 states as long as each contest’s outcome was “within the control of the users.”

“The key to the distinction between fantasy sports and sports wagering is that fantasy sports require the consistent and recognizable involvement of the contestants to achieve success,” Cabot told DraftKings executives in the letter obtained by Outside the Lines. FanDuel was given a green light by a law firm that conducted a similar exhaustive study, documents show. Executives say these assurances led the sites to flatly state on their websites that daily fantasy was legal in most states and to pass those assurances on to investors and would-be partners.


THE SKILL SET needed to win at daily fantasy most closely resembles the skills needed to win at the racetrack. Like the horseplayer handicapping a Pick Six by scouring the Daily Racing Form‘s miniaturized type, a daily fantasy player chooses a combination of pro players who he or she believes will perform the best based on their past performances and an array of other factors. When the thoroughbreds bolt from the gate, the horseplayer becomes a deeply invested though passive observer, in the same way the daily fantasy player can only watch and root for players to run up the points after the kickoffs of Sunday’s early NFL games.

That parallel wasn’t lost on some industry insiders and even a few leaders of the Fantasy Sports Trade Association, the 18-year-old volunteer trade group representing about 250 member fantasy sports companies. At the FSTA’s winter conference, held at the Mirage in Las Vegas in January 2013, FSTA president Paul Charchian warned the daily fantasy executives assembled not to emphasize the monetary aspect of their contests or they’d risk a legal or regulatory pushback. In particular, he urged the executives to keep all gambling lingo from their websites and to refrain from emphasizing winning and winning big in marketing campaigns.

“Don’t f— this up,” Charchian told the industry leaders, including the CEOs and top executives of DraftKings and FanDuel.

Charchian and other FSTA leaders also worried that as the industry grew, it would seize the attention of casino and thoroughbred racing executives, who would lobby elected officials to try to stop daily fantasy from cutting in on their action. In April 2014, Eccles himself wrote a better-business charter of consumer protection, warning companies to “avoid the use of gambling terms in the promotion and marketing of their games.” The FSTA adopted the guidelines but did not enforce them.

Trade association officials and other insiders also urged FanDuel and DraftKings to adopt a best-defense-is-offense strategy. Yet prior to 2015, FanDuel and DraftKings executives had balked at numerous proposals to invest in an expensive state-by-state campaign seeking regulatory and legal clarity on the gambling issue. They also considered but rejected numerous attempts to form a self-regulatory, industrywide board that would field customers’ complaints and aggressively police the companies’ integrity, fairness and transparency.

“The industry moved too slowly,” says Rick Wolf, a founding board member of the FSTA, whose annual lobbying budget in 2014 was $75,000, barely enough to mount a battle in a single state. “We began looking at regulation two years ago, but the attempt kept getting punted. No one wanted to take it on.”

One reason that some industry leaders resisted: Their marketing had been successfully targeting poker players and sports bettors to become their customers. DraftKings embedded gambling phrases into its website to help gamblers find it using Google searches like “fantasy golf betting” and “weekly fantasy basketball betting,” documents show. That occurred despite its leaders’ assurances that it offered legal skill games and, in the fine print of its ads, that DraftKings is “not a gambling website.”

Confidential investor pitches obtained by Outside the Lines were rife with comparisons to online sports wagering and casino gambling. “Sports Wagering Vertical is a large addressable market,” DraftKings told potential investors, suggesting that its contests would appeal to American customers illegally wagering billions of dollars at offshore sportsbooks and online poker sites.

FanDuel was also blunt about its products’ appeal to gamblers in materials provided to investors, documents show. FanDuel executives told one investor their target market was male sports fans who “cannot gamble online legally” and that their customers have “a higher preponderance to gambling.” FanDuel also compared its performance with that of Bwin.Party, a sports bookie that is one of the world’s largest online gambling companies. In a pitch to investors, FanDuel noted that nearly 20 percent of its users, in a survey, said they bet or gamble and that their friends would describe them as “a bit of an addict.”

“We always knew there was no law on the books,” a longtime lobbyist says, “and if you make it about gambling and winning big checks, you can blow it all.”


LIKE ANY POKER website or online bookmaker, DFS companies need two vastly different types of players to keep depositing money. Small-stakes players were needed to join — and continue playing — but the high-volume players, some of whom entered thousands of lineups in hundreds of contests a night, had become the sites’ most reliable cash machines. The companies, whose total revenue last year was $280 million, make their money in the same way horse tracks and poker rooms do — by taking a 6 percent to 15 percent cut, or “rake,” of players’ wagers. The higher the betting volume, the more the sites get to keep.

By some estimates, 60 percent of the daily fantasy industry’s revenue comes from the roughly 15,000 high-volume players wagering at least $10,000 a year. Nearly 50 players, most of whom are savvy, analytics-driven professionals, each wager at least $1 million a year. And some go even higher: Two sharks played hundreds of high-stakes heads-up NBA contests during the homestretch of the NBA’s 2014-15 season. After 20 consecutive nights, one of the players had lost nearly $2 million.

The winner of that binge was “maxdalury,” who is really Saahil Sud, a late-20s former data scientist who lives a few blocks from DraftKings’ Boston headquarters. A 2011 graduate of Amherst College with degrees in math and economics, Sud is a daily fantasy pro notorious for entering hundreds of different lineups in every big-money contest — and some modest-sized ones. For the deep-pocketed player, this strategy is expensive, of course, and so is the exposure. But your chances of winning improve exponentially with 900 lineups in a field of 35,000 when most players have one or two. Sud was also a prolific user of computerized scripts. In one NBA DraftKings contest in which he entered 400 lineups, Sud’s last-minute, scripted swap of veteran Magic big man Channing Frye for late-scratched center Nikola Vucevic helped him win an estimated $500,000.

“It’s only a skill game if you have the biggest bankroll and the best technology,” says John Sullivan, 50, a former FanDuel consultant who quit playing high stakes after becoming disenchanted with the lopsided ecosystem. “That’s the dirty little secret.”

One of the more extreme examples of this phenomenon happened in DraftKings’ $1 Million Mega Payoff Pitch contest on May 26, 2015. Sud posted 888 baseball lineups at $27 per lineup. He destroyed the field, scooping up the first-place prize of $100,000. His lineups finished in five of the top 10 spots. Twenty-nine of his lineups placed in the top 100, and 454 of his 888 lineups made money. With a $23,976 investment, Sud won more than $221,000.

An analysis of that contest’s results shows the futility of entering a handful of lineups — even as many as 90 — in any big-jackpot contest. Nearly all players who entered fewer than 100 lineups finished with a negative return on investment, most in the double digits. Even those who entered more than 25 lineups (costing at least $700) but fewer than 100 lineups had ROIs of minus-22 percent to minus-27 percent. Of the 21 players who posted more than 100 lineups, Sud and two others had a profitable night.

Regular, smaller-stakes players weren’t blind to the winning methods of sharks like Sud, and they weren’t shy about complaining.


DRAFTKINGS AND FANDUEL responded slowly to the demands by some of their customers for greater transparency and to limit or prohibit the high-volume players’ favorite tools, like the sharks’ multiple entries, scripting and other predatory practices.

Adam Krejcik, the managing director of Eilers Krejcik Gaming, observed that the sharks-vs.-fish dynamic threatened daily fantasy’s very existence. “The biggest risk for the DFS industry is not regulation but whether it can attract mass market appeal and avoid becoming too ‘hardcore,'” Krejcik wrote in a January 2014 presentation. There’s a “very delicate balance that needs to be maintained between ‘grinders’ and ‘casual’ players.”

But the two sites lavished perks only on their high-volume grinders and contest winners. FanDuel gave its big winners NFL luxury box tickets and autographed jerseys, but DraftKings did even more — a party attended by VIPs inside a Gillette Stadium luxury box; the Las Vegas “Tiger Jam VIP Experience,” in which winning players rubbed shoulders with Tiger Woods in the MGM Grand’s poker room and at Shadow Creek Golf Course; a private party for grinders and other VIPs at the LIV nightclub in Miami Beach. And the list goes on.

“Here’s the thing — taking high-liquidity players on junkets is really stupid,” says Joe Brennan Jr., the CEO of rival FastFantasy.com. “Steve Wynn wouldn’t do it — he’d be giving the treats to the high-liquidity losers. The sites should be treating the high-liquidity losers, the guys who are losing all that money that goes right to their bottom line.”

Another way to look at how the companies were allowing their haves to prey on their have-nots: “DraftKings reminds me of the college kids having a kegger and the cops say, ‘Turn the music down,’ and they say, ‘We’re sorry,’ and the cops go away and they turn the music back up,” Sullivan says. “They have bravado — for lack of a better term, it’s balls.”

Some critics now say the companies’ CEOs even had the balls to publicly preach the benefits of hooking large schools of novice fish for their sophisticated, big-bankrolled players to devour.

On RotoGrinders — daily fantasy’s most popular online community where players vent and kvetch — Robins, the DraftKings CEO, told users that his company was spending large sums on advertising to attract new players who would presumably make the site more attractive to the tiny clique of high-volume, consistently winning players. “The goal in how we are set up and the tremendous amount of money we spend on marketing are meant to attract and retain casual players, which in turn should make it an attractive environment for those who profit,” Robins wrote on the message board.

Eccles, the FanDuel CEO, said something similar on RotoGrinders, arguing that the best way for high-volume grinders to enhance their return on investment would be for the site to recruit thousands of new players, presumably with less experience and expertise, rather than have the site reduce its rake percentage. “To be honest,” Eccles wrote, “at the moment, we’ve focused more on bringing in new players, which by our calculations is a lot more important to grinder win rates than cutting rake.”

Robins and Eccles might have found a consensus on that strategy, but they disagreed about many other ways to grow their businesses. Their hostility toward each other was often out in the open.

More than once, Eccles dismissed DraftKings as a “clone” that didn’t pose much of a threat to FanDuel’s dominance. The way Eccles saw it, he and his co-founders had created the industry, and DraftKings’ reckless, risky corporate ethos that pushed the envelope legally would be its undoing. FanDuel also believed that DraftKings overpaid software engineers and analytics employees, raising the cost of doing business for everyone. Robins deeply resented the disrespect, using Eccles’ barbs to motivate his young staff to write better code, develop better products and beat FanDuel for customer experience. The competition and clashing corporate philosophies turned into bad blood between some of the two companies’ senior executives, and the bitterness ran deepest between Eccles and Robins, consultants and employees told Outside the Lines. Neither Eccles nor Robins denies the bad blood.

For the executives, it was easy to ignore signs of trouble because fresh investors’ money kept flowing, and waves of new customers kept flocking to both sites. It was also easy to ignore the biggest threat to the industry’s best shot for long-term success: Nearly all daily fantasy players lose.



ON A LATE autumn weekday afternoon, I sign up for DraftKings and deposit $100. With nearly 250,000 lineups and a top-heavy payout structure, “The Millionaire Maker” seizes the boldest headlines. But the sites also offer countless opportunities to play against small fields for modest stakes. (Contest entry fees range from 25 cents to $10,600, but the most popular entry fee is $3, the sites say.) There are head-to-head matchups, small tournaments of five or nine players, “50-50” games in which players finishing in the top 50 percent win (usually only a few bucks), double-up games in which you can turn $5 into $10, and “invite-only” contests in which you can compete against your friends and colleagues.

So I cobble together a team of players competing in that night’s seven NBA games and post my lineup in a head-to-head contest for a $50 entry fee. Almost instantly — it took six seconds — my team is scooped up by a player named “condia.” I don’t know who condia is, or even what that word means, though a check of RotoGrinders breaks the bad news that condia is the No. 1-ranked NBA fantasy player in America. Somewhat despondently, I watch the games on NBA League Pass as my players are annihilated by condia’s lineup by 80-plus points.

The next day, I tell Harber, the former high-volume player, how quickly and effortlessly condia had torched me.

“You got bum-hunted,” he says with a laugh.

Excuse me?

“Bum-hunted. He had a crawler on the page, and it ate up your game,” Harber says. Other players call the condias “lobby hawks,” perched and waiting to pounce on rookies like me who show up in the lobby shopping for a head-to-head game.

Harber is still chuckling. “All these high-volume guys are archiving all the data to find out who is a good player or a bad player — or a complete novice like you,” he says. High-volume players are so sophisticated that their computerized scripts and other automated systems are often invisible to the sites, Harber and other high-volume players say, though the sites deny that. Some scripts are ones of convenience: allowing high-volume players to change hundreds of lineups to make a late substitution when a player is a last-minute scratch. Others are more predatory, scraping live data from the sites to target the worst of the losing players, the same trick mastered by professional online poker players.

For years, FanDuel had given quiet permission to customers who asked to use certain scripts, a request almost always made by their most valued, high-volume customers. DraftKings says it forbade the use of all automated tools before July 2015, but high-volume users say they routinely used such tools — or knew others who did — before then on the site. There was little or no transparency; sites refused to divulge the identities of players who were warned, suspended or banned for using predatory scripts or violating any of the sites’ other ever-evolving terms and conditions. FanDuel says it has suspended thousands of customers. Says a DraftKings spokeswoman, “We do not reveal specifics about our user activity.”

I soon discover that condia isn’t just a famous, prolific and high-stakes player, he’s also pretty widely disliked by the regulars. As far as I can tell, he’s disliked not because he plays so much but because he wins so much. He is renowned for trolling the sites’ lobbies for every kind of action, including games for as little as $3, despite having a prodigious bankroll in the high six figures.

Condia’s real name is Charles Chon, and he is a self-deprecating 30-year-old who lives in Denver and majored in accounting at Colorado State. A few months after I join DraftKings, I tell Chon about our instant head-to-head matchup and how effortlessly he hoovered my $50.

“I’m sorry, man,” he says, squeaking out a laugh. “It was just me finding you in the lobby. I like playing the smaller players because it’s easy money — it’s like free money for me. I mean, why wouldn’t you take it? There have been times when I tried to get action against anyone I could, including newer players. I probably got you for that reason.”

Chon denies the persistent accusations on the RotoGrinders message boards that he has cheated by using scripts and other technological edges to find and bankrupt lousy players. “I always try to play by the rules,” he says. “I know some other guys don’t.”


DESPITE ALL OF their ongoing hostilities, Robins and Eccles met for dinner at the Bellagio in Las Vegas during the FSTA’s winter conference in January 2015. The unthinkable between the two rivals was broached: a merger. Robins pitched the idea at the urging of Jonathan Kraft, president of the New England Patriots and an early DraftKings investor through the Kraft Group. From a long-term financial perspective, a pair of daily fantasy companies trying to outspend each other into oblivion didn’t make sense. Satellite radio rivals Sirius and XM avoided a mutual assured death by merging. Why couldn’t DraftKings and FanDuel?

One proposal had FanDuel and its investors getting 60 percent of a new tied-in company. Although those terms were more favorable to FanDuel, Eccles rejected them, sources say. Eccles “wants to be the Mark Zuckerberg of the industry, to be seen as the godfather of daily fantasy sports,” a consultant with firsthand knowledge of the negotiations told Outside the Lines. Eccles and Robins “really do hate each other. And their egos got in the way.” Says another industry insider privy to the talks, “Guys with cooler heads would have likely gotten it done — a merger made all the sense in the world.”

A month after the dinner, FanDuel hired Christian Genetski to be its chief legal officer, a job that hadn’t previously existed, to build a new legal team. He knew one of his biggest missions would be to try to clarify the gray zone on the legality of DFS in states nationwide, a challenge he viewed as somewhat defensive. “If we were a beach house, we needed to winterize,” says Genetski, 45, whose law firm has done legal work with Yahoo, also worked for several years in the video game industry. “The Farmer’s Almanac didn’t call for the Category 5 hurricane that hit us.”

Genetski reached out to Tim Dent, the chief financial officer of DraftKings, and both sites soon agreed to work together on a modest, defense-only lobbying effort and share the costs of an attorney general consultant.

On May 7, 2015, Genetski, Dent and a throng of lobbyists and lawyers met to discuss legislative and regulatory opportunities at a midtown Manhattan lobbying office. Again, they discussed FanDuel and DraftKings taking the lead to create an industrywide board that would aggressively self-regulate, similar to the movie ratings board created by the Motion Picture Association of America, while also fielding consumer complaints. When the meeting broke up, there was fresh momentum for the rivals to pursue the proposal, with the tentative name the “Fantasy Sports Control Agency.”

A week later, DraftKings struck a sponsorship deal with NASCAR and introduced contests on its races. FanDuel had also discussed the sponsorship, but after DraftKings landed it, Eccles and his colleagues were furious, telling investors they were convinced that their rival’s new contests violated federal law. “How were they going to self-regulate when one company didn’t agree with what the other company was doing?” a senior industry consultant says. “It really was the end of any hope for cooperation.”

Besides the CEOs’ mutual mistrust and simmering resentments, there were a variety of other reasons the industry never established the board. It was expensive, for one thing. It also required the political skills to cobble together a coalition of dozens of companies with conflicting agendas. “We had a lot of discussions about it,” Robins says, “and we were in the process of collaborating on it. And everything just kind of moved too quickly.”

“We had thought through things like self-regulation, how that would look,” Eccles says. “But we hadn’t invested nearly as much as we should have, if we had known what was coming.”

It was a costly missed opportunity. When investigators and prosecutors began scrutinizing the industry, a self-policing Fantasy Sports Control Agency might have bought some goodwill.

Instead, FanDuel and DraftKings marched toward an expensive war for market share, in part at the urging of impatient investors who wanted the sites to grab a larger chunk of the 57 million Americans who play season-long fantasy sports. The rivals seemed unable to extract themselves from a vicious cycle: The more their executives could show investors the exponential growth rates of new customers and entry fees, the more investor money they could attract. The more investor money the executives could attract, the closer they would come to an IPO and life-changing paydays for everyone.


THE SUMMER OF 2015 began with soaring financial promise. Everyone wanted in.

In June, ESPN’s parent, the Walt Disney Company, was finalizing a $250 million equity stake in DraftKings. In return, DraftKings pledged to spend a whopping $500 million in advertising on ESPN properties over several years. The deal had been discussed for months and seemed a certainty as industry leaders gathered in midtown Manhattan for the start of the FSTA’s summer conference on June 22. But by the end of that day, word began circulating that the deal had blown up after a top Disney attorney warned executives that he was uncomfortable with the legal uncertainty surrounding DraftKings’ contests.

Undeterred by that setback, and with much fanfare, the industry leaders closed a record-shattering funding round in July — $275 million for FanDuel and $300 million for DraftKings — that pushed both companies’ valuations considerably higher than ?$1 billion. And then DraftKings raised even more, in another funding round that wasn’t made public.

But trouble loomed.

In late July 2015, an ominous-sounding letter arrived at both companies’ headquarters. It was from a U.S. attorney in Tampa, alerting executives that their companies were the subjects of a criminal tax investigation, sources told Outside the Lines. Despite receiving those notices, the executives moved forward with their marketing plans to try to become No. 1.

“In hindsight,” an influential consultant close to both companies says, “those commercials were even more insane because they knew they were under federal criminal investigation.”

There was more bad news, but this time it hit publicly. McKinsey Company released an alarming study showing that a tiny percentage of daily fantasy players win consistently — only 1.3 percent playing baseball. Analyzing three months of results scraped from FanDuel, McKinsey’s study raised major questions about the long-term viability of fantasy sports’ “ecosystem.”

“Investors are overlooking a fundamental operating challenge: the risk that the skill element of daily fantasy is so high that DFS pros will wipe out recreational players in short order,” wrote the report’s co-authors, Dan Singer and Ed Miller. The “whales,” who Singer and Miller say lose thousands a year on baseball contests, bolster the sites’ revenues. “If those whales get discouraged — and they have a negative-31 percent return of investment, so it’s easy to see why they’ll get discouraged — the industry will die,” Singer says.

Neither company was discouraged, and they pressed forward. DraftKings had always intended to invest a big chunk of its new money on a bid to firmly establish itself as the leading daily fantasy site. During the 2014 NFL season, FanDuel boosted its market share by spending more on ads than DraftKings, whose executives vowed they’d never be outspent again. Initially, FanDuel wasn’t planning to spend nearly as much in 2015 as its rival, but executives had watched as DraftKings significantly closed the gap on total market share before surpassing FanDuel in July with nearly 60 percent of the market. FanDuel concluded that the only way to reverse its bleeding market share was to try to match DraftKings’ enormous ad buys that autumn during football season.

Fortified with their overstuffed war chests, the two companies were prepared to spend as much money as it would take to destroy the other guys.


DURING THE NFL’S opening week, DraftKings advertised that $10 million in winnings was up for grabs, including a $2 million grand prize, in its Millionaire Maker contest, the largest daily fantasy contest ever. Not to be outdone, FanDuel boasted: “Paying out $75 million a week!”

On Oct. 5, The New York Times reported that a young DraftKings employee named Ethan Haskell had won $350,000 in a FanDuel NFL contest by finishing second overall and beating 229,883 entrants. The Times story alleged that Haskell used inside information — the percentage of ownership of various players by contestants that was unavailable to the public — to help win on the site of his company’s rival. The online headline dubbed it “insider trading,” and though the newspaper quickly changed it after DraftKings complained, the damage was done.

The sites’ employees had competed for years on each other’s platforms, despite the practice being long frowned upon by some lobbyists and industry consultants. Even the companies’ engineering and customer service employees had access to proprietary data that could give them an unfair advantage playing elsewhere. The numbers are alarming: DraftKings employees won an estimated $6 million playing on FanDuel, though executives at both sites insist most of their employees ended up losing more money than they won.

The optics only worsened when it became public that FanDuel, in a 2012 internal memo, had warned its employees playing on DraftKings to “do no harm” or raise suspicions by winning too often: “Never be among the top five players by volume on any one site (based on site leaderboards). Never be among the top 10 overall on the RotoGrinders leaderboard. Top players frequently become targets for accusations by other users.”

“This was destructive — and done because the sites felt they were untouchable,” says a longtime industry lobbyist. “It’s obvious that condoning this practice could easily backfire.”

Robins and Eccles now acknowledge that the practice angered customers and raised stubborn doubts about the games’ integrity. However, they both insist that their own investigations showed no employees had used proprietary information to win a single contest, though employees’ winning streaks attracted derision on message boards. A law firm hired by DraftKings later determined that Haskell, who declined to comment, did not consult inside information before posting his winning lineup on FanDuel.

But by then the finding didn’t really matter, because New York Attorney General Eric Schneiderman was a New York Times reader and a TV viewer who, like nearly everyone else in America, had become annoyed and exasperated by the onslaught of daily fantasy ads.

At 61, Schneiderman, a graduate of Amherst and Harvard Law School, had established himself as a hard-charging attorney general, pursuing a variety of attention-seizing targets, including the Airbnb industry, corruption-rife state contracts and Medicaid fraud. Allies of the daily fantasy industry later grumbled that he had received more than $150,000 in campaign contributions from state gambling interests during his run for attorney general.

The morning after the Times story, lawyers and investigators from Schneiderman’s various divisions — consumer fraud, investor protection, the internet bureau, taxpayer protection — huddled for a two-hour meeting in a large conference room at the office’s lower Manhattan headquarters. “We had no idea what we were looking at — we didn’t know what we didn’t know,” says Kathleen McGee, the internet bureau chief. They were concerned about the insider trading allegations, but in interviews with Outside the Lines, they said they quickly became far more concerned with FanDuel’s and DraftKings’ promises of instant wealth that they kept seeing on television. “Everyone in the office was saying, ‘Their ads are everywhere,'” McGee says. “You couldn’t escape them.”

Within hours of their first meeting, several lawyers and investigators from Schneiderman’s office opened DraftKings and FanDuel accounts and began playing their contests. The sites’ lobbies “felt like online poker sites — or an online casino,” a senior investigator told Outside the Lines. And the investigators and lawyers would soon discover that the sites didn’t just offer daily fantasy contests on a single day’s full slate of games. The sites offered hourly fantasy contests, with an evening’s slate of NBA and NHL games carved into smaller and smaller slices with fewer and fewer players to draft — “turbo” contests for three NBA games tipping off at 8 p.m. ET, for example, or a fantasy contest based on two West Coast NHL games in which fantasy players would assemble lineups from only four teams.

Schneiderman’s lawyers and investigators initially focused on the insider trading allegations, sketching investigative avenues on a chalkboard-sized whiteboard as they wondered whether the companies were defrauding and deceiving customers. Early on, they say, they didn’t ponder the question of whether daily fantasy sports were legal under New York law.

Schneiderman’s top deputies asked FanDuel and DraftKings to provide information about their customers, consumer protection safeguards and the names of employees with access to proprietary information, such as player data, roster values and the contestants’ ownership percentages for pending and historical contests.

At separate meetings at the attorney general’s office on Oct. 8, Robins of DraftKings and FanDuel’s outside counsel, Marc Zwillinger, fielded questions about their business practices while pledging their full cooperation. Still, executives and their lawyers were alarmed by the investigation. After all, the two companies had operated openly in New York state — and with no interference — for years. The company executives and their lawyers left Schneiderman’s office confident that, at most, they’d be forced to pay a hefty fine and then would have to seek a daily fantasy bill in the New York State Assembly, a recollection disputed by lawyers in Schneiderman’s office.

A senior AG lawyer recalls the DFS executives “running into our door and begging us, more or less, to regulate them and not shut them down.”

“Denial is a powerful drug,” says Eric Soufer, the AG’s senior counsel for policy. “Even beyond the illegal gambling claims, the evidence of false and deceptive advertising was massive, and it was clear to all sides that those claims would be moving forward.”

The move by Schneiderman had an immediate impact on both companies. ESPN, which had agreed in June to a two-year, $250 million exclusive branding and promotions deal across multiple platforms, decided on Oct. 6 to remove all DraftKings-sponsored elements from its shows.

Ten days later, the Nevada attorney general released an opinion concluding that daily fantasy is sports wagering and that DraftKings and FanDuel needed gambling licenses to operate in the state. At the same time, the sites were preparing to enter the U.K. market, where they were seeking gambling licenses to be regulated as bookmakers. Both decisions reinforced the impression that daily fantasy is a game of skill in some places but considered a game of chance in others.

Meanwhile, during the daily strategy meetings before the whiteboard, the attorney general’s lawyers and investigators began discussing whether, in fact, daily fantasy constituted illegal gambling under New York law. “It quickly became apparent this was so much bigger than a consumer fraud issue,” McGee says. “This looks like gambling — and we kept asking, ‘How does this happen right under our noses? These guys are huge.'”

On Nov. 10, Schneiderman sent cease-and-desist letters to FanDuel and DraftKings, declaring that their games constituted illegal gambling under state law and ordering the companies to stop accepting “bets” from New York residents. “It is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” Schneiderman declared.

Inside FanDuel’s Manhattan offices and DraftKings’ Boston headquarters, executives were asked, by an ESPN reporter, about the letters before they had been delivered. Robins was in Sacramento at the statehouse; he got word of Schneiderman’s move 10 minutes before meeting with an influential California legislator about a daily fantasy bill. Eccles was in Edinburgh, visiting his mother, when a colleague called him with the bad news. At no point had anyone from Schneiderman’s office told them they were facing the prospect of being shut down.

“I was shocked,” Eccles says.

Recalls a top DraftKings executive, “We never saw it coming.”

Welcome to the big time.


ON NOV. 13, three days after Schneiderman’s cease-and-desist letters were delivered, FanDuel’s and DraftKings’ top executives, lawyers and lobbyists gathered for a summit meeting at the midtown Manhattan offices of Orrick, Herrington Sutcliffe, a San Francisco-based global law firm. The session was attended by Robins and Eccles and nearly two dozen attorneys, lobbyists, government affairs specialists and crisis communications consultants. Before the meeting began, “the only thing the two companies could agree on was us,” says Jeremy Kudon, a 45-year-old lawyer and lobbyist who is the founder of Orrick’s public policy group.

After three hours, the two rivals agreed on a uniform strategy to push for legislation clarifying daily fantasy’s legality in dozens of statehouses around the country. FanDuel and DraftKings executives agreed to share the exorbitant costs of going on offense to seek DFS legislation that would regulate, and tax, their industry in any state where there was legal uncertainty or even the slightest chance that an attorney general might move against the industry. It was a marriage of necessity.

But the sites continued fighting other, separate legal battles. An investor recommended that DraftKings hire David Boies, the 75-year-old lawyer who became famous representing Al Gore before the U.S. Supreme Court in the deadlocked presidential election in 2000.

Boies was kept busy. Seemingly every day, a new civil lawsuit was filed against the companies and their executives; the companies now face more than 40. The biggest lawsuit alleges that DraftKings and FanDuel granted scores of advantages to an elite group of high-volume players. “The vast majority of bettors who are small guys, playing one or two contests a day for $20 at most, are overmatched by an elite few who have the algorithms, the technological advantages, all the advantages to win the biggest money,” New York attorney Hunter J. Shkolnik says. “No one tells you that in the commercials.”

Now consolidated in a Boston courtroom, the sprawling 266-page class-action lawsuit — alleging conspiracy, fraud, negligence and RICO violations, among other claims — represents losing DFS players from 25 states and the District of Columbia. Shkolnik alleges that FanDuel revealed to its investors that only the top one-tenth of a percent of its customers actually win money. “The top 10,000 users had a negative-9.5 percent return on investment,” the lawsuit alleges. In another lawsuit, one of the plaintiffs, Brandon Peck, a 42-year-old losing player from California, says that “DFS sites knowingly and intentionally pulled the wool over the eyes of many Americans when quoting the UIGEA. We deserve our money back.”

DraftKings and FanDuel deny the accusations. Robins and Eccles declined a request by Outside the Lines to discuss any of the legal proceedings and criminal inquiries.

Throughout the autumn, Schneiderman’s lawyers kept investigating. They became even more offended by the companies’ grandiose advertising claims and the promises to customers that both companies made — and, the lawyers say, had repeatedly broken — in their bonus programs.

Schneiderman’s action had a dramatic ripple effect across the country. In nearly two dozen states, including Illinois, Texas and Alabama, offices of the attorney general quickly opened investigations. In some states, AGs released reports declaring that daily fantasy was illegal, while legislators began considering bills that would legalize the games and regulate the industry.

“I’ve never seen attorney general opinions weaponized like this before,” Kudon says.

Says Boies: “I think DraftKings, and the industry in general, did not do as much as it could have … to regulate itself, to impose rules and regulations. It was a new industry. It was a growing industry. And I think that [DraftKings] focused much more on their product and their service than explaining it.”

The parade of negative headlines also appeared to erode customers’ trust. In the second half of the NFL season, DraftKings and FanDuel experienced week-by-week reductions in entry fees and major tournament payouts, according to data compiled by SuperLobby.com. By Week 14, for example, DraftKings’ large tourney entry fees were down 32 percent from a Week 5 high of $25 million. And FanDuel’s tourney entry fees had dropped 53 percent from a Week 6 high of $40 million, SuperLobby.com found. (FanDuel and DraftKings dispute these statistics, saying there was only a slight drop-off in large contests but that their ads attracted hundreds of thousands of new customers, many of whom have become loyal players.)

On Dec. 11, a New York Supreme Court granted Schneiderman a temporary injunction against the two companies, but they quickly appealed and won, allowing them to continue accepting wagers in New York. The pushback infuriated Schneiderman’s lawyers, who filed an amended complaint on New Year’s Eve seeking enormous financial penalties against DraftKings and FanDuel for allegedly violating New York’s false advertising and consumer fraud laws. Schneiderman accused the sites of misrepresenting the ease and simplicity with which the average user could win big payouts and the amount of skill needed to win their contests, among other accusations.

Inside both companies, morale plummeted. They had been the hottest thing going; job applications had flooded into their headquarters. No more. And for the CEOs and executives, the stress level was relentless and the realities ever-present.

“People asked me, ‘Where do you work?’ And I’d say, ‘I work at FanDuel — I’m sorry about the commercials,'” says Andrew Giancamilli, FanDuel’s 37-year-old vice president of revenue and customer retention marketing.


BY THE END of last winter, 38 states were weighing daily fantasy legislation. Armed with a team of 105 lobbyists, Kudon and his colleagues discovered that despite their skill-game arguments that daily fantasy is not illegal gambling, influential gambling interests saw them as a threat and blocked them in states where they were entrenched, just as Charchian and others had predicted. Rivers Casino, located in Des Plaines, Illinois, helped kill the state’s daily fantasy bill, and the Illinois attorney general issued an opinion that daily fantasy is illegal under state law. In California, Florida, Connecticut, Oklahoma and Arizona, Native American tribes with casinos managed to kill or thwart daily fantasy bills. The companies now don’t accept wagers from players in 11 states, up from five a year ago.

In early March, Virginia was the first state to pass DFS legislation, a bill critics dismissed as “industry-friendly.” Five other states followed: Indiana, Tennessee, Mississippi, Colorado and Missouri. The Massachusetts attorney general introduced extensive regulations aimed at increasing transparency and fairness, which the state adopted in August.

But the fight’s epicenter was the New York Capitol in Albany. No state was more important to daily fantasy’s future than New York, where each company had the highest number of customers, who spent a total of $268.3 million in fees in 2015, second only to California. In February and March at DraftKings and FanDuel, executives debated whether they should settle the Schneiderman complaint by agreeing to stop operating paid contests in New York.

“It was tough,” says Genetski, the FanDuel executive. “Shutting down seems counterintuitive, and we’d be second-guessed if it failed, but in my view it was clearly the right decision.”

When the settlement was announced on March 21, Schneiderman waved the victory flag. “As I’ve said from the start, my job is to enforce the law,” he said, “and starting today, DraftKings and FanDuel will abide by it.”

For the companies, it was a worthy trade: They’d stop accepting wagers from New York residents for their less active NBA, NHL and MLB contests in exchange for clearing a major hurdle with state legislators to get a DFS bill passed. “If we didn’t get a settlement,” Kudon says, “I don’t think we’d have gotten the bill introduced in the Assembly.”

Without New York, Eccles and Robins worried legislatures in other important states with entrenched gambling interests would be more likely to reject daily fantasy bills — and, the thinking went, failure in New York might embolden prosecutors pursuing the trio of federal investigations.

“The reality is, neither company was in a position to continue to operate without New York,” Kudon says. “They both needed for this to happen. When I had spoken to investors, everyone agreed on its importance — it was less a financial thing and almost a psychological thing. They’d say, ‘We won’t believe this industry will survive unless New York happens.’ How’s that for pressure?”

But getting the bill passed was far from a certainty, and FanDuel and DraftKings had to play a political game now.

One of the bill’s staunchest opponents was Batavia Downs, a harness racetrack and casino in western New York owned by the quasi-public Western Regional Off-Track Betting Corp. Over a frantic weekend in early June, FanDuel struck a $300,000 marketing agreement with Batavia Downs, a sum that caused the track’s owners to flip and throw their support behind the DFS bill.

FanDuel and DraftKings enlisted retired quarterbacks Jim Kelly and Vinny Testaverde to meet legislators. An email campaign produced a windfall of more than 100,000 emails from New York residents, urging their legislators to vote for the bill. Lobbyists from every corporation with a financial stake in DraftKings or FanDuel, including Verizon and Comcast, pushed the bill. Even still, in the final 48 hours before the Assembly recessed, the bill appeared on the brink of being defeated. “It felt as if they might just kill our bill for the sport of it,” Kudon says.

Just after 2 a.m. on Saturday, June 18, the DFS bill passed by a wide margin. On Aug. 3, Gov. Andrew Cuomo signed it into law. And on Monday, DraftKings and FanDuel began allowing New York residents to play again. 

“Monumental,” Eccles calls it. “The most important victory in daily fantasy history.”


DESPITE THEIR ROUSING triumph in New York, both companies’ executives continue to spend millions of dollars on multiple legal and regulatory fights. DraftKings has tried to cut costs by renegotiating contracts with vendors while reducing affiliates’ bonuses. Merger talks were renewed this summer, with some investors insisting that a merger would be the best way for the cash-strapped companies to survive (and, not incidentally, the best way for investors to protect their stakes). Several industry insiders say a merger is inevitable — after the upcoming NFL season, if not sooner — because the sites are duplicating so many exorbitant costs.

“I think DraftKings will survive financially,” says Boies, its lawyer. “I do think that the distraction and the expenses have been harmful to the company. I think it’s very unfortunate the way some of this stuff has mushroomed and, in many respects, is unfair.”

Meanwhile, inside their corporate offices, the two companies’ top executives spent the summer devising ways to make the skill games’ ecosystem less challenging and more fun despite the inevitable outcomes.

“How do you make the games less hard? There are ways to do it — share information more broadly to take away edges that some players may have, limit the number of entries, have beginner areas,” says Giancamilli, the FanDuel vice president. “If you want to play $100,000, I’m OK with it if you are doing it in just one part of my playground. There should be places in the playground for players of all skill levels — safe spaces, safe harbors, with single-entry limits, things that make the beginner player feel comfortable and welcome.”

Besides beginners’ games, the sites have introduced a multitude of other safeguards against predatory play. By February, both sites banned all third-party scripting. DraftKings allows players to block others. Both sites’ employees are forbidden from competing on rival sites. Both sites have limited the number of entries to 150. They have created tiered levels in their lobbies so players can avoid tangling with savvier, higher-bankrolled competitors. And they have moved even more aggressively against users’ predatory behavior. (Giancamilli made a point of saying that FanDuel had slapped a one-month suspension on a high-volume, predatory player who failed to heed multiple warnings.)

“Integrity is the issue,” says Peter Jennings, a champion daily fantasy player and former ESPN expert. “How do you balance the ecosystem of these top players, who are really important to the site because it gives them the volume they need, and still make it fair and fun for the other guys?” Another way is to improve transparency: FanDuel introduced “Experienced Player Indicators,” and DraftKings has “Experienced Player Badges,” which are affixed to the more seasoned players.

Robins says the industry is evolving, in the same way any young industry confronts, and tries to solve, its customers’ most pressing concerns. Didn’t Facebook manage to overcome a host of problems, from privacy issues to advertisers spamming users? “To paint all this as an Armageddon for the industry is silly,” Robins says. “It’s common in any emerging technology for there to be a very healthy cycle for product makers to get feedback from their customers.”

Still, executives have had to tamp down the expectations of their restless investors. Some states passing DFS bills will tax the companies’ revenues from their residents (New York is the highest, at 15 percent). Boies says the new taxes will probably be passed on to players, meaning the sites’ rakes will likely be increased. While Robins and Eccles insist that they remain optimistic about their companies’ futures and chances for profitability, the sky-high growth projections of a year ago have been shelved.

The gigantic jackpots have not been retired. For the NFL’s opening week, DraftKings is hosting a $5 million guaranteed contest, with the winner getting $1 million. The entry fee is $3. But the messaging is being recast. No longer will the companies emphasize oversized checks and overnight fortunes. This fall there won’t be another endless run of dueling TV ads with backward baseball cap-wearing bros fist-pumping over a sudden $1 million payday.

Robins says his biggest regret is selling daily fantasy mainly as a fast way to win big money. “We’ve done a lot of research, and winning money is maybe, like, reason 4 or 5 why people play,” he says. “The main reasons they play are they enjoy the thrill of competition, they like doing things with their friends.” The first impressions created by all those ads will take patience and money to erase. “I think we did ourselves and did the industry a disservice,” Robins says. “That was a mistake. … It made us come across more like used-car salesmen and less like we have a great luxury automobile here that you’re really going to enjoy.”

For his part, and perhaps not surprisingly, Eccles isn’t fully signed on to Robins’ mea culpa. “Unfortunately, there have always been negative consequences from it,” he says of the ads, “but I don’t really regret our decision. … I feel the mistakes we’ve made were errors of overenthusiasm, of feeling we can get further faster. … Maybe we tried to be too aggressive, but I feel those are … the right mistakes to make.”

In a way, fantasy sports have come full circle from the rotisserie baseball league co-invented in late 1979 by editor and author Dan Okrent. That was a season-long league, a chance to pretend to be a big league general manager and win bragging rights among a circle of pals. The money didn’t matter. “Daily fantasy bears no relationship, really, to what those of us who played in our living rooms with our friends were doing 30 years ago,” says Okrent, 68, who lives in the same Upper West Side apartment building as New York’s attorney general. (Okrent says he nods at Schneiderman, his downstairs neighbor, in the elevator, but he insists they’ve never discussed the DFS legal battle.) “It’s become a kind of malignant mutant version of something that began as simple and pure.”

By preaching that daily fantasy, like Okrent’s inaugural league, is an affordable way to have some fun, FanDuel and DraftKings are betting their futures on attracting and keeping players who will buy in to the argument that there’s more than one way to measure a return on investment.

In August, FanDuel redesigned its website, game platform and marketing strategy. Its new one-word slogan is “SportsRich,” a trademarked term it defines as “the experience of having all the great stuff sports has to offer.”

In block letters in promotional materials, FanDuel says its customers should now expect “excitement, thrills, camaraderie and fantasy. These are all examples of what it is to be SportsRich. NOTE: None of them have anything to do with money.”

Article source: http://abcnews.go.com/Sports/big-time/story?id=41650240

Welcome to the Big Time

DRAFTKINGS AND FANDUEL responded slowly to the demands by some of their customers for greater transparency and to limit or prohibit the high-volume players’ favorite tools, like the sharks’ multiple entries, scripting and other predatory practices.

Adam Krejcik, the managing director of Eilers Krejcik Gaming, observed that the sharks-vs.-fish dynamic threatened daily fantasy’s very existence. “The biggest risk for the DFS industry is not regulation but whether it can attract mass market appeal and avoid becoming too ‘hardcore,'” Krejcik wrote in a January 2014 presentation. There’s a “very delicate balance that needs to be maintained between ‘grinders’ and ‘casual’ players.”

But the two sites lavished perks only on their high-volume grinders and contest winners. FanDuel gave its big winners NFL luxury box tickets and autographed jerseys, but DraftKings did even more — a party attended by VIPs inside a Gillette Stadium luxury box; the Las Vegas “Tiger Jam VIP Experience,” in which winning players rubbed shoulders with Tiger Woods in the MGM Grand’s poker room and at Shadow Creek Golf Course; a private party for grinders and other VIPs at the LIV nightclub in Miami Beach. And the list goes on.

“Here’s the thing — taking high-liquidity players on junkets is really stupid,” says Joe Brennan Jr., the CEO of rival FastFantasy.com. “Steve Wynn wouldn’t do it — he’d be giving the treats to the high-liquidity losers. The sites should be treating the high-liquidity losers, the guys who are losing all that money that goes right to their bottom line.”

Another way to look at how the companies were allowing their haves to prey on their have-nots: “DraftKings reminds me of the college kids having a kegger and the cops say, ‘Turn the music down,’ and they say, ‘We’re sorry,’ and the cops go away and they turn the music back up,” Sullivan says. “They have bravado — for lack of a better term, it’s balls.”

Some critics now say the companies’ CEOs even had the balls to publicly preach the benefits of hooking large schools of novice fish for their sophisticated, big-bankrolled players to devour.

On RotoGrinders — daily fantasy’s most popular online community where players vent and kvetch — Robins, the DraftKings CEO, told users that his company was spending large sums on advertising to attract new players who would presumably make the site more attractive to the tiny clique of high-volume, consistently winning players. “The goal in how we are set up and the tremendous amount of money we spend on marketing are meant to attract and retain casual players, which in turn should make it an attractive environment for those who profit,” Robins wrote on the message board.

Eccles, the FanDuel CEO, said something similar on RotoGrinders, arguing that the best way for high-volume grinders to enhance their return on investment would be for the site to recruit thousands of new players, presumably with less experience and expertise, rather than have the site reduce its rake percentage. “To be honest,” Eccles wrote, “at the moment, we’ve focused more on bringing in new players, which by our calculations is a lot more important to grinder win rates than cutting rake.”

Robins and Eccles might have found a consensus on that strategy, but they disagreed about many other ways to grow their businesses. Their hostility toward each other was often out in the open.

More than once, Eccles dismissed DraftKings as a “clone” that didn’t pose much of a threat to FanDuel’s dominance. The way Eccles saw it, he and his co-founders had created the industry, and DraftKings’ reckless, risky corporate ethos that pushed the envelope legally would be its undoing. FanDuel also believed that DraftKings overpaid software engineers and analytics employees, raising the cost of doing business for everyone. Robins deeply resented the disrespect, using Eccles’ barbs to motivate his young staff to write better code, develop better products and beat FanDuel for customer experience. The competition and clashing corporate philosophies turned into bad blood between some of the two companies’ senior executives, and the bitterness ran deepest between Eccles and Robins, consultants and employees told Outside the Lines. Neither Eccles nor Robins denies the bad blood.

For the executives, it was easy to ignore signs of trouble because fresh investors’ money kept flowing, and waves of new customers kept flocking to both sites. It was also easy to ignore the biggest threat to the industry’s best shot for long-term success: Nearly all daily fantasy players lose.




ON A LATE autumn weekday afternoon, I sign up for DraftKings and deposit $100. With nearly 250,000 lineups and a top-heavy payout structure, “The Millionaire Maker” seizes the boldest headlines. But the sites also offer countless opportunities to play against small fields for modest stakes. (Contest entry fees range from 25 cents to $10,600, but the most popular entry fee is $3, the sites say.) There are head-to-head matchups, small tournaments of five or nine players, “50-50” games in which players finishing in the top 50 percent win (usually only a few bucks), double-up games in which you can turn $5 into $10, and “invite-only” contests in which you can compete against your friends and colleagues.

So I cobble together a team of players competing in that night’s seven NBA games and post my lineup in a head-to-head contest for a $50 entry fee. Almost instantly — it took six seconds — my team is scooped up by a player named “condia.” I don’t know who condia is, or even what that word means, though a check of RotoGrinders breaks the bad news that condia is the No. 1-ranked NBA fantasy player in America. Somewhat despondently, I watch the games on NBA League Pass as my players are annihilated by condia’s lineup by 80-plus points.

The next day, I tell Harber, the former high-volume player, how quickly and effortlessly condia had torched me.

“You got bum-hunted,” he says with a laugh.

Excuse me?

“Bum-hunted. He had a crawler on the page, and it ate up your game,” Harber says. Other players call the condias “lobby hawks,” perched and waiting to pounce on rookies like me who show up in the lobby shopping for a head-to-head game.

Harber is still chuckling. “All these high-volume guys are archiving all the data to find out who is a good player or a bad player — or a complete novice like you,” he says. High-volume players are so sophisticated that their computerized scripts and other automated systems are often invisible to the sites, Harber and other high-volume players say, though the sites deny that. Some scripts are ones of convenience: allowing high-volume players to change hundreds of lineups to make a late substitution when a player is a last-minute scratch. Others are more predatory, scraping live data from the sites to target the worst of the losing players, the same trick mastered by professional online poker players.

For years, FanDuel had given quiet permission to customers who asked to use certain scripts, a request almost always made by their most valued, high-volume customers. DraftKings says it forbade the use of all automated tools before July 2015, but high-volume users say they routinely used such tools — or knew others who did — before then on the site. There was little or no transparency; sites refused to divulge the identities of players who were warned, suspended or banned for using predatory scripts or violating any of the sites’ other ever-evolving terms and conditions. FanDuel says it has suspended thousands of customers. Says a DraftKings spokeswoman, “We do not reveal specifics about our user activity.”

I soon discover that condia isn’t just a famous, prolific and high-stakes player, he’s also pretty widely disliked by the regulars. As far as I can tell, he’s disliked not because he plays so much but because he wins so much. He is renowned for trolling the sites’ lobbies for every kind of action, including games for as little as $3, despite having a prodigious bankroll in the high six figures.

Condia’s real name is Charles Chon, and he is a self-deprecating 30-year-old who lives in Denver and majored in accounting at Colorado State. A few months after I join DraftKings, I tell Chon about our instant head-to-head matchup and how effortlessly he hoovered my $50.

“I’m sorry, man,” he says, squeaking out a laugh. “It was just me finding you in the lobby. I like playing the smaller players because it’s easy money — it’s like free money for me. I mean, why wouldn’t you take it? There have been times when I tried to get action against anyone I could, including newer players. I probably got you for that reason.”

Chon denies the persistent accusations on the RotoGrinders message boards that he has cheated by using scripts and other technological edges to find and bankrupt lousy players. “I always try to play by the rules,” he says. “I know some other guys don’t.”


DESPITE ALL OF their ongoing hostilities, Robins and Eccles met for dinner at the Bellagio in Las Vegas during the FSTA’s winter conference in January 2015. The unthinkable between the two rivals was broached: a merger. Robins pitched the idea at the urging of Jonathan Kraft, president of the New England Patriots and an early DraftKings investor through the Kraft Group. From a long-term financial perspective, a pair of daily fantasy companies trying to outspend each other into oblivion didn’t make sense. Satellite radio rivals Sirius and XM avoided a mutual assured death by merging. Why couldn’t DraftKings and FanDuel?

One proposal had FanDuel and its investors getting 60 percent of a new tied-in company. Although those terms were more favorable to FanDuel, Eccles rejected them, sources say. Eccles “wants to be the Mark Zuckerberg of the industry, to be seen as the godfather of daily fantasy sports,” a consultant with firsthand knowledge of the negotiations told Outside the Lines. Eccles and Robins “really do hate each other. And their egos got in the way.” Says another industry insider privy to the talks, “Guys with cooler heads would have likely gotten it done — a merger made all the sense in the world.”

A month after the dinner, FanDuel hired Christian Genetski to be its chief legal officer, a job that hadn’t previously existed, to build a new legal team. He knew one of his biggest missions would be to try to clarify the gray zone on the legality of DFS in states nationwide, a challenge he viewed as somewhat defensive. “If we were a beach house, we needed to winterize,” says Genetski, 45, whose law firm has done legal work with Yahoo, also worked for several years in the video game industry. “The Farmer’s Almanac didn’t call for the Category 5 hurricane that hit us.”

Genetski reached out to Tim Dent, the chief financial officer of DraftKings, and both sites soon agreed to work together on a modest, defense-only lobbying effort and share the costs of an attorney general consultant.

On May 7, 2015, Genetski, Dent and a throng of lobbyists and lawyers met to discuss legislative and regulatory opportunities at a midtown Manhattan lobbying office. Again, they discussed FanDuel and DraftKings taking the lead to create an industrywide board that would aggressively self-regulate, similar to the movie ratings board created by the Motion Picture Association of America, while also fielding consumer complaints. When the meeting broke up, there was fresh momentum for the rivals to pursue the proposal, with the tentative name the “Fantasy Sports Control Agency.”

A week later, DraftKings struck a sponsorship deal with NASCAR and introduced contests on its races. FanDuel had also discussed the sponsorship, but after DraftKings landed it, Eccles and his colleagues were furious, telling investors they were convinced that their rival’s new contests violated federal law. “How were they going to self-regulate when one company didn’t agree with what the other company was doing?” a senior industry consultant says. “It really was the end of any hope for cooperation.”

Besides the CEOs’ mutual mistrust and simmering resentments, there were a variety of other reasons the industry never established the board. It was expensive, for one thing. It also required the political skills to cobble together a coalition of dozens of companies with conflicting agendas. “We had a lot of discussions about it,” Robins says, “and we were in the process of collaborating on it. And everything just kind of moved too quickly.”

“We had thought through things like self-regulation, how that would look,” Eccles says. “But we hadn’t invested nearly as much as we should have, if we had known what was coming.”

It was a costly missed opportunity. When investigators and prosecutors began scrutinizing the industry, a self-policing Fantasy Sports Control Agency might have bought some goodwill.

Instead, FanDuel and DraftKings marched toward an expensive war for market share, in part at the urging of impatient investors who wanted the sites to grab a larger chunk of the 57 million Americans who play season-long fantasy sports. The rivals seemed unable to extract themselves from a vicious cycle: The more their executives could show investors the exponential growth rates of new customers and entry fees, the more investor money they could attract. The more investor money the executives could attract, the closer they would come to an IPO and life-changing paydays for everyone.


THE SUMMER OF 2015 began with soaring financial promise. Everyone wanted in.

In June, ESPN’s parent, the Walt Disney Company, was finalizing a $250 million equity stake in DraftKings. In return, DraftKings pledged to spend a whopping $500 million in advertising on ESPN properties over several years. The deal had been discussed for months and seemed a certainty as industry leaders gathered in midtown Manhattan for the start of the FSTA’s summer conference on June 22. But by the end of that day, word began circulating that the deal had blown up after a top Disney attorney warned executives that he was uncomfortable with the legal uncertainty surrounding DraftKings’ contests.

Undeterred by that setback, and with much fanfare, the industry leaders closed a record-shattering funding round in July — $275 million for FanDuel and $300 million for DraftKings — that pushed both companies’ valuations considerably higher than 
$1 billion. And then DraftKings raised even more, in another funding round that wasn’t made public.

But trouble loomed.

In late July 2015, an ominous-sounding letter arrived at both companies’ headquarters. It was from a U.S. attorney in Tampa, alerting executives that their companies were the subjects of a criminal tax investigation, sources told Outside the Lines. Despite receiving those notices, the executives moved forward with their marketing plans to try to become No. 1.

“In hindsight,” an influential consultant close to both companies says, “those commercials were even more insane because they knew they were under federal criminal investigation.”

There was more bad news, but this time it hit publicly. McKinsey Company released an alarming study showing that a tiny percentage of daily fantasy players win consistently — only 1.3 percent playing baseball. Analyzing three months of results scraped from FanDuel, McKinsey’s study raised major questions about the long-term viability of fantasy sports’ “ecosystem.”

“Investors are overlooking a fundamental operating challenge: the risk that the skill element of daily fantasy is so high that DFS pros will wipe out recreational players in short order,” wrote the report’s co-authors, Dan Singer and Ed Miller. The “whales,” who Singer and Miller say lose thousands a year on baseball contests, bolster the sites’ revenues. “If those whales get discouraged — and they have a negative-31 percent return of investment, so it’s easy to see why they’ll get discouraged — the industry will die,” Singer says.

Neither company was discouraged, and they pressed forward. DraftKings had always intended to invest a big chunk of its new money on a bid to firmly establish itself as the leading daily fantasy site. During the 2014 NFL season, FanDuel boosted its market share by spending more on ads than DraftKings, whose executives vowed they’d never be outspent again. Initially, FanDuel wasn’t planning to spend nearly as much in 2015 as its rival, but executives had watched as DraftKings significantly closed the gap on total market share before surpassing FanDuel in July with nearly 60 percent of the market. FanDuel concluded that the only way to reverse its bleeding market share was to try to match DraftKings’ enormous ad buys that autumn during football season.

Fortified with their overstuffed war chests, the two companies were prepared to spend as much money as it would take to destroy the other guys.


DURING THE NFL’S opening week, DraftKings advertised that $10 million in winnings was up for grabs, including a $2 million grand prize, in its Millionaire Maker contest, the largest daily fantasy contest ever. Not to be outdone, FanDuel boasted: “Paying out $75 million a week!”

On Oct. 5, The New York Times reported that a young DraftKings employee named Ethan Haskell had won $350,000 in a FanDuel NFL contest by finishing second overall and beating 229,883 entrants. The Times story alleged that Haskell used inside information — the percentage of ownership of various players by contestants that was unavailable to the public — to help win on the site of his company’s rival. The online headline dubbed it “insider trading,” and though the newspaper quickly changed it after DraftKings complained, the damage was done.

“People asked me, ‘Where do you work?’ And I’d say, ‘I work at FanDuel — I’m sorry about the commercials.”

– Andrew Giancamilli, FanDuel’s 37-year-old vice president of revenue and customer retention marketing

The sites’ employees had competed for years on each other’s platforms, despite the practice being long frowned upon by some lobbyists and industry consultants. Even the companies’ engineering and customer service employees had access to proprietary data that could give them an unfair advantage playing elsewhere. The numbers are alarming: DraftKings employees won an estimated $6 million playing on FanDuel, though executives at both sites insist most of their employees ended up losing more money than they won.

The optics only worsened when it became public that FanDuel, in a 2012 internal memo, had warned its employees playing on DraftKings to “do no harm” or raise suspicions by winning too often: “Never be among the top five players by volume on any one site (based on site leaderboards). Never be among the top 10 overall on the RotoGrinders leaderboard. Top players frequently become targets for accusations by other users.”

“This was destructive — and done because the sites felt they were untouchable,” says a longtime industry lobbyist. “It’s obvious that condoning this practice could easily backfire.”

Robins and Eccles now acknowledge that the practice angered customers and raised stubborn doubts about the games’ integrity. However, they both insist that their own investigations showed no employees had used proprietary information to win a single contest, though employees’ winning streaks attracted derision on message boards. A law firm hired by DraftKings later determined that Haskell, who declined to comment, did not consult inside information before posting his winning lineup on FanDuel.

But by then the finding didn’t really matter, because New York Attorney General Eric Schneiderman was a New York Times reader and a TV viewer who, like nearly everyone else in America, had become annoyed and exasperated by the onslaught of daily fantasy ads.

At 61, Schneiderman, a graduate of Amherst and Harvard Law School, had established himself as a hard-charging attorney general, pursuing a variety of attention-seizing targets, including the Airbnb industry, corruption-rife state contracts and Medicaid fraud. Allies of the daily fantasy industry later grumbled that he had received more than $150,000 in campaign contributions from state gambling interests during his run for attorney general.

The morning after the Times story, lawyers and investigators from Schneiderman’s various divisions — consumer fraud, investor protection, the internet bureau, taxpayer protection — huddled for a two-hour meeting in a large conference room at the office’s lower Manhattan headquarters. “We had no idea what we were looking at — we didn’t know what we didn’t know,” says Kathleen McGee, the internet bureau chief. They were concerned about the insider trading allegations, but in interviews with Outside the Lines, they said they quickly became far more concerned with FanDuel’s and DraftKings’ promises of instant wealth that they kept seeing on television. “Everyone in the office was saying, ‘Their ads are everywhere,'” McGee says. “You couldn’t escape them.”

Within hours of their first meeting, several lawyers and investigators from Schneiderman’s office opened DraftKings and FanDuel accounts and began playing their contests. The sites’ lobbies “felt like online poker sites — or an online casino,” a senior investigator told Outside the Lines. And the investigators and lawyers would soon discover that the sites didn’t just offer daily fantasy contests on a single day’s full slate of games. The sites offered hourly fantasy contests, with an evening’s slate of NBA and NHL games carved into smaller and smaller slices with fewer and fewer players to draft — “turbo” contests for three NBA games tipping off at 8 p.m. ET, for example, or a fantasy contest based on two West Coast NHL games in which fantasy players would assemble lineups from only four teams.

Schneiderman’s lawyers and investigators initially focused on the insider trading allegations, sketching investigative avenues on a chalkboard-sized whiteboard as they wondered whether the companies were defrauding and deceiving customers. Early on, they say, they didn’t ponder the question of whether daily fantasy sports were legal under New York law.

Schneiderman’s top deputies asked FanDuel and DraftKings to provide information about their customers, consumer protection safeguards and the names of employees with access to proprietary information, such as player data, roster values and the contestants’ ownership percentages for pending and historical contests.

At separate meetings at the attorney general’s office on Oct. 8, Robins of DraftKings and FanDuel’s outside counsel, Marc Zwillinger, fielded questions about their business practices while pledging their full cooperation. Still, executives and their lawyers were alarmed by the investigation. After all, the two companies had operated openly in New York state — and with no interference — for years. The company executives and their lawyers left Schneiderman’s office confident that, at most, they’d be forced to pay a hefty fine and then would have to seek a daily fantasy bill in the New York State Assembly, a recollection disputed by lawyers in Schneiderman’s office.

A senior AG lawyer recalls the DFS executives “running into our door and begging us, more or less, to regulate them and not shut them down.”

“Denial is a powerful drug,” says Eric Soufer, the AG’s senior counsel for policy. “Even beyond the illegal gambling claims, the evidence of false and deceptive advertising was massive, and it was clear to all sides that those claims would be moving forward.”

The move by Schneiderman had an immediate impact on both companies. ESPN, which had agreed in June to a two-year, $250 million exclusive branding and promotions deal across multiple platforms, decided on Oct. 6 to remove all DraftKings-sponsored elements from its shows.

Ten days later, the Nevada attorney general released an opinion concluding that daily fantasy is sports wagering and that DraftKings and FanDuel needed gambling licenses to operate in the state. At the same time, the sites were preparing to enter the U.K. market, where they were seeking gambling licenses to be regulated as bookmakers. Both decisions reinforced the impression that daily fantasy is a game of skill in some places but considered a game of chance in others.

Meanwhile, during the daily strategy meetings before the whiteboard, the attorney general’s lawyers and investigators began discussing whether, in fact, daily fantasy constituted illegal gambling under New York law. “It quickly became apparent this was so much bigger than a consumer fraud issue,” McGee says. “This looks like gambling — and we kept asking, ‘How does this happen right under our noses? These guys are huge.'”

On Nov. 10, Schneiderman sent cease-and-desist letters to FanDuel and DraftKings, declaring that their games constituted illegal gambling under state law and ordering the companies to stop accepting “bets” from New York residents. “It is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country,” Schneiderman declared.

Inside FanDuel’s Manhattan offices and DraftKings’ Boston headquarters, executives were asked, by an ESPN reporter, about the letters before they had been delivered. Robins was in Sacramento at the statehouse; he got word of Schneiderman’s move 10 minutes before meeting with an influential California legislator about a daily fantasy bill. Eccles was in Edinburgh, visiting his mother, when a colleague called him with the bad news. At no point had anyone from Schneiderman’s office told them they were facing the prospect of being shut down.

“I was shocked,” Eccles says.

Recalls a top DraftKings executive, “We never saw it coming.”

Welcome to the big time.


New York Attorney General Eric Schneiderman’s lawyers and investigators initially focused on whether DraftKings and FanDuel employees had an unfair advantage when they played daily fantasy. Hans Pennink/AP Photo

ON NOV. 13, three days after Schneiderman’s cease-and-desist letters were delivered, FanDuel’s and DraftKings’ top executives, lawyers and lobbyists gathered for a summit meeting at the midtown Manhattan offices of Orrick, Herrington Sutcliffe, a San Francisco-based global law firm. The session was attended by Robins and Eccles and nearly two dozen attorneys, lobbyists, government affairs specialists and crisis communications consultants. Before the meeting began, “the only thing the two companies could agree on was us,” says Jeremy Kudon, a 45-year-old lawyer and lobbyist who is the founder of Orrick’s public policy group.

After three hours, the two rivals agreed on a uniform strategy to push for legislation clarifying daily fantasy’s legality in dozens of statehouses around the country. FanDuel and DraftKings executives agreed to share the exorbitant costs of going on offense to seek DFS legislation that would regulate, and tax, their industry in any state where there was legal uncertainty or even the slightest chance that an attorney general might move against the industry. It was a marriage of necessity.

But the sites continued fighting other, separate legal battles. An investor recommended that DraftKings hire David Boies, the 75-year-old lawyer who became famous representing Al Gore before the U.S. Supreme Court in the deadlocked presidential election in 2000.

Boies was kept busy. Seemingly every day, a new civil lawsuit was filed against the companies and their executives; the companies now face more than 40. The biggest lawsuit alleges that DraftKings and FanDuel granted scores of advantages to an elite group of high-volume players. “The vast majority of bettors who are small guys, playing one or two contests a day for $20 at most, are overmatched by an elite few who have the algorithms, the technological advantages, all the advantages to win the biggest money,” New York attorney Hunter J. Shkolnik says. “No one tells you that in the commercials.”

Now consolidated in a Boston courtroom, the sprawling 266-page class-action lawsuit — alleging conspiracy, fraud, negligence and RICO violations, among other claims — represents losing DFS players from 25 states and the District of Columbia. Shkolnik alleges that FanDuel revealed to its investors that only the top one-tenth of a percent of its customers actually win money. “The top 10,000 users had a negative-9.5 percent return on investment,” the lawsuit alleges. In another lawsuit, one of the plaintiffs, Brandon Peck, a 42-year-old losing player from California, says that “DFS sites knowingly and intentionally pulled the wool over the eyes of many Americans when quoting the UIGEA. We deserve our money back.”

DraftKings and FanDuel deny the accusations. Robins and Eccles declined a request by Outside the Lines to discuss any of the legal proceedings and criminal inquiries.

Throughout the autumn, Schneiderman’s lawyers kept investigating. They became even more offended by the companies’ grandiose advertising claims and the promises to customers that both companies made — and, the lawyers say, had repeatedly broken — in their bonus programs.

Schneiderman’s action had a dramatic ripple effect across the country. In nearly two dozen states, including Illinois, Texas and Alabama, offices of the attorney general quickly opened investigations. In some states, AGs released reports declaring that daily fantasy was illegal, while legislators began considering bills that would legalize the games and regulate the industry.

“I’ve never seen attorney general opinions weaponized like this before,” Kudon says.

Says Boies: “I think DraftKings, and the industry in general, did not do as much as it could have … to regulate itself, to impose rules and regulations. It was a new industry. It was a growing industry. And I think that [DraftKings] focused much more on their product and their service than explaining it.”

The parade of negative headlines also appeared to erode customers’ trust. In the second half of the NFL season, DraftKings and FanDuel experienced week-by-week reductions in entry fees and major tournament payouts, according to data compiled by SuperLobby.com. By Week 14, for example, DraftKings’ large tourney entry fees were down 32 percent from a Week 5 high of $25 million. And FanDuel’s tourney entry fees had dropped 53 percent from a Week 6 high of $40 million, SuperLobby.com found. (FanDuel and DraftKings dispute these statistics, saying there was only a slight drop-off in large contests but that their ads attracted hundreds of thousands of new customers, many of whom have become loyal players.)

On Dec. 11, a New York Supreme Court granted Schneiderman a temporary injunction against the two companies, but they quickly appealed and won, allowing them to continue accepting wagers in New York. The pushback infuriated Schneiderman’s lawyers, who filed an amended complaint on New Year’s Eve seeking enormous financial penalties against DraftKings and FanDuel for allegedly violating New York’s false advertising and consumer fraud laws. Schneiderman accused the sites of misrepresenting the ease and simplicity with which the average user could win big payouts and the amount of skill needed to win their contests, among other accusations.

Inside both companies, morale plummeted. They had been the hottest thing going; job applications had flooded into their headquarters. No more. And for the CEOs and executives, the stress level was relentless and the realities ever-present.

“People asked me, ‘Where do you work?’ And I’d say, ‘I work at FanDuel — I’m sorry about the commercials,'” says Andrew Giancamilli, FanDuel’s 37-year-old vice president of revenue and customer retention marketing.


Protesters gathered in front of Schneiderman’s office following his decision to shut down FanDuel and DraftKings. Carlo Allegri/Reuters

BY THE END of last winter, 38 states were weighing daily fantasy legislation. Armed with a team of 105 lobbyists, Kudon and his colleagues discovered that despite their skill-game arguments that daily fantasy is not illegal gambling, influential gambling interests saw them as a threat and blocked them in states where they were entrenched, just as Charchian and others had predicted. Rivers Casino, located in Des Plaines, Illinois, helped kill the state’s daily fantasy bill, and the Illinois attorney general issued an opinion that daily fantasy is illegal under state law. In California, Florida, Connecticut, Oklahoma and Arizona, Native American tribes with casinos managed to kill or thwart daily fantasy bills. The companies now don’t accept wagers from players in 11 states, up from five a year ago.

In early March, Virginia was the first state to pass DFS legislation, a bill critics dismissed as “industry-friendly.” Five other states followed: Indiana, Tennessee, Mississippi, Colorado and Missouri. The Massachusetts attorney general introduced extensive regulations aimed at increasing transparency and fairness, which the state adopted in August.

But the fight’s epicenter was the New York Capitol in Albany. No state was more important to daily fantasy’s future than New York, where each company had the highest number of customers, who spent a total of $268.3 million in fees in 2015, second only to California. In February and March at DraftKings and FanDuel, executives debated whether they should settle the Schneiderman complaint by agreeing to stop operating paid contests in New York.

“It was tough,” says Genetski, the FanDuel executive. “Shutting down seems counterintuitive, and we’d be second-guessed if it failed, but in my view it was clearly the right decision.”

When the settlement was announced on March 21, Schneiderman waved the victory flag. “As I’ve said from the start, my job is to enforce the law,” he said, “and starting today, DraftKings and FanDuel will abide by it.”

For the companies, it was a worthy trade: They’d stop accepting wagers from New York residents for their less active NBA, NHL and MLB contests in exchange for clearing a major hurdle with state legislators to get a DFS bill passed. “If we didn’t get a settlement,” Kudon says, “I don’t think we’d have gotten the bill introduced in the Assembly.”

Without New York, Eccles and Robins worried legislatures in other important states with entrenched gambling interests would be more likely to reject daily fantasy bills — and, the thinking went, failure in New York might embolden prosecutors pursuing the trio of federal investigations.

“The reality is, neither company was in a position to continue to operate without New York,” Kudon says. “They both needed for this to happen. When I had spoken to investors, everyone agreed on its importance — it was less a financial thing and almost a psychological thing. They’d say, ‘We won’t believe this industry will survive unless New York happens.’ How’s that for pressure?”

But getting the bill passed was far from a certainty, and FanDuel and DraftKings had to play a political game now.

One of the bill’s staunchest opponents was Batavia Downs, a harness racetrack and casino in western New York owned by the quasi-public Western Regional Off-Track Betting Corp. Over a frantic weekend in early June, FanDuel struck a $300,000 marketing agreement with Batavia Downs, a sum that caused the track’s owners to flip and throw their support behind the DFS bill.

FanDuel and DraftKings enlisted retired quarterbacks Jim Kelly and Vinny Testaverde to meet legislators. An email campaign produced a windfall of more than 100,000 emails from New York residents, urging their legislators to vote for the bill. Lobbyists from every corporation with a financial stake in DraftKings or FanDuel, including Verizon and Comcast, pushed the bill. Even still, in the final 48 hours before the Assembly recessed, the bill appeared on the brink of being defeated. “It felt as if they might just kill our bill for the sport of it,” Kudon says.

Just after 2 a.m. on Saturday, June 18, the DFS bill passed by a wide margin. On Aug. 3, Gov. Andrew Cuomo signed it into law. And on Monday, DraftKings and FanDuel began allowing New York residents to play again. 

“Monumental,” Eccles calls it. “The most important victory in daily fantasy history.”


DESPITE THEIR ROUSING triumph in New York, both companies’ executives continue to spend millions of dollars on multiple legal and regulatory fights. DraftKings has tried to cut costs by renegotiating contracts with vendors while reducing affiliates’ bonuses. Merger talks were renewed this summer, with some investors insisting that a merger would be the best way for the cash-strapped companies to survive (and, not incidentally, the best way for investors to protect their stakes). Several industry insiders say a merger is inevitable — after the upcoming NFL season, if not sooner — because the sites are duplicating so many exorbitant costs.

“I think DraftKings will survive financially,” says Boies, its lawyer. “I do think that the distraction and the expenses have been harmful to the company. I think it’s very unfortunate the way some of this stuff has mushroomed and, in many respects, is unfair.”

Meanwhile, inside their corporate offices, the two companies’ top executives spent the summer devising ways to make the skill games’ ecosystem less challenging and more fun despite the inevitable outcomes.

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“How do you make the games less hard? There are ways to do it — share information more broadly to take away edges that some players may have, limit the number of entries, have beginner areas,” says Giancamilli, the FanDuel vice president. “If you want to play $100,000, I’m OK with it if you are doing it in just one part of my playground. There should be places in the playground for players of all skill levels — safe spaces, safe harbors, with single-entry limits, things that make the beginner player feel comfortable and welcome.”

Besides beginners’ games, the sites have introduced a multitude of other safeguards against predatory play. By February, both sites banned all third-party scripting. DraftKings allows players to block others. Both sites’ employees are forbidden from competing on rival sites. Both sites have limited the number of entries to 150. They have created tiered levels in their lobbies so players can avoid tangling with savvier, higher-bankrolled competitors. And they have moved even more aggressively against users’ predatory behavior. (Giancamilli made a point of saying that FanDuel had slapped a one-month suspension on a high-volume, predatory player who failed to heed multiple warnings.)

“Integrity is the issue,” says Peter Jennings, a champion daily fantasy player and former ESPN expert. “How do you balance the ecosystem of these top players, who are really important to the site because it gives them the volume they need, and still make it fair and fun for the other guys?” Another way is to improve transparency: FanDuel introduced “Experienced Player Indicators,” and DraftKings has “Experienced Player Badges,” which are affixed to the more seasoned players.

Robins says the industry is evolving, in the same way any young industry confronts, and tries to solve, its customers’ most pressing concerns. Didn’t Facebook manage to overcome a host of problems, from privacy issues to advertisers spamming users? “To paint all this as an Armageddon for the industry is silly,” Robins says. “It’s common in any emerging technology for there to be a very healthy cycle for product makers to get feedback from their customers.”

Still, executives have had to tamp down the expectations of their restless investors. Some states passing DFS bills will tax the companies’ revenues from their residents (New York is the highest, at 15 percent). Boies says the new taxes will probably be passed on to players, meaning the sites’ rakes will likely be increased. While Robins and Eccles insist that they remain optimistic about their companies’ futures and chances for profitability, the sky-high growth projections of a year ago have been shelved.

The gigantic jackpots have not been retired. For the NFL’s opening week, DraftKings is hosting a $5 million guaranteed contest, with the winner getting $1 million. The entry fee is $3. But the messaging is being recast. No longer will the companies emphasize oversized checks and overnight fortunes. This fall there won’t be another endless run of dueling TV ads with backward baseball cap-wearing bros fist-pumping over a sudden $1 million payday.

Robins says his biggest regret is selling daily fantasy mainly as a fast way to win big money. “We’ve done a lot of research, and winning money is maybe, like, reason 4 or 5 why people play,” he says. “The main reasons they play are they enjoy the thrill of competition, they like doing things with their friends.” The first impressions created by all those ads will take patience and money to erase. “I think we did ourselves and did the industry a disservice,” Robins says. “That was a mistake. … It made us come across more like used-car salesmen and less like we have a great luxury automobile here that you’re really going to enjoy.”

For his part, and perhaps not surprisingly, Eccles isn’t fully signed on to Robins’ mea culpa. “Unfortunately, there have always been negative consequences from it,” he says of the ads, “but I don’t really regret our decision. … I feel the mistakes we’ve made were errors of overenthusiasm, of feeling we can get further faster. … Maybe we tried to be too aggressive, but I feel those are … the right mistakes to make.”

In a way, fantasy sports have come full circle from the rotisserie baseball league co-invented in late 1979 by editor and author Dan Okrent. That was a season-long league, a chance to pretend to be a big league general manager and win bragging rights among a circle of pals. The money didn’t matter. “Daily fantasy bears no relationship, really, to what those of us who played in our living rooms with our friends were doing 30 years ago,” says Okrent, 68, who lives in the same Upper West Side apartment building as New York’s attorney general. (Okrent says he nods at Schneiderman, his downstairs neighbor, in the elevator, but he insists they’ve never discussed the DFS legal battle.) “It’s become a kind of malignant mutant version of something that began as simple and pure.”

By preaching that daily fantasy, like Okrent’s inaugural league, is an affordable way to have some fun, FanDuel and DraftKings are betting their futures on attracting and keeping players who will buy in to the argument that there’s more than one way to measure a return on investment.

In August, FanDuel redesigned its website, game platform and marketing strategy. Its new one-word slogan is “SportsRich,” a trademarked term it defines as “the experience of having all the great stuff sports has to offer.”

In block letters in promotional materials, FanDuel says its customers should now expect “excitement, thrills, camaraderie and fantasy. These are all examples of what it is to be SportsRich. NOTE: None of them have anything to do with money.”

Article source: http://www.espn.com/espn/feature/story/_/id/17374929/otl-investigates-implosion-daily-fantasy-sports-leaders-draftkings-fanduel

Apache Spark grows in popularity as Hadoop-based data lakes fill up

Spark requires storage

But there’s still a major role for Hadoop in all this. An important aspect of Spark deployment is that the technology does not provide a distributed storage system. That’s key, because distributed storage is what allows vast, multi-petabyte datasets to be stored across clusters of low-cost commodity servers. So any company wanting to use Spark must also implement a scalable and reliable information storage layer – which, in many cases, is proving to be the Hadoop Distributed File System (HDFS).

For more about Apache Spark on Hadoop

The younger, nimbler Spark technology looks set to replace MapReduce in big data architectures. What is the pace, scope and scale of replacement?

How the relationship between Spark and Hadoop will play out is an open question. We asked IT pros whether they see Spark more as a Hadoop companion or competitor

Spark seems to be growing beyond Hadoop, as standalone instances outnumber Spark on Yarn on HDFS

“Spark adoption is proceeding aggressively in the Hadoop space”, says a recent report by Carl Olofson, an analyst at IT market research company IDC. In a March 2016 survey of more than 200 IT professionals, just 37% of Hadoop users indicated that they use only MapReduce or its related processing techniques (such as Hive, for example), to handle data in their Hadoop implementations, while more than half (53%) are using Spark. “Most of those started with MapReduce, but are now adopting Spark. The rest are migrating older workloads to Spark, or using Spark exclusively,” Olofson says.

“While there has been every indication in the Hadoop community that Spark is the preferred analytic environment for managing Hadoop data, these results suggest that users are moving more rapidly to Spark than is common for an emerging technology. This is significant, because Spark is still rapidly evolving, and so committing to Spark involves accepting a considerable degree of ongoing rework,” he says, adding, “the popularity of Spark suggests that MapReduce, as the primary vehicle for managing Hadoop data, is on the decline.”

Either way, many large multinational firms have devoted time and money to establishing a Hadoop-based “data lakes” view of Apache Spark as a way to keep milking previous investments.

Rick Farnell is co-founder and senior vice-president of international operations at Think Big Analytics, a big data systems integrator that was acquired by data warehousing company Teradata in September 2014. Think Big’s customers include Siemens and disk drive manufacturer HGTS (part of Western Digital).

Eliano Marques, the firm’s principal data scientist, describes a recent Spark-on-Hadoop project carried out on behalf of a European railway network operator. “We were focusing on collecting data from switches in the network that close and open to allow trains to pass along the correct route. Every day, that company generates millions of data point from trains crossing switches, relating to the speed, age and weight of trains, as well as data relating to the switches themselves: how often they open and close, how long it takes them to do so, the angles they reach.”

Using Spark on the company’s Hadoop infrastructure, Think Big was able to demonstrate how that information might be used to predict switch failures. “If you’re able to make sense of that data, you can go back to the operations team with a report that shows exactly which switches are likely to fail in, say, the next 48 hours. A maintenance team can then be sent out to fix any problems. Okay, there will sometimes be false reports and a cost related to that, but if you’re correct in the prediction with sufficient frequency, there’s a huge payback to be had.”

Meanwhile, at Sky Bet, Andy Walton is hoping for a payback, too, but stresses the company’s roll-out of its Spark-based real-time promotions engine will be iterative. “What we’re trying to establish is the capabilities that the platform needs to deliver, generically, and then the use cases that will be of most value to the business,” he says.

“We’re picking a path through in which we identify, say, three capabilities that we can use to unlock a given use case. If we introduce a fourth and a fifth capability, we can unlock further use cases, and so on. That will mean that as we iteratively build this platform and its capabilities, we can deliver new value every step of the way. It’s not really a project, as such – it’s more an ongoing programme of work, but I reckon over time we’ll be delivering incremental value faster and faster.”

The company has already done a lot of work on developing its skills base in preparation, according to Sky Bet data team tester Alex Rolls. With the implementation of the Hadoop platform, it has established a good base of knowledge in managing distributed systems and Linux skills. From a development perspective, Spark requires good Scala skills, he adds, “but we’re finding that Java developers make the jump to Scala fairly easily.” Experience of messaging systems, such as RabbitMQ and Kafka, are also useful.

While Sky Bet is targeting promotions to begin with, Walton can already see that the ability to process real-time events using Spark Streaming could also be useful in detecting fraud and handling customer support issues. “From a Hadoop perspective, this is a new exploitation phase for us. We’re still early on in our work with Spark, and it won’t be without its challenges, but we’re pretty excited about what we can do with it.”  

Article source: http://www.computerweekly.com/feature/Apache-Spark-grows-in-popularity-as-Hadoop-based-data-lakes-fill-up

New York Racing Association Leaps Forward with VenueNext as Technology Partner to Connect Venue Systems and …

SANTA CLARA, Calif. JAMAICA, N.Y.–(BUSINESS WIRE)–VenueNext today announced an agreement with the New York Racing
Association (NYRA) to implement its connected venue technology platform,
starting with an initial rollout in spring 2017 at Belmont Park in
Elmont, New York followed by implementation at Saratoga Race Course in
the summer of 2017.

NYRA will use VenueNext’s technology platform to enhance guest
experiences and improve business outcomes.

NYRA will implement an all-new mobile experience that will provide
guests with convenience and control over how they experience many of the
racetrack’s services. The app will help add to the level of activities
and excitement between races for fans with seamlessly surfaced venue
services like mobile tickets; betting; ordering food, drinks
merchandise for select in-seat delivery or express pick-up; viewing
horse and jockey profiles and behind-the-scenes video content; and
wayfinding. VenueNext’s real-time data dashboards will help the
racetracks make data-driven operational decisions during events.
VenueNext will also integrate with the NYRA
Bets
betting app and NYRA HD video app, and create a seamless
loyalty experience across all NYRA touch points.

In 2015, more than 1.75 million people attended live races at NYRA
tracks. In the Spring of 2016, NYRA significantly expanded its reach
through the launch of a new, live television show broadcast nationally
on Fox Sports 2 and the Altitude Sports and regionally on MSG+.
Currently, “Saratoga Live” is broadcast every day of live racing from
4:00 PM to 6:30 PM and, through these national and regional
partnerships, reaches an audience of more than 65 million homes.
Additionally, NBC provides their award-winning coverage of NYRA races
throughout the year.

On August 8, NYRA announced the successful launch of its new national
advance deposit wagering platform (ADW) featuring the most advanced
technology available today within a high-quality wagering interface. The
new platform is known as NYRA Bets and is available in more than 20
states across the country.

“VenueNext has a proven track record for delivering innovative fan
experiences to sporting venues across the country and we’re proud to
partner with them,” said NYRA President CEO Chris Kay. “This
partnership is yet another step in our efforts to continuously improve
the guest experience through the use of technology. By leveraging
VenueNext at Belmont and Saratoga Race Tracks, integrating our new NYRA
Bets wagering platform and our new HD Video mobile app, NYRA will create
a new standard for the horse racing industry and provide the New York
fan base that is so passionate about Belmont and Saratoga the very best
experiences possible.”

“We’re excited to bring our platform to such a historically significant
organization and racetracks,” said John Paul, CEO and founder at
VenueNext. “And we want to innovate together to become the standard
horse racing venue experience of the future.”

This furthers VenueNext’s credibility in the sports entertainment
space, having already forged a strong lead with deployments at venues
including Levi’s Stadium in Santa Clara, CA; Yankee Stadium in New York
City; the Orlando Magic’s Amway Center; the Minnesota Vikings’ new U.S.
Bank Stadium; and Churchill Downs, Home of the Kentucky Derby. The
platform was also successfully deployed at Super Bowl 50 earlier this
year.

About VenueNext:

VenueNext is a technology company on a mission to transform the way
people around the world experience venues. VenueNext’s platform unifies
the venue infrastructure ecosystem giving venue owners access to an
entirely new suite of sophisticated software tools and services that
enhance business performance. VenueNext also develops context-aware
smartphone apps that for the first time seamlessly connect guests with
everything a venue has to offer. Founded in 2013, VenueNext is backed by
Aurum Partners LLC and other funds affiliated with the owners of the San
Francisco 49ers, Causeway Media Partners, Live Nation Entertainment,
Twitter Ventures and Aruba Networks. VenueNext has offices in San
Francisco, Silicon Valley, New York and London. VenueNext was named one
of the top ten most innovative companies in sports by Fast Company in
2015 and the recipient of a 2015 Edison Award for Innovation. Please
visit www.venuenext.com
to learn more.

About New York Racing Association, Inc.:

The New York Racing Association was founded in 1955 and is franchised to
run thoroughbred racing at New York’s three major tracks (Aqueduct
Racetrack, Belmont Park, and Saratoga Race Course) through 2033. With a
lineage of nearly 150 years, NYRA tracks are the cornerstone
of New York State’s thoroughbred industry, which contributes more than
$2 billion annually to its urban, suburban and rural economy.

In 2015, more than 1.75 million people attended live races at NYRA
tracks. Factoring in nationwide off-track wagering, the average daily
betting handle on NYRA races totaled nearly $11 million. For more
information, visit www.NYRA.com.
Stay connected with New York Racing by following NYRA on FacebookInstagram,
Twitter,
and YouTube.

Article source: http://www.businesswire.com/news/home/20160822005192/en/York-Racing-Association-Leaps-VenueNext-Technology-Partner

Rogue sites let children bet millions of pounds on online matches

  • Children are spending millions of pounds betting on professional gamers
  • Teenagers use digital currency to bet on computer game tournaments
  • The currency, called ‘skins’, can be won or bought on video games

Abe Hawken For Mailonline

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Thousands of children are betting millions of pounds on professional video game players to win tournaments.

The youngsters, many from Britain, are using digital currency to back experts – who can earn thousands of pounds in prize money – during organised competitions.

The currency, called ‘skins’, can be won or bought while playing chart topping video games and more than £5billion was bet around the world in 2015, reports The Times.

Once purchased, the skins can then enable the player to upgrade their on-screen avatar, including the ones in free-to-play multiplayer online video game Dota 2.

An audience watches a match between two professional gamers as they battle it out in a competition

An audience watches a match between two professional gamers as they battle it out in a competition

Skins enable the player to upgrade their avatar on a game, such as the battle arena video game Dota 2 (pictured) 

Skins enable the player to upgrade their avatar on a game, such as the battle arena video game Dota 2 (pictured) 

Modifications typically carried out by users include improving their weapons and changing the design of the guns they use. 

The games skins can be bought on include the popular multiplayer first-person shooter video game Counter-Strike: Global Offensive.

The youngsters are then able to use the skins as a form of virtual currency to place bets on gamers taking part in organised competitions, known as eSports. 

Children are reportedly using unlicensed websites to place bets and gamble in unlicensed online casinos. 

Experts warn that this behaviour can result in them becoming gambling addicts later in life.

A large number of websites which take bets do not ask for age verification and one which allows betting on the popular competitions is CS:GOLounge.

The site, which is registered in Costa Rica, took more than £800million of ‘skin’ bets last year – and five per cent of their traffic comes from the UK.

What’s more, a third of its visitors are under the age of 18 and the figures suggest British children bet more than £12m worth of skins on the website in 2015.    

The Gambling Commission is now concerned about children placing bets on eSports. 

Sarah Harrison, chief executive of the Gambling Commission, said: ‘Is there a risk of it being attractive to or played by young people? 

‘We are seeing real challenges here and will use our powers to the full, including taking criminal action where we see betting and gambling that isn’t licensed.’ 

Neil McArthur, general counsel at the Gambling Commission, was quoted in The Times saying: ‘We are concerned about virtual currencies and ‘in-game’ items, which can be used to gamble. 

‘Any operator who is offering unlicensed gambling must stop — or face the consequences.

‘We expect operators offering markets on eSports to manage the risks — including the significant risk that children and young people may try to bet on such events given the growing popularity of eSports with those who are too young to gamble.’ 

Dota 2 (pictured) is a popular free-to-play multiplayer online battle arena video game

Dota 2 (pictured) is a popular free-to-play multiplayer online battle arena video game

The games skins can be bought on include the popular multiplayer first-person shooter video game Counter-Strike: Global Offensive (pictured)

The games skins can be bought on include the popular multiplayer first-person shooter video game Counter-Strike: Global Offensive (pictured)

Teenager Daniel Edwards revealed he gambled on dozens of professional contests already this year.

The 16 year old added that skin betting was a ‘huge’ part of the game and is the only reason why he watches the competitions. 

The makers of Counter Strike, Valve Software, is now trying to crack down on skin betting. 

A legal action was taken in the US against the game developer and several websites, alleging that Valve Software made profits from the gambling.

The case also accuses British video blogger Tom Cassell of ‘actively promoting CSGOLotto as a gambling service, including to minors’.

Website GS:GO Lounge closed its virtual betting this week after a cease and desist letter.

Prizes worth millions – and now bets

E-sport tournaments, in which computer game players vie for prizes running into millions of pounds, are among the fastest growing spectator sports in the world, peaking every August.

Biggest tournament: The International in Seattle with prizes this year of $18 million.

Most popular game: Defense Of The Ancients 2. Games played by teenagers have their own tournaments such as the Halo World Championships in Hollywood in March, watched worldwide on the net. 

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Article source: http://www.dailymail.co.uk/news/article-3750244/Rogue-sites-let-children-bet-millions-pounds-online-matches-played-professional-gamers-virtual-wagers.html

The Battle Over Online Poker In California And The Impact Of UIGEA


Ed. note: The author of this op-ed, David Fried, is a California gaming lawyer.

There are many people, including me, who want to see online poker legalized in California.

Some wish the possible remaining stumbling block would just go away: how the legislation addresses suitability and tainted assets derived from illegal activity. They view these issues as arguments about the past.

Moreover, they argue that every online poker supplier and operator violated some law at some point, so the legislation should not have any restrictions on licenses or the use of assets.

Let the regulators make the “nuanced” decisions about the applicants on a case by case basis; but don’t put those decisions in legislation. Doing so might be unconstitutional.

While I understand the impatience, these arguments present a simplistic and convenient view, often confusing the legal and policy issues. These arguments also minimize the Legislature’s role in setting policy in legislation, and disregard the factual history of online poker about which there should be little debate.

Today’s amendments to the California online poker legislation, AB 2863, directly address the issues of suitability and tainted assets. The amendments are similar to Nevada law and constitutionally valid.

They exclude until 2022 persons who took wagers from US players after 2006, as well as delaying the use of any associated assets or brands. Amaya/PokerStars and its few business partners will oppose this, preferring no bill and no consumer protection to a bill that restricts them.

But if Chairman Adam Gray has the support of his Democratic Caucus and some of the Republicans, this bill will pass the Assembly Monday.

How we got here

Before October 2006, some (not all) of the early online poker operators took US customers openly and without regard to whether some state laws may have prohibited online poker.

Few state laws explicitly anticipated online poker, but many have always listed what gambling is permitted and by whom, and online poker was not on those lists.

In California, only licensed card rooms and tribes can operate commercial poker. Federal law was less clear. One federal court held that the federal Wire Act applied to sports wagering, not other forms of gambling. Thompson v. MasterCard Int’l Inc., 313 F.3d 257, 262 (5th Cir. 2002) (the Wire Act applies to “betting or wagering on sporting events or contests only.”).

In October 2006, Congress adopted the Unlawful Internet Gambling Enforcement Act (UIGEA) to prohibit certain financial transactions for gambling if the underlying gambling violated another federal or state law.

While other companies stopped taking US customers after UIGEA, PokerStars and Full Tilt continued. PokerStars used its untaxed and outsized US revenues to hammer its competition and grow its global market share from 10.6 percent before UIGEA to more than 55 percent by 2011.

In April 2011, the federal government unsealed a civil forfeiture complaint against PokerStars, and a criminal indictment against some of PokerStars’ senior executives and various bank executives.

The allegations used the UIGEA date, alleging that from at least November 2006 through March 2011 the PokerStars entities and the identified individuals violated UIGEA and the Illegal Gambling Business Act (IGBA), which is based on violations of state gambling laws.

The indictment states that the defendants conspired to commit money laundering and bank and wire fraud. According to the complaint and indictment, PokerStars and its agents attempted to disguise transactions using phony websites or companies, so that money from players would appear to be consumer payments to non-gambling businesses.

PokerStars’ former director of payments, Nelson Burtnick, pled guilty to conspiracy to commit unlawful internet gambling, bank fraud, money laundering and related gambling offenses.

Mr. Burtnick testified under penalty of perjury that he, PokerStars and Full Tilt employees, “and company executives worked with . . . third party payment companies to provide U.S. payment solutions that misled or deceived their U.S. banking partners by disguising the nature of the transactions to appear to be something other than the proceeds of poker.” Other companies did the same in order to transact with US customers after 2006.

On July 31, 2012, PokerStars settled the civil forfeiture action by paying $731 million to the federal government without admitting liability, and acquiring Full Tilt at the same time.

The settlement did not sanctify PokerStars’ participation in future legalized online poker nor did it suggest to state governments that PokerStars must be allowed to participate in state-regulated online poker. It is up to each state to set its acceptable standards for licensure and for the use of any assets developed from illegal activity.

In addition, after the State of Washington amended its laws to explicitly bar online poker PokerStars is reported to have continued operating in Washington for another four years.

In Australia, the Federal Interactive Gambling Act of 2001 prohibits “interactive gambling”, i.e. online casino and poker games. But PokerStars continued to take customers from Australia through PokerStars’ website. In several other jurisdictions, the laws bar online poker even if there is no active prosecution.

PokerStars’ share of the global market is now 70 percent, with the other 500 global operators dividing the rest. PokerStars’ dominant global market share is unarguably based on its continuing to take US customers after UIGEA.

With its US revenues, PokerStars developed and funded the most game and tournament options, and the largest prize tournaments and promotions. PokerStars has spent hundreds of millions of dollars on marketing and promotion in the US.

Through 2011, PokerStars also built a list of the names, addresses and email addresses of hundreds of thousands of California residents who have already played online poker for real money, and most people now keep their email addresses for several years.

PokerStars knows which 20 percent of those customers generated 50 percent of the revenues. So while competitors can advertise promotions through mass media to the general public at a high cost per customer, PokerStars can target even better offers to the most valuable players using emails that cost fractions of a penny.

The brand, software and a usable customer list derived from PokerStars post UIGEA activity provide it with a huge competitive advantage.

Suitability and phantom constitutional issues

The test for gambling license suitability is clearly more than just whether you have already been convicted of a criminal offense.

Suitability asks whether an entity or person is qualified to hold a gambling license based upon their compliance with laws, honesty, integrity and associations so that there is no danger of unsuitable, unfair or illegal practices, methods or activities. Gambling licensing statutes often contain categorical grounds for denying gambling licenses that go well beyond just a criminal conviction.

So the argument, “we have not been convicted of anything,” and “our settlement does not admit guilt,” does not determine suitability. In addition, those companies that continued to take US customers post-UIGEA fall into their own category.

While some would argue that any violation of gambling laws even in 2002 is just as relevant, unarguably those companies that after 2006 continued to take US customers operated with impunity in also violating UIGEA and US banking laws.

They operated with a higher level of culpability which merits more serious consequences. This is hardly an arbitrary or “lazy” distinction. The law frequently assigns greater consequences to a person’s second (and even larger) bite at the apple.

Individual determinations may be left to regulators, but legislation can always draw categorical distinctions and give guidance to regulators beyond mere qualitative terms. Using conduct after 2006, especially conduct that escalated in its severity, to draw distinctions in legislation addressing suitability and the use of tainted assets reflects a permissible and well considered legislative judgment.

That is why Nevada in legalizing online poker also used the 2006 date of UIGEA in its legislation, and without legal challenge.

The State’s police powers permit the state to deny gambling licenses to applicants or condition their participation on non-arbitrary state requirements, so the amendments are constitutional and within state police powers.

This is also the legal conclusion of Professor Nelson Rose, who published his legal analysis in July 2014 demonstrating that PokerStars’ legal arguments are wrong. He wrote:

“The common law and public policy of every state hold that gambling is an illegal activity. State-licensed gaming is an exception to the general rule. Like any other exception to common law, gaming, including Internet poker, is strictly construed in favor of limiting the activity. This allows the state to deny licenses to applicants who do not comply with the state’s requirements. … Statutes and regulations controlling gaming licenses often expressly go beyond criminal convictions as reasons for denying gaming licenses. … I am not aware of any authority that has questioned or overturned these standards … Prof. Tribe was pulled into the fight over legalizing online poker by PokerStars, which wanted him to declare the latest bills unconstitutional. So Prof. Tribe’s role was more as a lobbyist than a lawyer. Because the problem with all online gambling proposals is much more political, than legal. Prof. Tribe’s press release, declaring that a court would find the “bad actor” provisions unconstitutional, is an attempt by PokerStars to convince legislators to take out those restrictions, or vote against the proposed online poker bills. Prof. Tribe’s statement provides cover for legislators who have been lobbied to vote against the bills as they are now written.”

Tainted assets

Another way legislation can and should address these issues is by separately considering the use of assets developed from illegal activity, or tainted assets.

The proposed amendments to AB 2863 now do that. California gambling operators refrained from offering games over the internet and did not develop similar tainted assets.

Allowing tainted assets now to be used against them or any other legitimate operators is unfair and anti-competitive. Permitting tainted assets to be used also provides an incentive for illegal activity.

People can develop assets illegally and sell them for an enormous gain if the “buyer” can be licensed and use the assets in regulated markets. Allowing the use of brand names associated with past illegal activity too would send the message that compliance with gambling laws is optional.

Why these issues should be addressed in legislation

There are forceful policy reasons why these issues should be addressed in the legislation rather than entirely punted to regulators.

California businesses will not spend tens of millions of dollars each before launch on capital investment if market competition is a pretense from the outset or there is uncertainty over the use of tainted assets.

This will cost California hundreds of millions of dollars in economic investment and tens of millions of dollars in fees and tax payments. Instead of a robust market with 6-8 competitors, we will have far fewer license applicants and less money for the state.

The notion that these judgments are too “nuanced” for California legislators is also insulting. The issues were not too nuanced for Nevada legislators, and regulators cannot act without policy direction from the Legislature.

Appropriate legislation can and should make categorical distinctions, lay out policy objectives, and provide the regulators with the powers they need to carry out the Legislature’s objectives.

If PokerStars or any other company wants to balk at elected legislators making these decisions, then they will be the ones obstructing the legislative regulation and protection for players they have been saying is desperately needed.

They may calculate that if online poker markets open in other states, California will have to follow suit, but they are wrong. California does not have to legalize online poker based on what is best for the companies that flouted the law.

Article source: http://www.onlinepokerreport.com/22000/pokerstars-california-online-poker-uigea/

The Battle Over Online Poker In California And The Impact Of UIEGA

Ed. note: The author of this op-ed, David Fried, is a California gaming lawyer.

There are many people, including me, who want to see online poker legalized in California.

Some wish the possible remaining stumbling block would just go away: how the legislation addresses suitability and tainted assets derived from illegal activity. They view these issues as arguments about the past.

Moreover, they argue that every online poker supplier and operator violated some law at some point, so the legislation should not have any restrictions on licenses or the use of assets.

Let the regulators make the “nuanced” decisions about the applicants on a case by case basis; but don’t put those decisions in legislation. Doing so might be unconstitutional.

While I understand the impatience, these arguments present a simplistic and convenient view, often confusing the legal and policy issues. These arguments also minimize the Legislature’s role in setting policy in legislation, and disregard the factual history of online poker about which there should be little debate.

Today’s amendments to the California online poker legislation, AB 2863, directly address the issues of suitability and tainted assets. The amendments are similar to Nevada law and constitutionally valid.

They exclude until 2022 persons who took wagers from US players after 2006, as well as delaying the use of any associated assets or brands. Amaya/PokerStars and its few business partners will oppose this, preferring no bill and no consumer protection to a bill that restricts them.

But if Chairman Adam Gray has the support of his Democratic Caucus and some of the Republicans, this bill will pass the Assembly Monday.

How we got here

Before October 2006, some (not all) of the early online poker operators took US customers openly and without regard to whether some state laws may have prohibited online poker.

Few state laws explicitly anticipated online poker, but many have always listed what gambling is permitted and by whom, and online poker was not on those lists.

In California, only licensed card rooms and tribes can operate commercial poker.  Federal law was less clear. One federal court held that the federal Wire Act applied to sports wagering, not other forms of gambling. Thompson v. MasterCard Int’l Inc., 313 F.3d 257, 262 (5th Cir. 2002) (the Wire Act applies to “betting or wagering on sporting events or contests only.”).

In October 2006, Congress adopted the Unlawful Internet Gambling Enforcement Act (UIGEA) to prohibit certain financial transactions for gambling if the underlying gambling violated another federal or state law.

While other companies stopped taking US customers after UIEGA, PokerStars and Full Tilt continued. PokerStars used its untaxed and outsized US revenues to hammer its competition and grow its global market share from 10.6 percent before UIEGA to more than 55 percent by 2011.

In April 2011, the federal government unsealed a civil forfeiture complaint against PokerStars, and a criminal indictment against some of PokerStars’ senior executives and various bank executives.

The allegations used the UIEGA date, alleging that from at least November 2006 through March 2011 the PokerStars entities and the identified individuals violated UIGEA and the Illegal Gambling Business Act (IGBA), which is based on violations of state gambling laws.

The indictment states that the defendants conspired to commit money laundering and bank and wire fraud. According to the complaint and indictment, PokerStars and its agents attempted to disguise transactions using phony websites or companies, so that money from players would appear to be consumer payments to non-gambling businesses.

PokerStars’ former director of payments, Nelson Burtnick, pled guilty to conspiracy to commit unlawful internet gambling, bank fraud, money laundering and related gambling offenses.

Mr. Burtnick testified under penalty of perjury that he, PokerStars and Full Tilt employees, “and company executives worked with . . . third party payment companies to provide U.S. payment solutions that misled or deceived their U.S. banking partners by disguising the nature of the transactions to appear to be something other than the proceeds of poker.” Other companies did the same in order to transact with US customers after 2006.

On July 31, 2012, PokerStars settled the civil forfeiture action by paying $731 million to the federal government without admitting liability, and acquiring Full Tilt at the same time.

The settlement did not sanctify PokerStars’ participation in future legalized online poker nor did it suggest to state governments that PokerStars must be allowed to participate in state-regulated online poker. It is up to each state to set its acceptable standards for licensure and for the use of any assets developed from illegal activity.

In addition, after the State of Washington amended its laws to explicitly bar online poker PokerStars is reported to have continued operating in Washington for another four years.

In Australia, the Federal Interactive Gambling Act of 2001 prohibits “interactive gambling”, i.e. online casino and poker games. But PokerStars continued to take customers from Australia through PokerStars’ website. In several other jurisdictions, the laws bar online poker even if there is no active prosecution.

PokerStars’ share of the global market is now 70 percent, with the other 500 global operators dividing the rest. PokerStars’ dominant global market share is unarguably based on its continuing to take US customers after UIEGA.

With its US revenues, PokerStars developed and funded the most game and tournament options, and the largest prize tournaments and promotions. PokerStars has spent hundreds of millions of dollars on marketing and promotion in the US.

Through 2011, PokerStars also built a list of the names, addresses and email addresses of hundreds of thousands of California residents who have already played online poker for real money, and most people now keep their email addresses for several years.

PokerStars knows which 20 percent of those customers generated 50 percent of the revenues. So while competitors can advertise promotions through mass media to the general public at a high cost per customer, PokerStars can target even better offers to the most valuable players using emails that cost fractions of a penny.

The brand, software and a usable customer list derived from PokerStars post UIEGA activity provide it with a huge competitive advantage.

Suitability and phantom constitutional issues

The test for gambling license suitability is clearly more than just whether you have already been convicted of a criminal offense.

Suitability asks whether an entity or person is qualified to hold a gambling license based upon their compliance with laws, honesty, integrity and associations so that there is no danger of unsuitable, unfair or illegal practices, methods or activities. Gambling licensing statutes often contain categorical grounds for denying gambling licenses that go well beyond just a criminal conviction.

So the argument, “we have not been convicted of anything,” and “our settlement does not admit guilt,” does not determine suitability. In addition, those companies that continued to take US customers post-UIEGA fall into their own category.

While some would argue that any violation of gambling laws even in 2002 is just as relevant, unarguably those companies that after 2006 continued to take US customers operated with impunity in also violating UIEGA and US banking laws.

They operated with a higher level of culpability which merits more serious consequences. This is hardly an arbitrary or “lazy” distinction. The law frequently assigns greater consequences to a person’s second (and even larger) bite at the apple.

Individual determinations may be left to regulators, but legislation can always draw categorical distinctions and give guidance to regulators beyond mere qualitative terms. Using conduct after 2006, especially conduct that escalated in its severity, to draw distinctions in legislation addressing suitability and the use of tainted assets reflects a permissible and well considered legislative judgment.

That is why Nevada in legalizing online poker also used the 2006 date of UIEGA in its legislation, and without legal challenge.

The State’s police powers permit the state to deny gambling licenses to applicants or condition their participation on non-arbitrary state requirements, so the amendments are constitutional and within state police powers.

This is also the legal conclusion of Professor Nelson Rose, who published his legal analysis in July 2014 demonstrating that PokerStars’ legal arguments are wrong. He wrote:

“The common law and public policy of every state hold that gambling is an illegal activity. State-licensed gaming is an exception to the general rule. Like any other exception to common law, gaming, including Internet poker, is strictly construed in favor of limiting the activity. This allows the state to deny licenses to applicants who do not comply with the state’s requirements. … Statutes and regulations controlling gaming licenses often expressly go beyond criminal convictions as reasons for denying gaming licenses.  … I am not aware of any authority that has questioned or overturned these standards … Prof. Tribe was pulled into the fight over legalizing online poker by PokerStars, which wanted him to declare the latest bills unconstitutional. So Prof. Tribe’s role was more as a lobbyist than a lawyer. Because the problem with all online gambling proposals is much more political, than legal. Prof. Tribe’s press release, declaring that a court would find the “bad actor” provisions unconstitutional, is an attempt by PokerStars to convince legislators to take out those restrictions, or vote against the proposed online poker bills. Prof. Tribe’s statement provides cover for legislators who have been lobbied to vote against the bills as they are now written.”

Tainted assets

Another way legislation can and should address these issues is by separately considering the use of assets developed from illegal activity, or tainted assets.

The proposed amendments to AB 2863 now do that. California gambling operators refrained from offering games over the internet and did not develop similar tainted assets.

Allowing tainted assets now to be used against them or any other legitimate operators is unfair and anti-competitive. Permitting tainted assets to be used also provides an incentive for illegal activity.

People can develop assets illegally and sell them for an enormous gain if the “buyer” can be licensed and use the assets in regulated markets. Allowing the use of brand names associated with past illegal activity too would send the message that compliance with gambling laws is optional.

Why these issues should be addressed in legislation

There are forceful policy reasons why these issues should be addressed in the legislation rather than entirely punted to regulators.

California businesses will not spend tens of millions of dollars each before launch on capital investment if market competition is a pretense from the outset or there is uncertainty over the use of tainted assets.

This will cost California hundreds of millions of dollars in economic investment and tens of millions of dollars in fees and tax payments. Instead of a robust market with 6-8 competitors, we will have far fewer license applicants and less money for the state.

The notion that these judgments are too “nuanced” for California legislators is also insulting. The issues were not too nuanced for Nevada legislators, and regulators cannot act without policy direction from the Legislature.

Appropriate legislation can and should make categorical distinctions, lay out policy objectives, and provide the regulators with the powers they need to carry out the Legislature’s objectives.

If PokerStars or any other company wants to balk at elected legislators making these decisions, then they will be the ones obstructing the legislative regulation and protection for players they have been saying is desperately needed.

They may calculate that if online poker markets open in other states, California will have to follow suit, but they are wrong. California does not have to legalize online poker based on what is best for the companies that flouted the law.

Article source: http://www.onlinepokerreport.com/22000/pokerstars-california-online-poker-uigea/

It’s right to ‘line shareholders’ pockets’ before fixing pension holes

The revelation by actuarial consultants Lane Clark Peacock that 56 of the supposedly blue chip companies in the FTSE 100 index are running deficits totalling £46 billion in their defined benefit pension schemes puts the BHS story into a new perspective.

It tells us that the £571 million ‘black hole’ in the chain’s pension fund was by no means out of the ordinary — it is a small fraction of the deficits declared by the likes of BT, Tesco, BAE Systems and BP, even if it might have been mitigated by wiser decisions on the part of the scheme’s trustees and greater generosity on the part of former BHS owner Sir Philip Green. The truth is that the defined benefit pension model is a thing of the past, having been irreparably damaged first by Gordon Brown’s tax raid on pension funds’ dividend income and then by an era of ultra low interest rates and poor returns on equities.

But the actuaries’ findings raise interesting questions about the balance of companies’ responsibilities towards pensioners and shareholders. Criticism of Green focused on the fact that he and his wife extracted £400 million in BHS dividends before the pension fund fell into trouble. But the FTSE blue chips have gone on paying dividends to shareholders long after their deficits started to build up, and at five times the level of their pension scheme contributions. Many could have wiped out their deficits by redirecting all or part of their annual allocation of dividend cash. The Daily Mail says that means ‘the bosses of Britain’s biggest companies are more interested in lining shareholders’ pockets than plugging black holes’.

How big a sin is that, if it’s a sin at all? The subliminal idea that dividends are a form of ill gotten gain crept into public discourse during the banking crisis, when Governor Mervyn King appeared to equate them with bankers’ inflated bonuses. But any company’s first duty, besides operating within the law, is to provide returns for shareholders, either in dividends or rising share values. Otherwise who would invest in companies, and how would they raise capital to expand, stay ahead of competitors or even survive?

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So I would argue that ‘lining shareholders’ pockets’ actually ranks ahead of ‘plugging black holes’, morally speaking, because a pension deficit ought to be manageable through market cycles so long as the company behind it remains healthy. Only when the company itself fails does the black hole become a catastrophe. Frank Field’s select committee, moving on from its BHS show trial to a wider inquiry into the pensions crisis, should begin by debating that motion.

Unicorns up north

Much as I enjoy my summer sojourn in France, I’m naturally homesick for the north of England. So I was delighted to receive, in response to my call for readers’ nominations of future UK ‘unicorns’ (billion dollar businesses), to receive a copy of Northern Tech Revealed, a report by the investment bank GP Bullhound, which specialises in capital raising for high growth technology ventures. It identifies eight existing northern unicorns, including Leeds based Sky Betting Gaming and online sports nutrition and clothing retailer The Hut, at Northwich in Cheshire; coming up behind them are the likes of holiday company On The Beach; Lad Bible, an online community for lads who like funny video clips; Tyres On The Drive, a mobile tyre fitting service; and Emis, which creates software for medical practices.

The report says the north ‘has a keen eye for spotting sectors that are ripe for disruption’ but hints that critical mass — on the scale of Cambridge’s Silicon Fen — has yet to be achieved. Meanwhile, it’s all gone quiet on the ‘Northern Powerhouse’ front since Theresa May arrived in Downing Street, but there’s still a junior minister responsible for what was formerly George Osborne’s pet project: he is Andrew Percy, MP for Brigg and Goole. If as I suspect, funding previously pencilled in for major infrastructure improvements up north is about to evaporate, my advice to the minister is to read GP Bullhound’s paper and start devising low cost measures to help catalyse a couple of flourishing northern technology clusters.

Gloves and ghosts

With the pound at a three year low against the euro, you may think it odd that I’m offering French restaurant tips this month instead of predictions on the economic impact of Brexit. But it’s still too early to assess the length and depth of the incipient downturn, and in the meantime we might as well enjoy the glow of Olympic success, the unexpected strength of the London stock market (reflecting Wall Street’s exuberance and an uptick in oil prices) and — in these baking hot days — a fine lunch on a shady terrace. My discovery of the week was the charmingly old fashioned station buffet at Brive la Gaillarde, but my top recommendation is an old friend: Le Relais de Comodoliac at St Junien, on the confluence of the rivers Vienne and Glane west of Limoges.

As well as offering good food and verdant gardens, this is a handy stopover for Oradour sur Glane, the village where Waffen SS troops massacred 642 men, women and children in June 1942. Left untouched on De Gaulle’s orders, the ghostly site is all you need to see to understand why our soon to be former partners value the EU as a mechanism for peaceful coexistence between former enemies.

And St Junien has a parable of globalisation to offer: it was once a world leader in leather glove making, but gloves are no longer part of everyday dress, Asian sweatshops make them cheaper, and most of the town’s riverside tanneries are ghostly ruins. But I was pleased to discover that designer gloves are still made here in smaller quantities — from a choice of ‘crocodile, peccary, ostrich, lamb, kid, fox or deer hide’ — by Hermès, the luxury goods brand that is itself a beneficiary of globalised consumerism: so we may hope that St Junien’s finest products have become must have items for high spending Chinese shoppers.

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Article source: http://www.spectator.co.uk/2016/08/its-right-to-line-shareholders-pockets-before-fixing-pension-holes/