Daily Fantasy Sites Face Scrutiny Over Concerns Of Insider Trading, Loose Regulations

A "major scandal is erupting" in the daily fantasy sports industry, and both DraftKings and FanDuel yesterday "were forced to release statements defending their businesses’ integrity after what amounted to allegations of insider trading, that employees were placing bets using information not generally available to the public," according to a front-page piece by Drape & Williams of the N.Y. TIMES. The statements were released after a DraftKings employee "admitted last week to inadvertently releasing data before the start of the third week of NFL games." The employee, a "midlevel content manager, won $350,000" at FanDuel that same week. The episode "has raised questions about who at daily fantasy companies has access to valuable data, such as which players a majority of the money is being bet on; how it is protected; and whether the industry can -- or wants -- to police itself." A DraftKings spokesperson acknowledged that employees of both companies "had won big jackpots playing at other daily fantasy sites." The two companies late last night "temporarily barred their employees from playing games or taking part in tournaments at any other site; they already had prohibited their employees from playing on their own company sites." Industry analysts said that the episode "could leave the leagues open to further criticism that they are too loosely regulated" (N.Y. TIMES, 10/6). There are "no allegations -- or evidence -- that the DraftKings employee used information about the percentage of players who drafted certain players in last week's contest to finish in second place in the NFL Sunday Million contest run by FanDuel" (ESPN.com, 10/5). In Boston, Callum Borchers writes a move to "block inter-site fantasy gaming would probably be highly unpopular among employees of both companies." Speaking at a conference at Babson College on Sept. 25, DraftKings co-Founder & COO Paul Liberman said, "We have some people who make significantly more money off of our competitors’ sites than they do working for DraftKings" (BOSTON GLOBE, 10/6).

BAD TIMING: CBS’ Jeff Glor said the Times report "raises big questions about who’s at the controls" of daily fantasy sites. He added the “business model is now under the microscope after allegations of what essentially amounts to insider trading” (“CBS This Morning,” 10/6). Eilers Research Managing Dir Adam Krejcik said the incident could not come at a "worse time for the industry." He added that politicians in New Jersey, California and Massachusetts recently have "proposed initiatives aimed at regulating fantasy sports in some fashion." The WALL STREET JOURNAL's Sarah Needleman notes while DraftKings and FanDuel control around 95% "of the North American daily fantasy market and have respective valuations" of $1.3B and $1.2B, neither site has made a profit "due to heavy ad spending to draw in customers" (WALL STREET JOURNAL, 10/6). Florida-based  attorney Daniel Wallach said that the incident "highlighted the lack of safeguards in place." The AP's Kimberly Pierceall wrote DraftKings co-Founder & CEO Jason Robins' "legal stance that daily fantasy sports leagues are not a chance-based gamble has done nothing to tamp down what has become an intensifying national debate." Many people in the "highly regulated" casino industry believe daily fantasy sites are "gambling sites, shouldn't be treated an differently than traditional sports betting and, as a result, should be regulated" (AP, 10/5).