This State Got It Right On Player Funds Segregation For Daily Fantasy Sports

Dustin Gouker August 1, 2016 632 Reads
DFS Segregation of funds

Segregation of player funds from operational funds is generally considered to be a given in the online gambling world in regulated markets.

Of course, it’s not been that simple in unregulated (or even sort of regulated) gambling markets.

We saw what happened with online poker sites like Full Tilt Poker years ago. And at least a few daily fantasy sports sites needed to be bailed out in the past year.

Some actual regulation for the DFS industry

The Daily fantasy sports hasn’t really been regulated in any meaningful way until this year.

One of the first examples of real regulation coming to fruition is in Missouri, as the state’s gaming commission drafted proposed rules to implement a fantasy sports law passed earlier this year.

The entire law, and the proposed regulations, treat DFS a lot like regulated gambling — without actually calling it gambling. The vetting process for sites wanting to apply for a license in the state is pretty thorough.

The law and regulations don’t go quite as far as land-based or online gambling law on ensuring the platforms are above board and beyond reproach. But there is at least one area in which the regulations appear to be quite stout.

Segregation of player funds for DFS

There is no doubt that the proposed regulations for segregation of player funds are quite strict in Missouri for licensed DFS sites. The regulations on this subject alone are two pages long.

To start:

(1) The licensed operator shall maintain in the form of cash or cash equivalents the amount of the deposits made to the accounts of Missouri fantasy sports contest players for the benefit and protection of the funds held in such accounts. For purposes of this rule cash equivalents are investments with an original maturity of three (3) months or less.

And then:

1. The amount of the [cash] reserve shall be equal to, at a minimum, the sum of all registered players’ funds held in player accounts of Missouri residents.

The regulations go into great detail from there, with more wording on how accounts must be segregated and provisions on maintaining cash reserves.

Of course, the regulations regarding segregation of player funds cover, in practice, only Missouri residents. Theoretically, regulators and/or the third-party audit could uncover problems outside of Missouri given enough insight into licensees’ operations. But that also is not a guarantee, given each state’s laws in general and Missouri in specific only have power in their respective jurisdictions.

But still, the tight and extensive language regarding segregated funds — whether just for Missouri or not — is a huge step for an industry that has had no standard or oversight on this issue.

More like online gambling regulation is a good thing

The bottom line: Whether you believe DFS is gambling or not, the mechanics of the industry are much like online gambling.

U.S. online poker and gambling regulation — and rest-of-world regulation for that matter — provides players with recourse should things go wrong with an operators.

In the case of fund segregation, players in Missouri should feel safe about their deposits with licensed DFS operators.

And that kind of security is what DFS players deserve in every jurisdiction.