While the daily fantasy sports industry has been buffeted since the revelation that employees at one site was using inside information to win money at the other site, the big blow arrived late last week when Nevada gaming regulators tossed the sites from the state calling them “unlicensed sports betting.” Writing the opinion for the Gaming Control Board, Chairman AG Burnett said, “Since offering daily fantasy sports in Nevada is illegal without the proper license, all unlicensed activities must ceases and desist from the date of this notice.”
The sites encourage “wagering on the collective performance of individuals participating in sporting events” the opinion notes, requiring a license to offer sports wagering in the state. Nevada not only offers wagering in sports books inside casinos, but has issued licenses to several entities to conduct remote sports wagering via personal devices.
Burnett says DFS are similar to “sports polls,” which still require a license in Nevada. He attributed the decision to “exhaustive analysis” by the Nevada Attorney General’s office for the decision.
Five other states already ban DFS, but no gaming control agency has ruled until now. Nevada’s decision may influence other gaming commissions to reach similar conclusions and plunge DFS into even more uncertainty.
The American Gaming Association said it was only seeking clarity as pertains to the legal status of DFS.
“The casino gaming industry has repeatedly called for greater legal clarity on daily fantasy sports,” said AGA President Geoff Freeman. “We appreciate that the Nevada Gaming Control Board has provided that clarity as well as a roadmap for DFS companies and casinos to provide popular fantasy sports within Nevada borders. We will continue to seek additional clarity in other jurisdictions, as eliminating ambiguity is in the best interests of all parties, including consumers.”
Fantasy Fallout
Meanwhile, the fallout from an insider information scandal in the daily fantasy sports industry continued to widen after reports surfaced that the FBI, the U.S. Department of Justice and a federal Grand Jury in Florida have all begun investigations into the industry.
New York, Massachusetts, California and Nevada have already announced investigations or inquiries into the industry.
But despite the investigations and the fact that the two biggest daily fantasy sites—DraftKings and FanDuel—have been named in a betting scandal involving the possibility of their employees playing rival sites with inside information, the two sites enjoyed one of their biggest weekends ever, according to a report in Adweek.
The analysis firm SuperLobby—an industry research firm based in the UK—said the top two sites received 7.1 million entries to their guaranteed prize pool tournaments the weekend of October 10 and generated $43.6 million in entry fees.
The Wall Street Journal, citing unnamed sources, reported that the Federal Bureau of Investigation and the DOJ have begun an investigation into whether the DFS business model constitutes gambling. FBI agents from the bureau’s Boston office have been contacting customers of DraftKings to ask them about their experiences with the Boston-based company, one person familiar with the matter told the Journal.
The probe is said to be the preliminary stage and is part of an ongoing discussion within the Justice Department about the legality of daily fantasy sites, the paper reported.
Fantasy sports were exempted from a 2006 law that banned online gambling, but the Justice Department is trying to determine whether daily fantasy games are a form of gambling that falls outside the purview of the exemption. No decision on the matter has been reached, according to the Journal report.
When fantasy sports were exempted in 2006, games were largely an informal contest played by groups of friends. Daily fantasy sites changed that model and now take in thousands of players and award millions in prizes.
DraftKings reacted to the Journal report.
“It is entirely predictable that the government would follow up on the misleading reports about our industry,” the company said in a statement. “We have no knowledge of the specifics of any federal investigation but strongly disagree with any notion that our company has engaged in any illegal activities.”
More Investigations
Meanwhile, a report in the Tampa Bay Times said a federal Grand Jury in Florida is also investigating whether the sites violate federal anti-gambling laws.
South Florida attorney Daniel Wallach reportedly disclosed the investigation on Twitter. Wallach is a gaming law attorney with the firm Becker & Poliakoff in Fort Lauderdale.
Wallach did not say how he knew of the investigation and said he was not representing anyone involved, the paper reported.
It’s not clear how intensive the investigation is, but reports say the probe is trying to determine of the industry violates the Illegal Gambling Business Act of 1970, a law designed to curb organized crime’s involvement in gambling. The law defines illegal gambling operations as those that violate state law. Florida is especially problematic for the DFS industry since state law bars betting on games of skill, as the industry claims daily fantasy sports play to be.
“Everyone’s taken it as given that Florida is a safe haven for fantasy sports,” Wallach told the paper. “But nothing could be further from the truth.”
Both companies have launched extensive lobbying campaigns in Florida.
The probe also comes after New York’s attorney general also opened an investigation in the sites in light of the betting scandal. In that case, the attorney general’s office has asked for direct information from the sites, including those on their internal policies involving the use of insider information.
However, the DFS sites did get some good news stemming from an inquiry by the Massachusetts Attorney General’s Office
Massachusetts Attorney General Maura Healey announced that her office found that that no federal or state law prohibit DFS sites from operating in the state and she will not be pursuing criminal inquiries into the Boston-based DraftKings.
Still, Healey told the Boston Globe that news of the betting scandal was “concerning,” and the Wall Street Journal reported that her office is still working to have more consumer protections built into the site.
Industry Response
The industry is still trying to deal with the insider information scandal that broke after a DraftKings employee “accidentally” posted some information on the site’s player ownership percentages before week three games in the NFL were played. It was later disclosed he had won $350,000 on rival site FanDuel, leading to charges that the employees of the sites were using inside information to gain an advantage.
Both sites temporarily banned their employees from playing on rival sites in the wake of the controversy. FanDuel then announced it has permanently banned its employees from playing on rival sites.
Yahoo, another player in fantasy sports, but not involved in the scandal, has also banned its employees from playing DFS sites.
FanDuel said in a press release that there’s no evidence showing the contest was compromised or that non-public information was used to gain an unfair advantage, but said it still wants to rebuild trust with its players.
“Based on everything we know thus far, there is no evidence indicating that the integrity of FanDuel’s contest was in any way compromised, or that non-public information was used for unfair advantage,” the statement said. “That said, the incident has raised questions about the trust-based relationship we have with our players so just relying on what we know right now isn’t enough. That’s why we’re taking the following steps:
“We have permanently banned our employees from playing any daily fantasy games for money, on any site,” the statement said. “We will also require all customers to confirm that they are not an employee of any other third party fantasy site, and if they are, they will not be allowed to access our site.”
FanDuel also said it has hired former U.S. Attorney General Michael Mukasey to evaluate its internal controls and is creating an advisory board led by Michael Garcia, a lawyer and former Manhattan U.S. Attorney who led the investigation into the 2018 and 2022 World Cup bid process then resigned from the FIFA ethics committee in protest over the handling of his findings, according to the release.
DraftKings CEO Jason Robins also responded saying the company is committed to creating an open and transparent environment, but also told Fox Business news there was no wrongdoing in the incident.
“We have great records of when data is pulled, when communications were sent,” he said.
Robins has also said DraftKings is open to increased regulation of the industry.
More Calls for Regulation
Meanwhile, the betting scandal continues to draw the attention of Congress, with more lawmakers calling for regulation of the industry.
New Jersey Congressman Frank Pallone and New Jersey Senator Robert Menendez continued their call for an investigation into the DFS industry.
“Daily fantasy sports is an industry crying for consumer protection,” Pallone said at a press conference. “Despite its explosion in popularity and the allegation of ‘insider trading’ by employees of daily fantasy sports operators, the industry is operating in a void within the legal structure—without any regulation or the necessary transparency.”
Pallone is the ranking member of the House Energy and Commerce Committee, which has jurisdiction over professional sports and gambling and has requested a committee hearing to review the legal status of daily fantasy sports. He and Menendez have also called for the Federal Trade Commission to review fantasy sports.
A number of other politicians have also called for greater scrutiny of the industry since the scandal broke including Democratic Party Senator for Connecticut, Richard Blumenthal and Congresswoman Dina Titus of Nevada who joins Nevada Senator Harry Reid in calling for more oversight.
Also calling for regulation were officials at Amaya Inc., which owns PokerStars, but also operates fantasy sports site StarsDraft.com. The company said the self-regulatory practices the industry has under-taken “have fallen short,” in a press release.
In the statement, Amaya Vice President of Corporate Communications Eric Hollreiser said DFS needs “stricter state regulation consistent with existing state consumer protections for other gaming activities.”
Several other officials with competing fantasy sites have also said they would welcome more regulation.
Ina related matter, NFL Commissioner Roger Goodell—speaking at a NFL owner’s meeting in New York—said the NFL still does not consider daily fantasy sports to be sports betting.
“In daily fantasy, it’s hard to see the influence that it could have on an outcome of a game,’’ Goodell said, “Because individual players are picking different players on different teams, mashing them up, you might call it that. And it’s not based on the outcome of the game, which is what our biggest concern is with sports betting. So our position continues to be that way. But we recognize some states consider it legal, some don’t. We’ll follow the law, and make sure we do.’’
Goodell commented on the betting scandal as well.
“Consumer protection, and making sure that companies operate responsibly, is important to us, so, yes, that’s going to be important to us,” he said. “We’re going to want to make sure that our fans are protected, that consumers in general are protected, and that we expect anyone that’s involved in any way, whether it’s as an advertiser or a sponsor or any other relationship, would do that in a responsible fashion. And I hope they will do that.’’
Class Action Suit
In another development, the insider information scandal has led to a class action lawsuit being filed against the companies.
The lawsuit includes seven claims against FanDuel and DraftKings and has been filed in a Manhattan federal court, according to ESPN.com.
The U.S. District Court for the Southern District of New York filing, “Johnson v. FanDuel, Inc. et al,” lists the plaintiff as Adam Johnson of Kentucky, who says he deposited money into a DraftKings account, the report said.
The suit seeks class action status and also asked for a jury trial. The suit seeks damages with interest and a ruling to have the companies employ internal controls to make sure employees don’t benefit from inside information.
The betting scandal forms the basis of the suit, ESPN reported and charges negligence, fraud and misrepresentation and Violation of Kentucky Consumer Protection Act among others.
“”DraftKings performs analytics to determine winning strategies, return on investment of certain strategies and even how lineups on FanDuel would do if they were entered into DraftKings contests,” the suit states. “Key strategies from those analytics potentially available to some employees could possibly give an unfair advantage to an employee playing on a competitor’s site.
“The biggest edge any player can have come from having data and information. DraftKings and FanDuel employees have access to both things, neither of which is available to the public,” the suit charges.
ESPN.com also reported that FanDuel spokesperson Justine Sacco said that of all of the money awarded by FanDuel since its inception, DraftKings employees have won 0.3 percent of the total, or around $6 million of the approximate $2 billion awarded up to this point.
