The news lately has been full of stories about the “insider trading” scandal in the fantasy sports business. The New York Times blared,

Scandal Erupts in Unregulated World of Fantasy Sports

The key word there is “unregulated.” So what’s a country to do about it? Obviously, have a Congressional hearing. I mean, what else do those guys have to do?

I’ve been on the record previously saying that Congress should keep itself focused on the things they are good at – and once I figure that out, I’ll let you know. But the one thing I know they are not good at is regulating gambling or games of chance. No gaming activity has ever come out ahead once the feds wormed their way in.

The issue with fantasy sports was a couple of employees using information not generally available to the public to hit jackpots on fantasy sites where they were not employed. Yeah, it sort of sucks, but is it a federal case? Well, some would cite the Interstate Wire Act of 1961. That’s right. 1961. Even for those of you who don’t remember 1961, that was the era of three television stations and a rotary telephone (ask your grandparents to describe one). The law was the brainchild of Robert Kennedy who saw himself as the wall against the spread of organized crime. One of the main revenue sources for organized crime was gambling, especially on sporting events, and Kennedy figured that with the new law he had one more tool in the toolbox to bust up the syndicate. It read

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.

Good thing my departed father, God rest his soul, didn’t know the phone call to Paulie the Bookie could have landed him in Leavenworth for a deuce.

Of course, the irony today is that in 1961 everything moved on wires, while today it’s a little more complex. No matter. Wire is the modern euphemism for transmission regardless of technology.

One of the things the old syndicate bosses knew is that they were all vulnerable if someone with more muscle moved in. That’s exactly what happened, except it wasn’t a more powerful crime organization, it was the government. Remember the daily number? It used to pay 640-1 when bookmakers were running it. The state took over and the payoff dropped to 500-1. Let me ask you, would Powerball fall into the category of “a transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers…” Sure it would, had the government not given itself an exemption. It is the hypocrisy of government involvement that it is only a crime if we don’t want the revenues from it.

One of the main questions Congress would have to answer is, are fantasy sports games of chance or skill? I think horseracing is a game of skill in which there is wagering, and by the same logic so are fantasy sports. For me, any game that is not purely fixed odds, and where the participants have the ultimate power of selection, can be argued to be a game of skill. For goodness sake, everything has an element of chance, and if you don’t believe me ask Derek Jeter what a celestial break it was to have Jeffrey Maier attending an ALCS game one night.

There’s a pretty simple solution in the interim. You know how certain companies offer raffles or contests and the entries say clearly on the bottom “employees or their families are not eligible?” It would be just as easy for fantasy companies to ban their employees from playing a fantasy game on any site (and most have already adopted that rule). So we don’t need Congress to handle that issue.

The larger issue may be that of insider trading. The New York Times article said

The episode has raised questions about who at daily fantasy companies has access to valuable data, such as which players a majority of the money is being bet on; how it is protected; and whether the industry can — or wants — to police itself.

I thought about this with regard to horseracing. Which horse the majority of the money is bet on – yep, we all know that. Of course, the rumors of inside information in horseracing are widespread, and if you’ve gone to the track regularly you have inevitably heard talk of some secret workout, or a budding superstar, or a trainer coup. Apparently not all inside information is created equally (although the next blog will get into a case in Pennsylvania), or at least it’s not all equally illegal.

The question of how information is protected begs a different question. Why shouldn’t the betting public have access to that information? If some sharpie can figure out where there might be value in the system, more power to him. In other words, what makes it necessary to protect certain information? Because if we don’t have to keep some performance data secret, that becomes a moot issue.

The final point is perhaps the most important and fantasy sports can learn a good lesson from horseracing. If you don’t take the steps to regulate yourself, you can be sure some governmental entity will happily step in. Whether or not they can do a better job may be a matter of opinion, but as I started this opinion piece with, my confidence in the ability of Congress to come up with something that protects the public may wind up taking a back seat to issues of morality and economics. There are plenty in Congress who oppose gambling on moral grounds and there are plenty who see fantasy sports as another opportunity to impose stiff “sin” taxes on a gambling enterprise.

Apparently fantasy sports are not illegal, or they are apparently not covered by the Interstate Wire Act. That being the case, it also seems to be the case that the “insider trading” element was not a violation of federal law, and if it was, the proper agency to deal with it would be the FBI, who has been mute on the matter.

If you favor Congressional intervention, I assume you believe fantasy sports have the potential to become an out of control, possibly criminal enterprise. I would suggest that a corrupt enterprise will eventually collapse under the weight of its own lack of integrity or greed. Yes, fantasy sports need to have the intelligence to find the holes in the system and close them. But Congressional hearings? I think we are a long way from needing a hearing, especially considering all the important issues such hearings would pull valuable time from.

This wasn’t the crime of the century, the decade and perhaps not even the year. If you play fantasy sports you deserve a level playing field. I don’t think that is so tough the bright minds who figured out how to turn an office distraction into a multi-billion dollar business can’t figure it out. If they don’t fix it, they may not like the solution of the government agency that does. Just ask horseracing.