The DFS Scandal – What You Need to Know, and What The Future Holds

Well, it was only a matter of time before something this magnitude happened. 

As most of you have already heard, since it is being plastered all over every major news site in the U.S.A., a scandal has erupted in the online fantasy sports world involving Boston-based DraftKings, and to a lesser extent, FanDuel.

Now, I don’t play in the world of Daily Fantasy Sports, also known as DFS, but what I can do is give you five things to know how we got to this point, what DraftKings have said about the scandal, and why it might ultimately lead to regulation by lawmakers, which could definitely cause a major shake-up in the way the games are played today.

First, we have “The Story”. On Monday, The New York Times wrote that online daily fantasy sports company DraftKings and its New York-based rival site, FanDuel, are playing defense. Both companies have released statements regarding the scandal, in which they are defending their businesses’ integrity. 

This all came about as an employee at DraftKings supposedly and inadvertently released player utilization data before the start of the third week of NFL games. That same employee won $350,000 at FanDuel that same week (2nd prize in the million dollar challenge for all those that play the game). Because of this windfall, the incident was seen by some experts as “insider trading”, those that use inside information to help themselves maximize their profits (like we see in the stock market).

Second, people are asking the question “Well, why would experts call it insider trading?” The answer is this –  according to various daily fantasy sports blogs (Like DFS Report), early access to player utilization data means that certain people could have an unfair advantage in playing fantasy sports games for cash. 

This calls into question whether employees of DraftKings and FanDuel should even be allowed to play the online daily fantasy sports games they are offering to users, with guarantees of millions of dollars in payouts, as it gives them every advantage to keep out your average DFS player from cashing in big.

Third, we have DraftKings stating that there was no wrongdoing on their part. Various reporters have been reaching out to DraftKings to see what the company had to say about the New York Times article. The company says reports are “mischaracterizing the situation” and implying that there was wrongdoing when there wasn’t. For reference, here is what DraftKings statement says:

“For the last several days, DraftKings has been conducting a thorough investigation, including examining records of internal communications and access to our database, interviewing our employees, and sharing information regarding the incident with FanDuel. The evidence clearly shows that the employee in question did not receive the data on player utilization until 1:40 p.m. ET on Sunday, Sept. 27. 

Lineups on FanDuel locked at 1:00 p.m. that day, at which point this employee (along with every other person playing in a FanDuel contest) could no longer edit his player selections. This clearly demonstrates that this employee could not possibly have used the information in question to make decisions about his FanDuel lineup. 

Again, there is no evidence that any information was used to create an unfair advantage, and any insinuations to the contrary are factually incorrect.”

Fourth, DraftKings has issued the edict that their employees are now prohibited from playing fantasy games. According to a statement released by the Fantasy Sports Trade Association, DraftKings and FanDuel must restrict employee access to and use of competitive data for play on other sites. 

For reference, here is the FSTA Statement on this issue:

“At this time, there is no evidence that any employee or company has violated these rules. That said, the inadvertent release of non-public data by a fantasy operator employee has sparked a conversation among fantasy sports players about the extent to which industry employees should be able participate in fantasy sports contests on competitor sites. We’ve heard from users that they would appreciate more clarity about the rules for this issue. 

In the interim, while the industry works to develop and release a more detailed policy, DraftKings and FanDuel have decided to prohibit employees from participating in online fantasy sports contests for money.”

And lastly, proposed legislation could follow. 

This incident could underscore the fact that these online daily fantasy sports giants are operating in an unregulated environment. Massachusetts Attorney General Maura Healey is currently in the process of reviewing the legality of DraftKings. 

The review comes on the heels of DraftKings’ recent $300 million investment, which is being used largely for national and international expansion and marketing. Now here is where it gets murky – MLB, NFL, NASCAR, have all come to advertising agreements with either DraftKings or FanDuel. 

If gambling legislation comes into full effect, whether nationally by Congress, or by a State-By-State basis, we could see major organizations begin to pull out, and we could possibly see a dwindling in the fade. 

It is WAY to early to tell, but if it goes down this path, who knows what the future holds for DraftKings, FanDuel……………for DFS in general.

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Nick Ficorelli
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