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BetFair-TradeFair is legal and has ethics, while TradeSports-InTrade is not and has none.

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Via Steve Roman who provides the recap and another excerpt, The New York Times:

[...] At the center of the investigation is Betfair, one of the largest so-called online sports exchanges, which matches bettors directly against each other, rather than against the house, as traditional bookmakers do. Betfair set off the current crisis when it voided $7 million in bets after Mr. Davydenko withdrew from a match against 74th-ranked Martin Vassallo Arguello of Argentina at the Prokom Open in August in Sopot, Poland. Mr. Davydenko retired because of an injury with Mr. Vassallo Arguello ahead, 2-6, 6-3, 2-1. During the match, Betfair notified the ATP that its security team had recognized irregular betting patterns.

[...] At Betfair, which is based in London, tennis ranks third behind horse racing and soccer among its one million customers, who together place five million bets each day. More than $60 million was handled for the Wimbledon’s men’s final, won by Roger Federer over Rafael Nadal.

Robin Marks, a Betfair spokesman, said the decision to void the bets from the match in Poland — the first time the company had ever done so — was an easy one. A large amount of money was coming in for the obscure match, Mr. Marks said, and the betting patterns made little sense: Mr. Davydenko went from an odds-on favorite to a significant underdog before the match started, and his odds drifted higher and more money came in for Mr. Vassallo Arguello even after Mr. Davydenko won the first set.

By the next morning, Betfair’s 40-person security team had unearthed additional information by combing its records and tracing unique Internet addresses. Betfair passed on that information in accordance with the ATP’s anti-corruption program, which was put in place in 2003 in the wake of a match-fixing scandal in cricket. Mr. Marks said Betfair has similar agreements with 28 other sports leagues on which it takes bets. He declined to specify what Betfair had found. “Why would the betting patterns change before a ball was even hit?” Mr. Marks said. “Why would more money come in against him when he had already won the first set? You come to the assumption that somebody knew something.” [...]

Previously: BetFair has an anti-fraud team whereas InTrade-TradeSports has none.

A fantasy sport (also known as rotisserie, roto, or fairy-tale sport; or owner simulation) is a game where fantasy owners build a team that competes against other fantasy owners based on the statistics generated by individual players or teams of a professional sport. Probably the most common variant converts statistical performance into points that are compiled and totaled according to a roster selected by a manager that makes up a fantasy team. These point systems are typically simple enough to be manually calculated by a “league commissioner.” More complex variants use computer modeling of actual games based on statistical input generated by professional sports. In fantasy sports there is the ability to trade, cut, and sign players, like a real sports owner.

It’s estimated by the Fantasy Sports Trade Association that 19.4 million people age 12 and above in the U.S. and Canada play fantasy sports and 34.5 million people have ever played fantasy sports. A 2006 study showed 22 percent of U.S. adult males 18 to 49 years old, with Internet access, play fantasy sports. Fantasy Sports is estimated to have a $3-$4 Billion annual economic impact across the sports industry. Fantasy sports is also popular throughout the world with leagues for soccer (known as football outside of the United States), cricket and other non-U.S. based sports. [...]

Despite the economic instability, fantasy sports started to become a mainstream hobby. In 2002, the NFL found that average male surveyed, for example, spent 6.6 hours a week watching the NFL on TV; fantasy players surveyed said they watched 8.4 hours of NFL per week. “This is the first time we’ve been able to demonstrate specifically that fantasy play drives TV viewing,” said Chris Russo, the NFL’s senior vice president. The NFL began running promotional television ads for fantasy football featuring current players for the first time. Previously fantasy sports had largely been seen in a negative light by the major sports leagues.

Fantasy sports continued to grow with a 2003 FSTA survey showing 15 million people playing fantasy football and spending about $150 a year on average, making it a $1.5 billion industry. [...]

Unlawful Internet Gambling Enforcement Act of 2006

The Unlawful Internet Gambling Enforcement Act of 2006, which was an amendment to the larger and unrelated Safe Port Act, included “carve out” language that clarified the legality of fantasy sports. It was signed into law on October 13, 2006 by President George W. Bush. The Unlawful Internet Gambling Enforcement Act makes transactions from banks or similar institutions to online gambling sites illegal, with the notable exceptions of fantasy sports, online lotteries and horse/harness racing.

The bill specifically exempts fantasy sports games, educational games, or any online contest that “has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant’s individual performances in such sporting events…” [...]

Criticism

Some sports writers criticize fantasy sports, especially those involving team sports, of focusing too much on statistics. A player on a real team might be a team player and help his/her team win championships, but in fantasy sports that team play may not matter as much as having good individual statistics.

There was a bill presented before Congress in 1999 that would have prevented public fantasy sports businesses, the contention being that fantasy sports is in fact a form of sports gambling. That bill failed, and eventually a ‘carve-out’ was created for the fantasy sports business. In 2006, the United States congress passed the “Security Port Act”, which prohibits credit card transactions and other electronic transfers to online gambling operators; the bill includes an exemption for fantasy sports.

Players who enjoy competing in fantasy sports leagues often do very well with sports related prediction games by using their team statistical knowledge to predict the outcome of a sporting event. [...]

Developing… (as would say our Deep Throats).

Tom and Mark are the betting analysts in the security department at the British Horseracing Authority, and the breadth and power of the information at their disposal is remarkable. The sport in general now accepts that Betfair works closely with the regulators to fight corruption. It is still startling, though, to see it at first hand. To the analysts, individual accounts are numbers, not names, and the identities of those behind them remain Betfair’s business unless the investigators have cause for concern. Every bet placed on Betfair is logged on the system within seconds, while at any one time, around 100 “flagged” accounts will be receiving particular attention. Bets are recorded, patterns noted and, where necessary, local stewards informed of suspicious betting patterns. On the other side of the desk, another member of the department is compiling information received from the betting analysts and elsewhere, which may eventually become evidence for a BHA disciplinary panel. [...]

“When we first signed the memorandum of understanding with Betfair [which allowed the department access to the exchange's betting information] we were sending ‘red alerts’ to local stewards all the time,” he says, “which meant that we had deep concerns about the betting patterns on a particular horse. Now, I can hardly remember the last time we sent out a red alert. [...]

Great.

There aren’t any “memorandum of understanding” between TradeSports-InTrade and the US sporting bodies.

Previous: BetFair has an anti-fraud team whereas InTrade-TradeSports has none.

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UPDATE: Chris Hibbert comments on the lack of cooperation between TradeSports and the sports bodies (which is a fact)…

Don’t the US Sporting Bodies consider betting (other than regulated domestic bodies) to be illegal? Why would TradeSports approach them? Why would it read any missives they sent? And vice versa, why would the domestic bodies contact or welcome contact from TS?

If TS offered to provide info on suspicious activities, the American authorities would ask for a list of all Americans in their DB, and then go after anyone they received details on. This isn’t useful to TS. British authorities, OTOH, make a distinction between good customers and bad customers, and believe there are many more of the former than the latter.

UPDATE: Mike Giberson makes a counter-point…

Chris Hibbert makes a good point, but given that NFL security reportedly maintains contacts with illegal gambling operations to help the NFL detect possible corruption, presumably the NFL and other U.S. sports leagues could work out some arrangement with legal companies operating outside the United States, such as TradeSports, that wouldn’t require the companies to help the U.S. enforce its local laws.

Aaron Todd:

WINNERS
1. States
That’s right, the biggest winners aren’t Internet gambling companies, nor is it the Internet gambler. It’s states, and states’ rights. Gambling has traditionally been regulated by states in the U.S., and this bill gives states the power to decide whether or not they will allow people within their borders to make wagers on the Web. More importantly for the states, it will establish a system that will provide revenue through taxes on licensees and winners.
2. Sports leagues
The NFL and Major League Baseball have been among the loudest in calling for a ban on Internet gambling. The leagues lobbied hard for the UIGEA while working to ensure that the bill included exceptions for fantasy sports leagues. The IGREA allows leagues to decide whether licensed sportsbooks can offer odds on their games. If the league decides against allowing bets on its contests (and it is very likely that all the major sports leagues and the NCAA would do so), then licensed sportsbooks must abide by that decision or they will lose their license.
3. Internet poker rooms
While the PPA originally sought an exemption for poker, the IGREA sets up a regulatory framework that will provide a permanent solution. Most of the popular Internet poker rooms have already gone through a lengthy regulation process to earn licenses in European nations and would likely already have most of the answers U.S. regulators would be looking for.
4. Yahoo!
The Internet giant launched a U.K.-facing Internet poker room last week. While it currently bars U.S. play, a regulated market would give Yahoo! access to a large number of customers, many of whom have yet to play online poker because they are worried they might be breaking the law. Yahoo!’s combination of trust and an enormous database of Internet users could have an enormous impact on the Internet gambling landscape if the U.S. began a licensing process.
5. Banks, credit cards and PayPal
Banks lobbied against the UIGEA, and for good reason. They do not want to be forced to monitor every transaction made by their customers to block Internet gambling purchases. PayPal, which paid $10 million to settle allegations that it knowingly did business with offshore Internet gambling sites, would be able to allow customers to use its service to gamble online.
6. U.S. players
American Internet gamblers would be able to conduct instant transactions directly with Internet casinos. Not only will they be able to avoid long lag times that are common with online e-wallet’s like ePassporte, they will also be able to avoid fees that can become prohibitive for players who conduct numerous transactions. American players will also be able ensure that they are doing business with a reputable company when the sites are licensed by the American government.

LOSERS
1. Internet sportsbooks and sports bettors
There couldn’t be a bigger loser in the IGREA than Internet sportsbooks. The clause that allows sports leagues to opt out would surely be used by the NFL and the NCAA, the two most gambled on leagues in the U.S.
2. NETeller, ePassporte and other Internet gambling payment processors
With the regulatory framework set forth by the IGREA, there would be no need for these payment processors to exist. Players would be able to fund their accounts using credit cards, bank accounts or PayPal.
3. Sen. John Kyl (R-Ariz.) and Rep. Bob Goodlatte (R-Va.)
These Congressmen were instrumental in getting the UIGEA through. But so was former Iowa Congressman Jim Leach, who did not get re-elected last year. According to the PPA, Leach’s staunch support of the UIGEA helped cost him the election. Kyl and Goodlatte didn’t face much opposition in their election bids last year, but an increased awareness of their involvement may increase political action by Internet gamblers.

Previous: Internet Gambling Regulation and Enforcement Act 2007

Tech Crunch:

[...] Atomic Moguls has launched FantasyMoguls.com, which is essentially a fantasy league for movies. You can draft movies and earn points based on how well they do at the box office, number of weeks in the top 5, per-theater average, and their IMDb review score (IMDb is Amazon.com owned). Traditional fantasy sports leagues allow you to draft players and earn points for how well they perform in games. [...]

Voila, mister Keith Anderson.

Gambling Regulation & Enforcement Act 2007

LICENSE REQUIREMENTS
No applicant would receive a license unless the following requirements with respect to any Internet bet or wager, at a minimum, are met:
- Safeguards to ensure the individual placing the bet or wager is 18 years of age or older
- Safeguards to combat fraud and money laundering and compulsive gambling
- Mechanisms to ensure all appropriate taxes and fees are collected from individuals and the licensees
- Safeguards to ensure that the individual placing the bet or wager is physically located in a jurisdiction that permits that form of Internet gambling
LICENSING SAFEGUARDS
Applicants for a license would be required to provide comprehensive financial statements and corporate structure documents, and to agree to be subject to U.S. jurisdiction and all applicable laws related to Internet gambling. No license would be granted to any applicant convicted of a criminal violation of any law relating to gambling, money laundering, fraud or other financial laws. Licensing would be handled by the U.S. Treasury through its anti-money laundering agency, the Financial Crimes Enforcement Network (FinCEN).
CONSUMER SAFETY
The framework set forth in the bill would for the first time effectively regulate Internet gambling, thus making it possible to address underage and compulsive gambling, neither of which are prevented under prohibition regimes. Regulation combined with proven technology would establish a system of effective controls to block children and compulsive gamblers from gambling.
Underage Internet Gambling
Existing technology can enforce requirements that licensed Internet gambling operators restrict minors’ access to Internet gambling. For example, when registering at a gambling site, the customer would be required to provide a range of information including name, address, date of birth, telephone number and details of an identity document, such as a driver’s license or social security number. This information would then be passed on to the Payment Service Provider (PSP) and run through the Know Your Customer (KYC) system to confirm that the data being provided matches against several separate sources of information and is in fact accurate. The operators may also have KYC systems in place.
Operators could also request a physical copy of documentation, such as a utility bill and/or a copy of the customer’s identity document, for further verification.
Compulsive gambling There are a number of techniques that can be used, from systems that limit the total amount of funds that may be wagered based on credit limits, to the use of public databases that include details used to identify persons who have chosen to exclude themselves from online gambling. Customers could be added to this list at their own request.
Additionally, limits can be placed on the number of transactions a customer can put through on a daily, weekly and monthly basis, by the operator acting alone, by the credit card company, by the PSP, or by all three. In the event that an unusual spending pattern is noticed, these transactions could automatically be put on hold for further investigation.
FINANCIAL INTEGRITY OF INTERNET GAMBLING TRANSACTIONS
Money Laundering and Fraud
Funds entering a gambling operator’s system are already resident in the banking network somewhere. That is, the funds have previously been deposited into a bank account at some stage, subjected to stringent KYC requirements, and which greatly increases the traceability of any funds entering the system. All transactions can also be checked at the time of authorization against a number of anti-fraud, money laundering and terrorism databases.
Merchant fraud
Payment Service Providers could set-up escrow accounts for each licensee in which money is set aside for a period of time to ensure that when a financial transaction is successfully contested the operator immediately refunds the consumer. Therefore, any claim regarding the use of an unauthorized credit card could automatically result in a full repayment to the principal credit card holder.
STATES AND INDIAN TRIBES
To protect States’ and Indian tribes’ rights to control gambling activities within their respective geographic borders, the Act permits States and Indian tribes either to prohibit Internet gambling activities or impose limits on various types of Internet gambling activities.
Is it possible for restrictions to be enforced if individual states decide to “opt-out” from permitting persons in their states from Internet gambling?
In using the Internet, a customer’s IP address is broadcast to the operator, which can then be used to identify the state in which a customer resides with a 99 percent level of accuracy. This information is also made available and compared to the customer’s registration information. In the event the information differs, the transaction is not approved and the customer is prevented from engaging in Internet gambling.
SPORTS BETTING
Professional Sports Leagues opt-out
Under the proposed legislation, all licensed Internet gambling operators would be prohibited from accepting bets or wagers on sports leagues or associations that have opted-out. In the event of a violation, the operator’s license could be withdrawn and the operator may be prohibited from applying for a new license. As part of its contract with the Internet gambling operator, the PSP would be required to enforce these requirements throughout the collection and payment process.

External Link: AP