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Daily fantasy sports are bringing in major dollars and federal scrutiny
Gambling on daily fantasy sports has been a rare exception to the federal ban on sports betting. The booming industry has some fans betting thousands of dollars, and the FBI is now investigating websites after reports of insider trading emerged. - photo by Daniel Bendtsen
The Fantasy Sports Trade Association, which represents the business of fantasy sports, announced the formation this week of a regulatory group to ensure ethical behavior in the booming daily fantasy industry.

The panel is headed by former U.S. Secretary of Labor Seth Harris, who told The Wall Street Journal that his board will develop "industry standards" that ensure all companies "establish controls, processes and leadership that will ensure compliance with those standards."

The announcement comes in the wake of the multibillion-dollar industry facing scrutiny from the Justice Department and the FBI. DraftKings and FanDuel, the websites that dominate the market, are expected to award more than $3 billion this year to users who place daily bets on sports.

The federal inquiries came after a DraftKings employee, who had access to data about betting tendencies, won $350,000 in one week on FanDual, prompting allegations of "insider trading." The revelation led Nevada aming regulators to order both websites to cease operation in the state an order that DraftKings ignored.

The press release by the FSTA announcing its move to regulate itself said it would work with state and local governments to develop "strong integrity programs."

Though every state except Nevada bans gambling on sports, daily fantasy sites are immune from federal law because they are considered games of skill.

In the first week of this year's NFL season, DraftKings spent $23 million on advertising that sold itself not as a fun game but serious competition where players win serious money.

According to Bloomberg Business, DraftKings and FanDuel ended up bringing in $60 million in entrance fees from the first week of the football season. Fantasy websites like Rotogrinders have hundreds of articles that supposedly teach players how to win and is now awash with books about making money off the practice.

Commercials may give the impression that daily fantasy sports brings easy profits, but in reality, most of the winnings go to a handful of sophisticated players known as sharks who place hundreds of bets each day.

Sharks are often data-savvy individuals whove made these daily fantasy sports their full-time profession and feed off the casual player (called a "fish").

The top 100-ranked players enter an average of 330 winning lineups per day. Saahil Sud, the top-ranked player, told Bloomberg that he works up to 13 hours each day to maximize profits. He uses custom software that plugs data into his custom-built predictive models, which generate hundreds of lineups based on his forecasts, Bloomberg reported.

A study by Sports Business Journal examined betting on the MLB fantasy sports earlier this year and found that in the first half of the 2015 MLB season, 91 percent of profits were won by just 1.3 percent of players.

More than 90 percent of users lost money through these services. The study found that while that the vast majority of players gamble small amounts of cash, 5 percent of users were labelled big fish and lost an average of $1,100 in that same period.

Jeffrey Derevensky, a psychiatry professor at McGill University, told The New York Times that young men most at risk for gambling addiction are more easily sucked into daily fantasy sports because they tend to believe that by playing and watching sports they can better predict the outcome.

Keith Whyte, executive director of the National Council on Problem Gambling, told The Times said that people are less likely to have a negative opinion of gambling via fantasy sports. He said he knew one young man who knew he had a gambling problem and so switched over to daily fantasy sports and ended up losing $70,000 in three months.