In a move that would make last decade’s mortgage bankers proud, daily fantasy sites DraftKings and FanDuel were forced to defend their policies through a joint statement after an employee won huge winnings on a rival site using non-public information.
DraftKings Employee Wins $350,000 on FanDuel.
According to the New York Times, a DraftKings employee admitted to releasing information prior to the kickoff of week 3 NFL games. The same employee, a midlevel manager, won $350,000 on rival site FanDuel that weekend by placing 2nd in the Million Dollar contest.
The information that was released prematurely contained statistics on football players used in lineups, including the most commonly selected players. This information normally isn’t released until the NFL games kickoff and the entry period for fantasy contests has been closed.
“It is absolutely akin to insider trading. It gives that person a distinct edge in a contest.”
– Daniel Wallach, sports and gambling lawyer at Becker & Poliakoff in Fort Lauderdale, Fla.
A legal yet unregulated, multi-billion dollar gambling industry is corrupt? Shocking.
On-The-Job Training?
The companies prohibited employees from participating in contests on their own sites, however put no restrictions on employees playing fantasy sports on rival sites. A DraftKings spokesperson admitted employees from both major companies had won large jackpots on daily fantasy sites. Job applicants with experience playing fantasy sports were looked at favorably in the hiring process.
On Monday a joint statement was released from both companies:
“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.”
FanDuel and DraftKings have now prohibited employees from playing any daily fantasy contests on any site temporarily.
How Is Daily Fantasy Sports Legal Anyway?
DFS is legal through a loophole in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). The Act that took down online poker in the U.S. deemed fantasy sports a game of skill, as opposed to a game of chance, and provided a safe haven for the game.
One of the lobbyists in favor of fantasy sports being exempt from UIGEA was none other than the NFL. To be fair, the NFL was defending the year-long fantasy leagues that had existed for decades already at the time. I don’t think anyone leading up to 2006 envisioned the momentum and revenue daily fantasy sports would achieve.
NFL owners Jerry Jones of the Dallas Cowboys and Robert Kraft of the New England Patriots along with Major League Baseball own minority ownership stakes in DraftKings.
What Is The Potential Fallout From The DraftKings FanDuel Scandal?
Government regulation is sure to be coming soon in the wake of the news. The New York Attorney General has opened an inquiry on the companies. Company policies and procedures will be further scrutinized and outside audits will surely be required.
In the first week of the NFL season alone, DFS reported bringing in $60 million, or twice the amount of Las Vegas sports books. Revenue from DFS is expected to rise to over $14 billion by 2020. Dollar figures this size will cause loopholes to be reworked or even closed for good.
Investor enthusiasm has already, and will continue to diminish. ESPN has reported they will cease DraftKings-sponsored segments. Expect more companies to distance themselves from daily fantasy sports.
On the bright side, this should lead to a decrease in the amount ads forcing us to watch “regular joes” sweat their way to holding giant checks.
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