Last week's post about lessons sharing economy companies can learn from the mushrooming regulatory woes of the daily fantasy sport industry prompted a bit of debate.
Do companies that facilitate use of excess automotive capacity (Uber, Turo), excess capital (Lending Club), or excess sailboating capacity (Sailsharing) belong to the same economic category as a company that facilitates use of excess betting capacity (Draft Kings, FanDuel)?
It's a fine question. But even if DFS companies don't make the cut for the sharing economy category, directors of sharing economy companies are wise not to slip into thinking that the DFS story has no application to them.
Here's a look at the business models through a regulatory prism:
Uber: you have a car to drive, I need a ride, and Uber eliminates the taxi company for us—you don’t have to work for them, and I don’t have to pay them. Uber must monitor regulators, however, who may impact Uber’s business model (and our ability to transact) by imposing requirements that accomplish health, safety and/or consumer protection aims that they historically accomplished via laws applicable to taxi companies.
Lending Club: you have money to invest, I need a loan, and Lending Club eliminates the bank or finance company for us—you don’t have to invest in them, and I don’t have to apply to them. Lending Club must monitor regulators, however, who may impact Lending Club’s business model (and our ability to transact) by imposing requirements that accomplish consumer protection aims that they historically accomplished via laws applicable to banks and finance companies
FanDuel: you want to back up the team you assembled with $20 (aka, bet $20 on the team you assembled), I want to do a $20 backup (aka bet) on the team I assembled, and FanDuel eliminates the casino for us—neither one of us has to go there. FanDuel must monitor regulators, who may impact FanDuel’s business model (and our ability to transact) by imposing requirements that accomplish consumer protection aims that they historically accomplished via laws applicable to casinos.
These companies each launched its business into something of a regulatory vacuum because each eliminated the player through whom regulators historically accomplished their regulatory aims.
The idea that regulators will never respond to these launches would seem to be naive.
The FanDuel and DraftKings matters show how sudden and enterprise-threatening these regulatory responses can be.
Should a sharing economy company be subject to regulation? That question receives a lot of attention and publicity, and the board and management are prudent to have a thorough, thoughtful response to it.
But that question should not distract attention from a question that may be more important to the viability of the company: if regulators decide to fill the regulatory vacuum, what are those regulations likely to look like?
For the board, management and investors of any sharing economy company, projecting possible regulatory responses to the company’s business model would seem to be an indispensable risk assessment task.
Having on hand at all times an up-to-date, worst-case-scenario analysis would seem wise.
Copyright 2016 by William Devine. All rights reserved worldwide.
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