By: Meg Lane*

October 13, 2015

The Daily Fantasy Sports (DFS) industry has recently come under fire for a scandal stemming from employee activity akin to insider trading.[1]  The New York attorney general launched an official inquiry on October 6 into the lucrative DFS business, anchored by top companies DraftKings and FanDuel, after reports of employees winning major payouts by using internal data to develop their personal gaming strategy on opposing sites.[2]  FanDuel employee Matthew Boccio accessed internal data and competed on DraftKings, and a midlevel content manager at DraftKings won $350,000 on FanDuel after DraftKings “inadvertently” released its data on ownership trends before the NFL’s Week 3 slate of games.[3] Data showing who the top-chosen players were in DraftKings’ “Millionaire Maker” contests was released before all DFS players’ game lineups were finalized, allowing employees who play DFS to use the data to make smart picks before kickoff and get a leg up on competition from the masses.[4]  Reports of these employees’ actions have led DFS players to question the unfair advantages awarded employees of DFS companies.

DraftKings acknowledged the error and led an internal investigation into the matter. They stated that employee Ethan Haskell made an apparently “accidental” data leak that was not malicious.[5]  Both DraftKings and FanDuel responded to public scrutiny by promptly issuing statements about the importance of integrity, announcing they will now prohibit their employees from playing DFS games for money on all sites, and will launch third-party audits to help address internal policy issues.[6]

The unclear landscape of these companies’ internal policies and safeguards on how insider information is stored and used makes some DFS players uneasy about the fairness of the system.  Adam Johnson, a DFS player in Kentucky, recently filed suit (seeking class action status) in New York against both FanDuel and DraftKings, claiming negligence and fraud and requesting both monetary damages and mandated DFS policy changes to ensure employees do not benefit from inside information.[7]  This suit raises the question: what are the ethical and structural ramifications of DFS company employees using their data to get ahead and skew the “level” playing field in these supposedly skills-based betting games? And when competitive data is at play, are these games really skills-based at all anymore?

New York attorney general Eric Schneiderman’s inquiry centers on questions regarding DFS companies’ internal protocols, data aggregation techniques, and general employee policies (or lack thereof).[8]  Schneiderman has suggested that the lack of governance on how employees use valuable data in this industry makes for “tremendous” potential for abuse and fraud.[9]  Because DFS is a highly profitable and notoriously unregulated niche of the sports betting industry, this inquiry is perhaps the tip of the iceberg into defining the boundaries by which DFS must abide in the future.  If there are little to no regulations on how employees can access, share, and use insider statistical data on which players are most-chosen by the masses that week, how can DFS truly be fair or skills-based?  While this issue may be the side effect of the rapid growth of the industry, it is a major one that begs to be addressed, or the industry itself could implode from a lack of DFS player trust in the system.

The rising popularity of DFS games has brought with it persistent questions regarding their legality in general, as the industry currently occupies a legal gray area. Distinguished by their direct cash payouts to players, websites hosting DFS games offer a different take on fantasy gaming than traditional season-long fantasy leagues organized by friends or co-workers who gather funds and organize prizes themselves.  DFS players pay an online entry fee to a DFS host company, draft their picks for that day based on a salary cap system, and try to win cash prizes based on fantasy points from individual player performance in games.  Legally, DFS games are not considered a gambling product, as they are grouped with “fantasy games” in general – a specific category of betting that is considered legal in the U.S. However, this exemption under federal law comes from the 2006 Unlawful Internet Gaming Enforcement Act (UIGEA), which was passed before the now-booming DFS industry even came about.[10]  State gambling laws are also foggy regarding DFS: while sports betting is illegal in all but four states in the U.S., fantasy games are considered legal in most states due to their status as skill-based betting games.[11]

With new and expanding U.S. government spotlight on the industry’s internal structure, the development of stricter regulations on DFS may be just around the corner. The risk of consequences coming from a ripple effect of employee’s use of data across DFS sites is too great to its reputation and the business for DFS to continue without stricter regulation. Even before the attorney general’s inquiry expands or more government forces become involved, the DFS industry could use this as an internal turning point to further self-regulate. Banning employees from playing on opposing sites is a start. Next should come stricter policing of communications between employees with data access and their family and friends who play DFS. Mandatory reporting to the “internal fraud control teams” at these companies about loved ones who play DFS would allow surveillance of their rosters, allowing any red flags of major winnings to be further examined to ensure their legitimacy. While perhaps an annoyance to employees, these types of safeguards are the preventative measures that DFS desperately needs to exercise if the industry hopes to remain successful (and legal) in the wake of media spotlight and government scrutiny.


* Staff Writer, Villanova University Sports and Entertainment Law Society Blog; J.D. Candidate, May 2018, Villanova University School of Law.

[1] See Joe Drape & Jacqueline Williams, Scandal Erupts in Unregulated World of Fantasy Sports, N.Y. Times (Oct. 5, 2015), http://mobile.nytimes.com/2015/10/06/sports/fanduel-draftkings-fantasy-employees-bet-rivals.html.

[2] Joe Drape & Jacqueline Williams, New York Attorney General Opens Inquiry Into Fantasy Sports Sites, N.Y. Times (Oct. 6, 2015), http://www.nytimes.com/2015/10/07/sports/draftkings-fanduel-inquiry-new-york-attorney-general.html.

[3] See Drape, supra note 1.

[4] See id.

[5] See CBS This Morning, Insider Trading Probe Launched on DraftKings, FanDuel, YouTube (Oct. 8, 2015), https://www.youtube.com/watch?v=ncdSaNarJ7Q.

[6] See Robert Klemko, How Daily Fantasy is Changing the Game, The MMQB (Oct. 8, 2015), http://mmqb.si.com/mmqb/2015/10/08/fanduel-draftkings-scandal-daily-fantasy-football-dfs.

[7] See Joshua Brustein & David McLaughlin, Fantasy Player Sues Sites, Claiming Fraud, Bloomburg Business (Oct. 8, 2015), http://www.bloomberg.com/news/articles/2015-10-08/fantasy-player-sues-sites-claiming-fraud.

[8] See CBS This Morning, supra note 5.

[9] See id.

[10] See Amber Phillips, Are Daily Fantasy Sports Even Legal?, The Washington Post (Sept. 21, 2015), https://www.washingtonpost.com/news/the-fix/wp/2015/09/21/are-daily-fantasy-sports-even-legal/.

[11] See Dustin Gouker, Fantasy Sports Bill in Michigan Would Make DFS a Skill Game, Legal Sports Report (Aug. 26, 2015), http://www.legalsportsreport.com/3317/michigan-fantasy-sports-bill/.

 

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