Fantasy Fight: DraftKings and FanDuel Investigated by New York Attorney General

If you’ve watched a football game on TV lately, you’ve probably seen a whole litany of ads for the two leading fantasy companies–DraftKings and FanDuel. While fantasy football has been a popular pastime for years, DraftKings and FanDuel have entered the scene relatively recently: they were founded in 2012 and 2009 respectively. But with great success and power comes great responsibility, and now both sites are under investigation by New York Attorney General Eric Schneiderman for insider-trading-like activity.

The premise of DraftKings, FanDuel, and other similar sites is simple–it takes the traditional model of a season-long fantasy competition, and condenses it into smaller contests, usually just one week or one day. Both sites offer a variety of sports to choose from, including NFL, NBA, MLB, NHL, NASCAR, and some college sports. You put up money to play, and win money if you’re successful.

Whether or not these activities should be considered gambling has been a point of contention, but the legality tends to rest on the fact that technically these are games of skill, not chance. Participants have to have background knowledge of the players they are choosing, and make informed decisions based on that knowledge. However, not all states agree with that assessment–Arizona, Iowa, Louisiana, Montana, and Washington all have deemed participating in sites like DraftKings and FanDuel illegal.

So, while these very wealthy new companies are already rife with controversy, it really comes as no surprise that a new investigation is being launched. The reason that Schneiderman is looking into DraftKings and FanDuel is because of concerns that employees at each have won big payouts on their competitors’ sites. There are allegations that these employees have access to inside information in the form of stats and algorithms and are using that information to profit by playing themselves. One particular incident sparked outrage over this possibility–mid-level DraftKings employee Ethan Haskell recently won $350,000 on FanDuel. The question is whether or not Haskell was able to win that money because he had an advantage as a DraftKings employee with access to insider information, or because he was just a skilled fantasy player.

In response to the scandal, both companies banned their employees from playing on each others’ sites, and issued a joint statement, which read in part:

Nothing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers. 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.

However, it will now be up to the Attorney General’s investigation to determine whether or not that’s true. Schneiderman will be attempting to determine “the prospect that employees of daily fantasy football sites have won lucrative payouts based on inside information not available to the public.” He also added: “I don’t have comments on the specifics of that matter at this time. But fraud is fraud and we’ll investigate it wherever we find it.” So, if he finds it, both DraftKings and FanDuel may be in serious trouble.

Anneliese Mahoney

Anneliese Mahoney is Managing Editor at Law Street and a Connecticut transplant to Washington D.C. She has a Bachelor’s degree in International Affairs from the George Washington University, and a passion for law, politics, and social issues. Contact Anneliese at amahoney@LawStreetMedia.com.