Sports betting

Palpable error: Did FanDuel set a dangerous precedent by paying out on a pricing glitch?

FanDuel was thrust into the spotlight last month thanks to a sportsbook pricing glitch that ultimately cost it some $85,000. But should firms be forced to pay out on these so-called ‘palpable errors’, or will it end up costing customers as well as operators?

The story of the FanDuel glitch is well known by now – it made headlines in just about every mainstream media outlet – but for those living under a rock for the last few weeks, here are the cliff notes: a customer at New Jersey’s Meadowlands Racetrack made a live $112 bet on the Broncos to beat the Raiders at 750/1, when the actual odds were 1/6. The vastly inflated odds were available for 18 seconds, the Broncos duly won, and the customer eventually received his money after initially being refused his winnings and kicking up a stink.

When distilled, it seems relatively straightforward outcome. Yet it was a decision that could potentially have major ramifications on the way sports betting is conducted across the US. For Europeans, it was a bizarre decision for FanDuel to reverse its original stance that the bet was a ‘palp’ (palpable error) and should, therefore, be paid out at the true 1/6 odds.

The palp rule was clearly written in FanDuel’s house rules, which had been approved by the New Jersey Division of Gaming Enforcement (DGE), and, technically, the book was under no obligation to pay out. “Prima facie, it’s madness [to pay out],” said one European sportsbook exec, speaking off the record. “Nobody puts up a palp on purpose and mistakes happen, technical and human.”

About turn

So why did FanDuel reverse course? EGR NA understands the DGE did not force the operator to pay out, suggesting the decision was entirely FanDuel’s, and the obvious driving factor was PR. What cost were all those negative headlines having on a very young business, and what sort of boost did the operator receive immediately afterwards?

“FanDuel got more brand awareness from coverage in free media than they could have bought for $85,000,” says Joe Brennan, CEO of DFS pick ‘em game FastFantasy. “It wouldn’t surprise me if they had an uptick in business in the weeks following this issue as a result.” Others however, suggest FanDuel handled it in the worst way possible and got the worst of both worlds: some bad press, followed by a costly pay-out.

“My first thought was that they should have made a stand early, so either pay out straight away or lay down the law early,” says European odds compiler Matthew Trenhaile. “I would have opted for pay out early after hearing that in Vegas all tickets are paid out as written.

“I would then confirm that extra training would be given to staff, systems upgraded, and online systems would have separate T&Cs to land-based operations, which in turn would adopt Las Vegas customs. What I would avoid doing is paying out so much later and without a clear indication of how palps would be treated in the future,” he adds.

Court of public opinion

FanDuel obviously thought it was worth the short-term pain to win the PR battle, but could the decision have lasting ramifications on the industry, with others now forced to pay out on glitches and palpable errors? FanDuel, for its part, is adamant it did not set a precedent and paid out as a way to help educate the market on how regulated sports betting works. However, FanDuel did not explain how paying out on the palpable error helped educate the public how palpable errors usually work.

And indeed, others in the US fear it reinforced the exact opposite message. “I can understand the PR angle of paying out, but it sets a bad precedent,” says another sportsbook executive, speaking on condition of anonymity. “Even though the argument is that it is not a precedent, it definitely is.”

But is it really such a bad thing if operators are forced to honor their pricing mistakes? There seems to be a genuine split on this issue between Europeans and Americans. Brennan, for example, says FanDuel recognized the fact that the US betting market is already shaping up to be significantly more consumer-friendly than the often-adversarial European market.

“The onus is going to be on the operator to ensure that their product is accurate,” he says. “There have been quite a few statements to the effect of: ‘In the UK, this bet wouldn’t have been paid out,’ and the rationale given for that stance is understandable. But this is the US, and our market is going to be different. Don’t waste time telling us ‘you’re doing it wrong!’ Get your product and operations to the point where incidents like these are not going to be a recurring issue.”

DGE director David Rebuck also came down on this side of the fence, telling a panel at G2E: “We ended forever the European understanding that we have this ‘safe haven’ for mistakes they make,” he said. “In the US, our laws are different. We offer protections that are stronger for customers and consumers. There is no safe haven for companies that make mistakes, whether negligence or gross negligence – and there [are] consequences to that.” Indeed, in places like France and Italy, palpable errors are honored in the customer’s favour, while Nevada has a policy of honoring the ticket ‘as written.’

Setting precedents

Of course, there are caveats to all these examples. France’s betting market is hardly a paragon of sensible regulation with restrictive market conditions leading to a thriving black market. Italy is said to be considering changing its palp regulations to be more in line with the UK, while Nevada does much less in-play business than other regulated markets.

There’s also an argument to be made that these types of errors are simply not fixable. “It’s impossible to rid the world of palp errors no matter how much money you throw at it,” says the European exec. “There’ll always be a human element. Perhaps you can put in additional checks and balances to spot the errors but for in-game that will just lead to bet placement delays and, therefore, more bets being rejected due to price changes and action moving on. It’s a balancing act.

“Why is this bad precedent?” adds the exec. “Because this will attract players that constantly scan for ricks [pricing mistakes], often with bots, so operators will get stung, even if the wrong price is only up for a few seconds.” The lack of a checks and balances here is arguably what is so surprising about the FanDuel case. How was a bettor able to wager to win $85,000 with a minute left in the game without it being checked by the trading teams or someone beyond the ticket writer? That’s perhaps the type of error you only get in the early stage of a market expansion and should be fixable to the point where massive errors are ironed out.

Indeed, Rebuck said at G2E that as the regulator looked into it, they realized it “was just a bad mistake because the internal controls did not work the way they were supposed to.” He warned operators: “There are consequences in the US, so you’d better be better at what you’re doing, re-look at your internal controls, reduce your risk. And consider what your standards are for how you are going to keep this under control, so you don’t end up having a 750/1 wager on something that was an 18-second error that your supervisor failed to catch.”

The future of the market

So, what happens next? The next inflection point is what happens when another operator is stung by a big pay-out on a palpable error? Will they too bow to media pressure and seemingly regulator pressure, with the added weight of FanDuel’s decision on their shoulders? Or will they stick to their house rules? While opinion differs here, it seems likely that a precedent has indeed been set, and the ‘case law’ here, so to speak, will favor the consumers.

Or, to be more specific, it will favor the few customers who, by accident or design, end up winning big on errors. And if operators are forced to shell out in these instances, they could pivot to more ‘defensive’ bookmaking, especially in-play, with higher vig, more delays and lower limits. Ultimately, what operators want is clarity, one way or the other. “If US states want to redesign those rules then that’s fair enough, everyone will have to abide,” says the European exec. “There are different approaches to palps in Europe which see them get paid so, although I don’t agree with them, why not in the US? But until that’s the case in the US, current operator rules, as passed by the regulator, should apply.”

As Brennan says, firms are still discovering the “learn-as-you-go” gaps in the regulatory fabric of New Jersey, but the potential for the model here to be replicated across the US is very real. Operators and regulators might be well served to get their heads together and work out what the right solution to palps is before another firm finds itself on the sharp end of another hefty pay-out.

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