The daily fantasy sports industry is being rocked by allegations that employees of the sites are using information not available to the public to play on rival DFS sites and win cash.
The scandal erupted after a DraftKings employee admitted to inadvertently releasing data on player ownership among site players before the start of the third week of NFL games. It was also revealed that the employee had won $350,000 playing on rival DFS site FanDuel. His initial entry fee was reportedly $25.
That led to allegations that employees of fantasy sites are essentially using inside industry information to play on other sites.
Scoring on DFS sites is done through algorithms the employees of the sites set themselves, so having the information before hand—the list of player ownership was not supposed to be released before games were played—would give employees an advantage, critics charge. Armed with the knowledge, for example, a DFS player could pick NFL players not widely in use, but expected to perform well that week.
Both FanDuel and DraftKings have issued identical statements saying they have policies against such use of information and defending the integrity of the sites.
“Nothing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers,” the statement reads. “Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs. Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.”
Still, the statements contained no details about how the sites police themselves and their employees.
According to the Las Vegas Sun, a spokesman for DraftKings acknowledged that employees of both companies have won big jackpots playing at other daily fantasy sites.
The two companies have now temporarily banned their employees from playing games or in tournaments at any other site. A prohibition on playing their own sites was already in place, the Sun reported.
Reactions to the Scandal
The scandal comes as the DFS industry has been drawing the attention of gaming regulators and federal officials. Over the last few months, sports broadcasting has been inundated with a constant stream of advertising for the sites promising big money prizes. Combined, FanDuel and DraftKings spent an estimated $107 million on advertising in September.
That has caused regulators in Massachusetts, California and Nevada to say they are taking a closer look at the industry.
Further, New York’s state Attorney General Eric Schneiderman has started yet another inquiry into daily fantasy Sports and DraftKings and FanDuel after news of the scandal broke.
Schneiderman’s office contacted both companies requesting information about the insider information allegations, according to Bloomberg News. Schneiderman gave the companies 10 days to respond to the inquiries.
The letters do not cite specific statutes or indicate that the firms’ conduct was illegal, but say that the reports of the employee betting activity “raise legal questions relating to the fairness, transparency and security” of the firms and “the reliability of representations your company has made to customers,” according to Bloomberg.
The New York Times further reported that Schneiderman asked for the names, job titles and descriptions of any employees who aggregate and compile a wide range of data that perhaps could be used to gain a personal advantage—including ownership percentages and pricing algorithms.
Schneiderman also wants details of any internal investigations into their employees, including any investigation of this scandal and Haskel, the Times reported.
“It’s something we’re taking a look at—fraud is fraud,” Schneiderman said in a recent radio interview. “And, consumers of any product, whether you want to buy a car, participate in fantasy football, our laws are very strong in New York and other states that you can’t commit fraud.”
The report also prompted a statement from Major League Baseball, which has an investment if DraftKings.
“We were surprised to learn that DraftKings allows its employees to participate in daily fantasy games,” the league said in a press statement.
A spokesperson for the league told Bloomberg that league officials have discussed the matter with DraftKings and that baseball players and employees are prohibited from participating in fantasy baseball games where prize money or other items of value are awarded.
ESPN also responded by saying it will no longer run individual segments sponsored by the sites, but the cable network will continue to run the site’s advertising.
The scandal has also prompted international reactions. Chris Eaton, Executive Director of Sport Integrity for the International Center for Sport Security—a not-for-profit group based in Qater dedicated to protecting integrity in sports—issued a statement after the scandal broke.
“Fantasy sports are, plain and simple, sport betting, the statement said. “Despite the subtle differences in the definition between the two industries, it is important not to disguise the clear relationship between fantasy sport and sport betting and the need for both to be legalized and supervised by competent, independent and well-resourced regulators.”
DFS sports have been gaining popularity overseas, with DraftKings recently launching in the UK, for example. The company also just announced entry into the Canadian market with a sponsorship deal with Toronto sports teams through Maple Leaf Sports and Entertainment, owners of the NHL Toronto Maple Leafs, the NBA Toronto Raptors, MLS Toronto FC and the Air Canada Center franchises.
Federal Scrutiny
New Jersey Congressman Frank Pallone has already called for a House of Representatives hearing on the daily fantasy sites. Pallone was prompted by the saturation advertising for the sites on TV in recent weeks and has asked how betting on the performance of an individual athlete is any different than betting on a team in traditional sports betting?
Pallone is the ranking Democrat on the House Energy and Commerce Committee and a spokesman for the committee—which is controlled by Republicans—told Reuters hearings could be held soon.
Since then, Pallone has been joined by New Jersey Senator Bob Menendez in asking the Federal Trade Commission to look into the fantasy scandal, Reuters reported.
“We believe that fantasy sports should be legal and subject to appropriate consumer and competitive protections,” Menendez and Pallone wrote. “Consumers also expect companies to hold online contests in a fair, transparent manner … These reports raise serious questions about the integrity of these online fantasy sports websites, and it raises the question of whether there are sufficient consumer and competition safeguards to protect the integrity of these online games.”
After news of the insider betting broke, Nevada Senator Harry Reid also called for Congress to examine daily fantasy sites.
“There’s absolutely scandalous conduct taking place through those programs, fantasy sports,” Reid told reporters according to Reuters. “I think it also should be a warning-shot to everybody that online gaming is a real scary thing and we ought to look at all of it.”
Also calling for a federal review of the sites is New York Congressman Hakeem Jeffries a member of the House Judiciary Committee.
Fantasy sports are exempted from a federal ban on online gambling, but that exemption was granted when fantasy sports were still largely played informally among groups of friends. The rise of daily fantasy sites has brought the exemption—and whether DFS is really gambling and not a game of skill—under closer scrutiny.
The New York Times is one of the latest publications to call for greater regulation of the industry in an editorial, but also cautioned that Pallone and others might try to use the popularity for DFS sites to legalize sports betting overall. Pallone, as part of New Jersey’s fight to adopt sports betting, has introduced a bill in the House to legalize sports betting.
However, the American Gaming Association to the Times to task for some problems with the editorial. They said the piece failed to mention the benefits of regulation, the futile nature of enforcing laws prohibiting sports wager, and the threat that illegal gambling vs. legal wagering has on sporting events.
DraftKings Response
In the current scandal, DraftKings said its employee, Ethan Haskell, the site’s written content manager, released a list of player ownership percentages—or which NFL players were most used in the lineups of players at the sites. In fantasy sports, players pick professional players and then score points based on the statistics the athletes compile for the week.
Such information could be used to gain an advantage over players who don’t have it.
The statements from both DraftKings and FanDuel provided no information of what checks are in place to keep employees from using inside information. However, there are reports that DraftKings co-founder Matt Kalish posted in the site’s forums that Haskell did not have access to the information until after line-ups had been set and locked in for that week’s play.
According to the Sun, a spokeswoman for DraftKings said Haskell simply made a mistake and that the company was certain that he did not use the information improperly.
Meanwhile, DraftKings CEO Jason Robins has said in several interviews in the wake of the scandal that the company is committed to creating an open and transparent environment.
“We have great records of when data is pulled, when communications were sent,” he said in an interview on Fox Business. “There was no wrongdoing.”
Asked about regulation, “We’re open to that,” Robins said on ESPN’s “Outside the Lines” show.
Amaya Gaming, which operates fantasy site StarsDraft.com, also issued a statement saying the insider trading scandal “demonstrate that the current self-regulatory practices have fallen short and that we need stricter state regulation,” according to the Associated Press. The statement said the company would lobby states to require regulations for fantasy sites. Amaya already is licensed in many jurisdictions in connection with its land-based and iGaming casino relationships.
Massachusetts Parlay
Despite the furor ignited by last week’s revelations, the Massachusetts Lottery says it is exploring the idea of entering the fantasy sports league market.
State Treasurer Deb Goldberg said last week said she has been studying fantasy sports as a possible threat to the state lottery. “It’s really my responsibility as head of the lottery commission to be thinking about what is the competitive environment that we’re operating in,” she said. “We are literally researching how does this operate, who does this reach, what is it,” said the treasurer. “Even the definition isn’t clear.”
She noted that any involvement in the online games by the lottery would require action by the legislature.
Bay State Attorney General Maura Healey is also interested in the activity, but from the standpoint of law enforcement. Some states consider fantasy sports leagues to be a form of gambling, similar to sports betting and ban them.
Goldberg’s statement provoked a tart response from Governor Charlie Baker, who said last week that she should focus on the lottery. “The lottery has a fundamental purpose and a defined role, and it has been reasonably successful at doing that.”
Baker was more positive about the attorney general investigating the activity. He said the state shouldn’t do anything “until after the attorney general makes some decisions on that.”
