Are FanDuel and DraftKings breaking the Law?

The End of a $2.6 Billion Industry?


October 7, 2015 Sports and Outdoors : Sports By Photo by Chris Wright
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Update: On November 10, the New York State attorney general, Eric T. Schneiderman, sent a cease-and-desist order to the two largest daily fantasy sports companies: DraftKings and FanDuel. These sites, which make up a growing billion dollar industry (you’ve no doubt seen the ads), can no longer accept bets from New York State residents. The sites operated under the protection of a 2006 federal law that exempted fantasy sports from gambling regulations, arguing that the betting was based on skill, not luck. Because of Mr. Schneiderman’s established role as a consumer-protection advocate, legal experts predict this ruling will influence other states to follow his legal reasoning, reports The New York Times. Both DraftKings and FanDuel have stated their intent to challenge the ruling in court. But for now at least, sports fans will have seek fantasy betting through other, smaller sites that haven’t come under Mr. Schneiderman’s scrutiny.

There are fantasy football problems — like starting Marshawn Lynch when he’s injured. And then there are fantasy football problems — like two major daily fantasy football sites being investigated for insider trading.

The news broke this week that an employee at DraftKings, Ethan Haskell, won over $350,000 playing fantasy football on FanDuel, a rival site, in the third week of the NFL season. That same week, that same employee had “accidentally” leaked company data “before the lineups of all NFL games were locked in,” according to a New York Times report. In a joint official statement, DraftKings and FanDuel reportedly denied that their employees were guilty of insider trading — which Daniel Wallach, a sports and gambling lawyer at Becker & Poliakoff, called in a Times article “the single greatest threat to the daily fantasy sports industry.”

It’s not surprising that many employees who work at fantasy sports companies like FanDuel and DraftKings also play fantasy sports. It’s also not surprising that they’re not allowed to bet on fantasy sports on their own company’s website. But nothing, as of now, is preventing them from betting on other like-minded sites. This is controversial because employees are setting the prices of players and algorithms for scoring that are not released to the public, and may be alike with other daily fantasy companies. And now, according to the Times‘ latest article, the New York attorney general is asking both DraftKings and Fan Duel some serious questions.

This year, daily fantasy football betting sites will generate around $2.6 billion in entry fees, according to a Eilers Research report. In 2020, they estimate it’ll reach over $14 billion. The growth comes down to a basic change from traditional fantasy sports run by companies like ESPN and Yahoo Sports — where players draft one team, in a capped league, for the entire year, for free — to daily fantasy football — where players can draft a new team each week (or day), and can draft any football player they want, depending on how much they’re willing to pay directly to the league.

Part of the draw of daily fantasy leagues is that they allow participants to draft (arguably the best part of fantasy football according to this DeadSpin article) a new team every week. But they are also eerily similar to sports betting, legal only in Atlantic City, Nevada, Oregon, Delaware and Montana, and cracked down on every where else, including the internet, since the 1991 passage of the Professional and Amateur Sports Protection Act. (Interesting to note is that in ’91, then-NFL commissioner Paul Tagliabue told a Senate subcommittee “We do not want our games to be used as bait to sell gambling. We have to make it clear to the athletes, the fans and the public, gambling is not a part of sport, period.”) According to DeadSpin‘s article, current daily fantasy sites use the same interface as some online casinos.

What complicates things further are the NFL’s and ESPN’s ties with sites like DraftKings and FanDuel, which run deep starting this year. As recent as last week, the NFL has invested in DraftKings to promote the International Series overseas, where gambling is legal; NFL owners Jerry Jones (Cowboys) and Robert Kraft (Patriots) have stakes in DraftKings, according to The New York Times; ESPN has an exclusive deal with DraftKings, part of which includes integrating “the company directly into ESPN programming,” according to Sports Business Daily. The recent scandal raises questions about not just the credibility of these fantasy sites, but also their relationship with sports as a whole. ESPN has reportedly already pulled some of its sponsored content — but not all. Like many others in the sports world, they’re tied preciously with fantasy football’s money. That all might come to a sudden halt, pending the New York attorney general’s investigation.

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