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http://www.nytimes.com/2015/10/06/sports/fanduel-draftkings-fantasy-employees-bet-rivals.html?smid=tw-bna&_r=0
what's the shark move ?
what's the shark move ?
A major scandal is erupting in the multibillion dollar industry of fantasy sports, the online and unregulated business in which players assemble their fantasy teams with real athletes. On Monday, the two major fantasy companies were forced to release statements defending their businesses’ integrity after what amounted to allegations of insider trading, that employees were placing bets on information not available to the public.
Last week, a DraftKings employee admitted to inadvertently releasing data before the start of the third week of N.F.L. games, a move akin to insider trading in the stock market. The employee — a midlevel content manager — won $350,000 at rival site FanDuel that same week.
The incident has raised questions about who at daily fantasy companies has access to valuable data, how it is protected and whether the industry can — or wants — to police itself.
The leagues have been swelling in popularity, their advertisements blanketing football game broadcasts.
Poor Odds: Daily Fantasy Sports and the Hidden Cost of America’s Weird Gambling LawsSEPT. 24, 2015
Some commercials for daily fantasy games, such as this one from DraftKings, show fans accepting million-dollar checks as prizes.An Ad Blitz for Fantasy Sports Games, but Some See Plain Old GamblingSEPT. 16, 2015
Kelly Hirano, left, and Ken Fuchs of Yahoo introduced the company's new fantasy sports games in San Francisco.Yahoo Will Enter Daily Fantasy Sports MarketJULY 8, 2015
The industry has its roots in informal fantasy games that began years ago with groups of fans playing against each other for fun over the course of a season. They assembled hypothetical teams and scored points based on how players did in actual games.
But in recent years, companies, led by DraftKings and FanDuel, have set up online daily and weekly games in which fans pay an entry fee to a website — anywhere from 25 cents to $1,000 — to play dozens if not hundreds of opponents, with prize pools that can pay $2 million to the winner. Critics have complained that the setup is hardly different from Las Vegas-style gambling that is normally banned in the sports world.
On Monday DraftKings and FanDuel released a joint statement that said that “nothing is more important” than the “integrity of the games we offer,” but offered few specifics about how they keep their contests on the level.
A spokesman for DraftKings acknowledged that employees of both companies have won big jackpots playing at other daily fantasy sites. Late Monday, the two companies temporarily banned their employees from playing games or in tournaments at any other site; they already had prohibited their employees from playing on their own company sites.
The Boston office of DraftKings, an online fantasy sports company.Editorial: Rein In Online Fantasy Sports Gambling OCT. 5, 2015
“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,” the statement said. “Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.”
Industry analysts said the episode could leave the leagues open to further criticism that they are too loosely regulated.
“The single greatest threat to the daily fantasy sports industry is the misuse of insider information,” said Daniel Wallach, a sports and gambling lawyer at Becker & Poliakoff in Fort Lauderdale, Fla. “It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place. If the industry is unwilling to undertake these reforms voluntarily, it will be imposed on them involuntarily as part of a regulatory framework.”
Already, there has been intensifying discussion on social media and among lawmakers over whether daily fantasy games are pushing the boundaries of an exemption in a 2006 federal law that has allowed them to operate. The law prohibited games like online poker but permitted fantasy play, deemed games of skill not chance, under lobbying from professional sports leagues. The games are legal in all but five states.
But because Congress did not foresee how fantasy sports would explode, one member, Representative Frank Pallone Jr., Democrat of New Jersey, recently requested a hearing to explore the relationship between fantasy sports and gambling. “I really think if they had to justify themselves at a hearing they wouldn’t be able to,” Mr. Pallone said in a recent interview.
The data that DraftKings acknowledged was released by its employee, Ethan Haskell, showed what particular players were most used in all lineups submitted to the site’s Millionaire Maker contests. Usually, that data is not released until the lineups for all games are finalized. Getting it early, however, is of great advantage to make tactical decisions, especially when your opponents do not have the information at all.
A spokeswoman for DraftKings said Haskell simply made a mistake and that the company was certain that he did not use the information improperly. She declined to go into specifics about the safeguards or the company’s auditing policies.
Representatives of both companies acknowledged that many employees of daily fantasy companies were players first and had continued to compete on other sites. Ben Brown, a co-founder of Daily Fantasy Sports Report, was first to disclose that Haskell had posted the information.
“There’s a significant amount of crossover,” said Chris Grove, an industry analyst and editor of legalsportsreport.com. “The nature of the industry is so specialized and so new that, at the speed which they grew, they relied heavily on the player population.”
Many of these employees set the prices of players and the algorithms for scoring. In short, they make the market.
As daily fantasy sports has blossomed into a multibillion dollar industry in the past year DraftKings and FanDuel have become a cherished sponsor of M.L.B. and N.F.L. franchises.
Eilers Research, which studies the industry, estimates that daily games will generate around $2.6 billion in entry fees this year and grow 41 percent annually, reaching $14.4 billion in 2020. So high are the potential financial rewards that DraftKings and FanDuel have found eager partners in N.F.L. teams, even as league executives remain staunch opponents of sports betting.
Jerry Jones of the Cowboys and Robert K. Kraft of the New England Patriots have stakes in DraftKings and the company recently struck a three-year deal with the N.F.L. to become a partner of the American football league’s International Series in Great Britain, where sports betting is legal. In addition, DraftKings has tapped hundreds of millions from Fox Sports, and FanDuel has raised hundreds of millions of dollars from investors like Comcast, NBC and KKR.
Adam Krejcik, a managing director at Eilers Research, said early missteps are often part of booming growth in a new and often misunderstood sector like daily fantasy sports. He said whether Haskell, the DraftKings employee, made an innocent mistake or not the damage is done.
“Certainly does not look good from an optics standpoint and it strengthens the case for additional oversight and regulation,” he said.
Grove, of legalsportsreport.com, said this may be a watershed moment for a sector that has resisted regulation but now may need it to prove its legitimacy.
“You have information that is valuable and should be tightly restricted,” said Grove. “There are people outside of the company that place value on that information. Is there any internal controls? Any audit process? The inability of the industry to produce a clear and compelling answer to these questions to anyone’s satisfaction is why it needs to be regulated.”
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