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The Daily Fantasy Sports Industry Is Being Investigated by the Feds

After allegations of insider trading–esque behavior and questions of whether DFS is a game of skill, the popular sites DraftKings and FanDuel are under fire.

by Allie Conti
Oct 15 2015, 4:15pm

An NFL game in 2006, the year Congress passed a law that left open a loophole for fantasy sports wagering. Photo via Flickr user Jason A G

The FBI and the Department of Justice are trying to figure out if the operators of daily fantasy sports (DFS) sites that keep pummeling America with TV ads are violating federal law, the Wall Street Journal reported Wednesday. It's the latest twist in a scandal that picked up steam late last month and threatens to shut down the sites, which have become the poster children for the online sports betting industry.

If you've never played and are wondering why adults act like aggrieved children at bars littered with giant flatscreen TVs every weekend, in fantasy sports players construct rosters comprised of actual athletes and then score points based on how well they perform in real life. Normally, this takes place over the course of a season, but in DFS you can draft players, watch them pile up stats, and win or lose in the course of 24 hours—an instant adrenaline rush on par with scratch tickets or slot machines, but one that requires more skill. If they pick the right combination of players, competitors can win million-dollar prizes on sites like DraftKings, which aired a TV spot every minute-and-a-half leading up the the current NFL season, according to the New York Times.

The current bout of trouble started on September 27, when a DraftKings employee named Ethan Haskell posted a chart online of the most popular players chosen that week for the site's million-dollar tournament. Although he later explained it was an accident, other players were presumably able to change their lineups based on the leaked information and snag an advantage.

DraftKing employees are banned from betting on their own site, but Haskell won $350,000 that same week using rival site FanDuel, which plenty of people found suspicious, including New York Attorney General Eric Schneiderman. His office launched an inquiry into the site, and soon after that announcement, a Kentucky man named Adam Johnson filed a class action lawsuit against both DraftKings and FanDuel alleging something like insider trading was taking place between employees of the two sites. (Earlier this month, the sites banned their employees from playing daily fantasy sports, period.)

Now there's a joint federal probe focused largely on the question of whether or not success in fantasy sports is based on luck. This is key to the legality of the industry; a 2006 federal law that blocked businesses from taking payments from unlawful online gambling sites made an exception for fantasy sports, allowing FanDuel to pop up three years later, and DraftKings three years after that. Both companies have secured millions in venture capital since, including from sports leagues like the National Hockey League and Major League Baseball.

"Chance is going to Vegas and rolling dice," David Kaplen, a Texan who makes his living off of daily fantasy sports and rejects the idea that it amounts to gambling, told VICE. "In this, you control everything, like the amount of time and research you put into it. There's no doubt in my mind that this is a skillful game."

But some players told the Times that they were interviewed about whether the sites were encouraging people from states like Washington, Louisiana, Arizona, Montana and Iowa—where agering on fantasy sports is illegal—to participate.

The fantasy industry is circling the wagons, determined to head off what some observers have anticipated for a while now: the end of the party.

"It is entirely predictable that the government would follow up on the misleading reports about our industry," a DraftKings spokeswoman told the Journal. "We have no knowledge of the specifics of any federal investigation but strongly disagree with any notion that our company has engaged in any illegal activities."

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