23 Feb

Emerging Risk: Online Sports Betting Gains Increased Scrutiny

By: Greg Baxley, Marketing Coordinator

 

Daily fantasy-sports (DFS) companies have gained massive notoriety in recent months, as regulators and mainstream media attention have brought the online gambling industry into the spotlight. The DFS industry has been facing scrutiny from several government authorities over consumer protection safeguards and the legality of the contests themselves amid a range of state laws.

 

Long considered a grey area in payments processing, the legality of the industry is now being threatened. DraftKings and FanDuel, the two largest DFS companies in the US argue that the basis of their gaming requires skill, and therefore cannot be considered illegal gambling. But many attorney generals nationwide disagree. Eleven states have now concluded that daily fantasy games are a form of gambling illegal under their current laws. Sixteen additional states are now either reviewing the legality issue, or working on legislation to clarify the law.

 

In November, New York State issued a cease-and-desist order to both DraftKings and FanDuel, stating that their internet-based contests violate N.Y. gambling laws. The two sides are currently locked in a legal battle over the order. DraftKing’s spokeswoman Sabrina Macias said the company isn’t retrenching. “Our business position is strong and we have no intention to scale back any operations,” she said, pointing to the company’s launch in the United Kingdom.

 

A documentary The Fantasy Sports Gamble produced by the PBS series Frontline in collaboration with the New York Times, was released earlier this month. The film investigated online sports betting and daily fantasy sports, finding it to be a multi-billion-dollar, mostly unregulated industry. Working with experts in Internet security and routing, The Times found that more than 100 offshore gambling sites had developed a powerful digital presence within the United States, available to customers, but hidden from investigators.

 

Their findings highlighted one sports betting ring that used phony credit card billings to hide its activities, effectively laundering transactions. Customer service representatives explained that credit card transactions would not be recorded as a sports bet. Instead charges showed up from Moser Safety, which purported to sell hard hats and work boots.

 

As scrutiny by state policymakers across the country continues to intensify, many affiliates and payment processing partners of DraftKings and FanDuel have exited. ESPN, once an affiliated advertising sponsor of DraftKings recently ended the partnership. This month banking giants Citigroup and Bank of America began blocking debit and credit card payments, and Vantiv Entertainment Solutions, announced suspension of all processing for payment transactions. Major League Baseball has also formally notified both DraftKings and FanDuel that it reserves the right to terminate its exclusive marketing agreement if courts find DFS to be in violation of gambling laws. The NFL, NHL, and other professional sports organizations are expected to follow suit.

 

Online gambling is just another example of emerging risks that the payments industry is facing. To appropriately assess threats and ensure that your portfolio is in full compliance, vendor solutions are a key safeguard. Services including G2’s Persistent Merchant Monitoring (PMM) identifies merchant website content compliance issues for acquirers, ISOs and payment service providers, and persistently monitors merchant websites for ongoing content risk. This helps to insure that payment providers remain in compliance with major card network rules and monitoring requirements.

 

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