NY AG opens inquiry into allegations of fantasy sports insider betting

Photo: CBS News

Two major fantasy sports companies are under fire over allegations that amount to insider trading, the New York Times reported Monday night. And on Tuesday night, New York Attorney General Eric Schneiderman announced his office was opening an inquiry into the allegations.

An employee with one of the companies, DraftKings, admitted last week to inadvertently releasing data before the start of the third week of NFL games. The mid-level content manager later won $350,000 at rival site FanDuel that same week, the Times reported.

In letters to DraftKings and FanDuel, obtained by CBS News, Schneiderman’s office asks both companies to identify the employee or employees who may responsible for insider trading. The AG’s office says this is in initial inquiry designed to allow the companies to provide a quick reply, and includes the names of possible employees involved.

The allegations, which amount to profiting from insider trading, have brought into question the practices of the fantasy sports industry.

draft-1.jpg
A screen grab from the Draft Kings fantasy sports web site.

The daily fantasy sports industry has gone to great lengths to distance itself from traditional sports wagering. The CEO of the ubiquitous DraftKings website made no effort to get cozy as he sat in front of a crowd of casino executives at a trade show last week in Las Vegas.

The legal stance by Jason Robins of DraftKings that daily fantasy sports leagues are not a chance-based gamble has done nothing to tamp down what has become an intensifying national debate around the country.

Many in the highly regulated casino industry insist daily fantasy sports leagues are gambling sites, shouldn’t be treated any differently than traditional sports betting and, as a result, should be regulated. Others suggest the sites could be a potential haven for money-laundering.

The debate was a hot topic of conversation at the Global Gaming Expo in Las Vegas.

“Fantasy is real gambling,” said Dennis Drazin, chairman of New Jersey’s Monmouth Park Racetrack, during a panel discussion. “A rose is a rose.”

Robins cites an exemption in a 2006 federal law for fantasy sports that he believes allow his site and others including FanDuel to offer contests that normally spanned an entire season down to a single day. The NFL agrees with their legal stance.

The debate comes as the websites have flooded the airwaves with commercials in recent months touting how average fans became overnight millionaires by playing daily fantasy leagues. Daily fantasy sports allows online players to pick a roster of point-earning players from various teams for a single day of competition and win money, in some cases $1 million.

Observers, though, believe that after spending hundreds of millions of dollars on advertising during football games, the spotlight on the daily fantasy sports industry may ultimately lead lawmakers and regulators to keep a closer watch.

“This screams and cries out for regulation,” said sports betting law expert Dan Wallach during a different panel at the gambling conference, suggesting it could be a haven for money laundering.

Robins, though, implied there should be no confusing his operation for a casino’s. He said his industry is much more likely to attract customers who play chess and the stock market than people who make bets at sports books.

“It’s really the same type of person who, on the game side, likes chess,” Robins said. “It isn’t that different from the stock market.”

Robins said fewer than 15 percent of the people using his site bet on sports the traditional way, either legally or illegally.

He didn’t say where that number came from and didn’t take questions after the moderated panel discussion to clarify, walking quickly out a side door as reporters asked questions. DraftKings spokeswoman Sabrina Macias said later that the number is based on internal research.

On the question of money laundering, DraftKings referred questions to a statement from the Fantasy Sports Trade Association that said the sites have “instituted monitoring systems to identify and prevent fraudulent or suspicious transactions.”

Signing up for a DraftKings account involves choosing a username, providing an email address, clicking a box that says the person is older than 18 or 19, depending on the state, and providing credit card information. No other identification is sought.

Macias said the company takes a multi-layered approach to check age and identity.

Meanwhile, a New Jersey congressman has asked for a hearing on the legal status of daily fantasy sports, the commissioner of the NCAA’s Southeastern Conference has barred daily fantasy site ads on the SEC Network, and the casino industry’s American Gaming Association is looking into the industry as part of a broader look at legalizing sports betting beyond a few states.

“If it’s gray, our job is to make it black and white,” said Geoff Freeman, the association’s president and CEO. He said the casino industry sees fantasy sports as a potential partner “to grow both of our businesses.”

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