Appendix 1 - Insider trading touches down in Fantasy Football

Is it really possible to beat the market? Can you consistently make high returns from investments without any inside knowledge? Investors certainly think so, otherwise why would anyone invest in something that isn’t going to make them money? Some people believe it is pure luck, others are more suspicious.

Recently, there has been a suggestion that employees at two US fantasy sports companies have been acting improperly following allegations of insider trading. This industry came about from an American Fantasy Football game where users would pick players to form a team and score points based on players weekly performances, all for fun. However, this all changed recently as companies such as DraftKings and FanDuel set up online daily and weekly games based on a very similar idea. However this option requires an entry fee to paid (up to $1,000, as reported by the New York Times) to play against hundreds of opponents, with a potential $2 million prize for the winner.

‘It is the simplest way to win life-changing piles of cash every week!’ stated DraftKings, the company who raised $300m in a funding round during July, led by 21^st Century Fox, with rival FanDuel raising a similar amount according to the Financial Times. For the vast majority it is a way of losing money, with only a tiny proportion of the participant’s actually winning cash. Interestingly it has been revealed some of the tiny percentage of winners, are employees of these two fantasy companies. Seems coincidental right?

In my eyes, it should not be possible for employees at either of these companies to be able to compete in the fantasy leagues; as they have access to information not available to the very people they are competing against, the general public. Employees at the two companies have a clear advantage and are able to beat the market as a result of inside knowledge.

But this is exactly what has happened this month, as one employee won $350,000 on a FanDuel website, by using the information he had access to as a result of working for DraftKings. More information on the story can be found here.

You may be thinking, does the information employees have access to, really give them a clear advantage? I thought the same but yes it does. They are able to see the number of people who have picked particular players and therefore work out which footballers would give them to best chance of winning. This is because if they pick a player who has been selected by a small proportion of the public, and this player scores a lot of points then there will be less teams doing well at the same time.

Where is the fun in that? Fantasy football was created for people to test their knowledge against other football fans, not for people to abuse their positions and win money at other people’s expense. Having played the UK version of fantasy football (or ‘soccer’ as it known in the US) for a number of years, I would be very upset if I knew people I was competing against have an unfair advantage. I would be even more annoyed if I had lost money as a result of this.

What makes this all the more astonishing is this is taking place in a country where online gambling is illegal. The simplest way to solve this issue is to ban all employees, who have access to insider information, from playing any kind of pay-to-play fantasy football. This would prevent anyone from making an abnormal return and also ensure the general public are competing on a level playing field. A similar step was taken by the English FA, where common sense was used to prevent any chance of insider trading occurring. All professional footballers have been banned on betting on any football match, regardless of whether they are involved or not.

People may argue that the fantasy football market does not need to be regulated as it is a game all about skill; however with such large sums of money at stake there needs to be some form on intervention. If this has happened once, what is stopping it happening again?