F.B.I. Investigating Daily Fantasy Sports Websites

October 15th, 2015 by Staff

(www.nytimes.com)

A DraftKings lounge at Gillette Stadium. DraftKings and its rival FanDuel have acknowledged that their employees have played and won significant money on each other’s sites. New England Patriots
The Federal Bureau of Investigation has begun an inquiry into the practices of booming daily fantasy sports websites after players of the games and lawmakers made allegations of predatory tactics and questioned the use of insider information, according to fantasy players who said they had been contacted by investigators.

The F.B.I. began contacting several prominent competitors in the contests, the players said, shortly after an employee of DraftKings, one of the two most prominent daily fantasy companies, admitted to inadvertently releasing data before lineups for the start of the third week of N.F.L. games were locked in. The employee, a midlevel content manager, then won $350,000 at a rival site, although DraftKings said he did not have an advantage.

The players said that they were interviewed by agents from the bureau’s Boston office, who seemed to focus primarily on DraftKings, a Boston-based company. They also said that agents were examining whether the site encouraged and accepted deposits and bets from states where the contests were prohibited.

The information under review includes a post by Jon Aguiar, an executive in charge of developing high-volume fantasy players, on a public thread informing players how to deposit funds and play in contests in states and countries where the games are prohibited.

The daily fantasy sites, worth billions of dollars on paper because of a surge of investors, have exploded in popularity and this season have blanketed football game broadcasts with ubiquitous advertisements to lure more participants. Players pay an entry fee, build virtual rosters of players from actual teams and win prizes, from $22 to $2 million, based on the performance of the chosen players in real games. Major League Baseball and the National Basketball Association, along with networks such as NBC, Comcast and Fox and the team owners Robert K. Kraft of the New England Patriots and Jerry Jones of the Dallas Cowboys, are among the investors in the sites.

The F.B.I. agents also wanted to know whether employees of DraftKings passed on proprietary information or preyed on fantasy players in contests, the players said.

It was unclear how far the investigation had proceeded. The F.B.I. declined to comment.

DraftKings and the rival site FanDuel have acknowledged that their employees — many of whom regularly rank among the most consistent big winners — have played and won significant money on each other’s sites.

A FanDuel spokeswoman has said that DraftKings employees have won less than $10 million on FanDuel. In the wake of allegations concerning the use of insider information, the websites barred their employees from competing in daily fantasy sports.

The allegations have also raised questions for the unregulated industry, including whether or not professional fantasy players have an unfair advantage over regular players. Sports Business Daily found that over the first half of this year’s Major League Baseball season, 91 percent of player profits in daily fantasy sports were won by just 1.3 percent of the players. In fact, the top 11 players on average paid $2 million in entry fees and made $135,000 in profit while accounting for 17 percent of all entry fees.

Many of the professionals use automated processes that let them change hundreds, if not thousands, of lineups in seconds, a decided advantage when last-minute changes are made in the lineups of real football, basketball or baseball teams.

The Wall Street Journal first reported on the F.B.I. interviews of players.

Last week, the New York attorney general opened an inquiry into the prospect that employees of DraftKings and FanDuel won lucrative payouts based on information not available to the public. In addition, three class-action lawsuits have been filed alleging fraud — the most recent in Louisiana, where the operation of daily fantasy sports sites is prohibited. The plaintiff, Artem Genchanok, a New Orleans resident, said he had paid entry into DraftKings and FanDuel contests and deposited money on their websites despite the prohibition.

Lawmakers have been intensifying calls for federal regulation and inquiries into the industry.

In Washington, Representative Hakeem Jeffries, Democrat of New York and a member of the House Judiciary Committee, this week called on the panel to examine “whether permitting a multibillion-dollar industry to police itself serves the best interests of the American people.”

Senator Robert Menendez and Representative Frank Pallone Jr., Democrats of New Jersey, held a news conference Tuesday outside MetLife Stadium, the home of the Giants and the Jets, to reiterate their calls on the Federal Trade Commission to implement safeguards and ensure a fair playing field.

And Senator Richard Blumenthal, Democrat of Connecticut, on Monday formally called for a federal investigation into any deceptive or fraudulent practices at daily fantasy sports leagues.

“Consumers had no foreseeable knowledge that these companies were facilitating employees’ use of proprietary data to provide themselves with an advantage when playing users on their rival site,” Blumenthal said in a letter to the Justice Department and the F.T.C. “If employees are using insider information to unfairly advantage themselves over others, this may constitute fraud regardless of any other federal or state gambling statutes.”


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