DraftKings’ Jeffrey Haas Calls for Social Gaming Regulation

DraftKings’ Chief International Officer Jeffrey Haas called for more regulation of social gaming. Haas said that the current lack of regulation is “preposterous” and believes it reflects badly on the gaming industry.

The DraftKings CIO spoke at a time that a wave of US lawsuits threaten the social gaming industry in America. Big Fish Gaming, GSN Gaming, and other social gaming platforms have been targeted by a single lawyer in Washington state, who won a key decision that puts the entire industry in danger.

In a speech at the IGB Live Show, Jeffrey Haas spoke of the developments. Haas said, “I think the current lack of regulation for social gaming is preposterous. There is a significant element of potential harm to consumers if they play irresponsibly, where they cannot set deposit limits, play limits or loss limits.”

Haas suggested that the kind of basic consumer protections which other gaming niches have would help the social gaming sector. He added, “These social gaming companies are generating hundreds of millions of dollars per year in revenues, and how can we be sure they are running fair games? How can we be sure they are protecting consumers?”

The Lesson of DFS Regulations

Jeffrey Haas can speak from experience. Three years ago, daily fantasy sports sites like DraftKings and FanDuel were at the same crossroads that social gaming sites now are at. The two big DFS sites fought any talk of regulation, as they instead sought investors in a race to become the first billion-dollar daily fantasy sports site.

Each wave of investment brought more national attention through advertisements on television, radio, and the Internet. When DraftKings and FanDuel commercial began appearing on most TV sports broadcasts the first two-thirds of 2015, DFS gaming went mainstream. That exposure brought attention from state attorney generals in a half-dozen and US Attorney’s Offices in New York and Tampa.

Lobbying and Legal Expenses

A single scandal involving a DFS employee touched off a firestorm of controversy and several state lawsuits. Soon, DraftKings and FanDuel were spending huge cash on legal bills and lobbying efforts. Eventually, the two rivals sought a merger, but the Securities & Exchange Commission (SEC) blocked their merger talks. FanDuel recently merged with Paddy Power-Betfair, while DraftKings continues as its own entity.

The legalization of sports betting could give a lifeline to the daily fantasy sports industry, but that does no help for social gaming sites. A woman in the State of Washington sued Big Fish Gaming earlier this year, claiming the $800 she spent on virtual coins constituted real money gambling. A judge ruled that the virtual coins, though clearly noted to have no monetary value, were “things of value”. The lawsuit continues.

Social Gaming Regulations Are Inevitable

Jeffrey Haas said in his IGB Live speech that social gaming, like DFS gaming, would be regulated sooner or later: “Regulators will come in at some point, whether it’s in banking, consumer affairs, or gaming. I think it’s important to be ahead of the curve with these things, to ensure operators are operating with integrity and consumers are protected, so that they don’t lose money they can’t afford to.”

Solid regulations could have forestalled such legal action. Haas added that customers dissatisfied enough to bring lawsuits, “The result of which could be a bad thing for any company that operates within the gaming industry or even gaming/entertainment.”

The bad publicity brought from such lawsuits goes well beyond whatever monetary value is lost in court. Not only are potential customers driven away, but state and federal lawmakers read the stories and start to consider regulations. Even worse, some consider strict bans on such gaming. An industry which gets out ahead of the legal considerations avoids a lot of trouble from lawmakers.

UK Gambling Commission on Social Gaming

Not every jurisdiction is going to be the same. The UK Gambling Commission has declined to weigh in on the issue of social gaming, because the United Kingdom’s gaming regulator said it has seen little evidence of gamers spending a lot of cash on social gaming sites.

Unless players are gaming irresponsibly, said the UK Gambling Commission, regulators should not step in. Jeffrey Haas noted that distinction in his address, saying, “We as an industry, and this is the case in some jurisdictions more than others, have failed to proactively address consumer safety issues.”

Potential Harm to Players

That being said, companies should gird themselves against possible government intervention. Haas added, “Any gaming company, and not necessarily gambling company, should be thinking about their best practice with any product that could potentially harm players.”

Part of the DraftKings CIO’s speech centered on the loot box phenomenon. Loot boxes have been a key moneymaker for video game publishers the last few years, but in the past 18 months have become a target for regulators. Once again, Haas pointed to loot boxes/booster packs as an example when proactive gaming companies could have avoided overarching regulatory oversight.

Nicholas Aquilina and Carl Brincat

Nicholas Aquilina of the Brandl & Talos law firm, who sat on the same panel as Jeffrey Haas, said loot box regulation seemed an easier puzzle to solve. Social gaming, though, has a lot of different dynamics to consider.

Aquilina said, “There should not be a one-size-fits-all approach to this. There should be specific lightweight regulation for loot boxes. Regulation for all social gaming might not work if a new game comes along that doesn’t fit into that.”

Carl Brincat of the Malta Gaming Authority agreed with Nicholas Aquilina, saying, “In Malta, we have regulation for gambling and skill gaming separately. Game development can change and a new type of game could make a whole legislative framework unapplicable.”