Fantasy sports companies FanDuel and DraftKings, which provide a legal outlet for online betting for professional sports leagues, said Wednesday that they had banned their employees from all daily fantasy games and also barred staff from rival companies from their sites.
An “insider trading” scandal hit the online betting community earlier this week when news emerged that an employee at DraftKings won US$350,000 from a US$25 entry in an American football contest on the rival FanDuel site using what reports said appeared to be inside information.
Analysts are saying this is akin to “insider trading” as an employee from one site would have insider access to what players from other competitors are choosing and then that employee could place a bet on a rival website, selecting players being generally ignored and increasing the chances of winning.
The companies have said there is no evidence the employee in question did anything wrong.
Nonetheless, New York Attorney General Eric Schneiderman opened an inquiry Tuesday and sent letters to DraftKings and FanDuel saying the allegations raised legal questions about the fairness of the companies and asking for details on how data is secured and who had access to it.
Senate Democratic Leader Harry Reid, the top Democrat in the U.S. Senate, has now called on Congress to examine fantasy-sports betting services. Two other U.S. lawmakers also asked the Federal Trade Commission to look into the fantasy scandal.
According to Nation sportswriter Dave Zirin, sites like DraftKings and Fan Duel are free from government regulation thanks to a successful lobbying campaign that had the U.S. Congress classify fantasy sports betting as a game of skill and not gambling.
The Fantasy Sports Trade Association has spent US$80,000 over the past year to defend its interests in Washington, lobbying records show.
Insider trading would have been something that regulation would have taken into consideration. Both companies said they had now hired outside legal experts to look at the circumstances of the DraftKings' employees win and to evaluate how the games are run overall.
Zirin also suggests that this case is just that tip of the iceberg. Repercussions for Fan Duel and DraftKings will be immense if proof emerges that winnings went disproportionately to people with insider information.
FanDuel and DraftKings are privately owned and both valued at more than US$1 billion.
Investors in DraftKings include Fox Sports, the National Hockey League, Major League Soccer, The Madison Square Garden Company, The Kraft Group, which owns the New England Patriots football team, and Legends Hospitality, a venture owned by baseball's New York Yankees and the NFL's Dallas Cowboys.
FanDuel's investors include Google Capital and Time Warner Investments, Shamrock Capital, NBC Sports Ventures and Comcast Ventures.