DraftKings came out swinging against allegations that an employee had made as much as $350,000 by cheating on fantasy football gambling.
The daily fantasy sports industry is facing controversy over allegations that employees at DraftKings and FanDuel are using privileged company data to win big on rival sites — a cheating tactic analogous to insider trading on Wall Street.
Fans first grew suspicious when a DraftKings employee inadvertently leaked a list of the most popular players drafted by customers in a link tweeted from the company's account hours before it was supposed to hit the site.
As it turns out, the same employee who apologized for the mistake, DraftKings content manager Ethan Haskell, also appears to have won $350,000 on FanDuel in the same week.
The fact that Haskell had access to proprietary data raised questions about the fairness of employees winning jackpots at competing sites, as well as the general lack of regulation in a burgeoning multibillion industry that critics have labelled legalized gambling.
DraftKings said that an internal investigation showed Haskell didn't receive the data until 40 minutes after FanDuel's deadline to set rosters, which would mean he couldn't have used it to pick players on the site.
"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," a spokesperson said in an email (see full statement below).
The attention was nonetheless enough to compel the two startups to release a joint statement earlier on Monday asserting that "nothing is more important" than "the integrity of the games."
"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 reads.
"Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it."
The complicated relationships of fantasy sports
With the new, sharper statements DraftKings took a stronger stance in denying than it did in an initial New York Times report on Monday, which said "a spokesman for DraftKings acknowledged that employees of both companies had won big jackpots playing at other daily fantasy sites."
Both companies acknowledged that some employees play on competing sites, but reiterated that there was no evidence that anyone had misused company data.
The Fantasy Sports Trade Association, along with the two companies, said in a separate statement Monday night that it has updated its member charter to explicitly ban access of company data to employees while playing on competing sites.
The daily fantasy format — in which fans pick players for a single game day and bet for pools of prize money rather than drafting a season-long team among groups of friends — was made popular by the two companies and has roped in hundreds of new converts, thanks to advertising blitzes that have made the two brands ubiquitous on football broadcasts and across the Internet.
But research done by Sports Business Daily shows that just 1.3% of players took home about 90% of the winnings in the first half of the fantasy baseball season.
Most internet gambling was made illegal by the Unlawful Internet Gambling Enforcement Act in 2006, but fantasy sports managed to carve out an exemption thanks to heavy lobbying from pro sports leagues.
IMAGE: IFAF AMERICAN FOOTBALL MEN'S WORLD CHAMPIONSHIP
The low overhead costs and a 10% cut of each "entry fee" make it a lucrative business model that has pulled in hundreds of millions in venture capital funding. Each company is valued at more than $1 billion.
"It's as attractive as almost any industry you can think of — it's a casino where you don't have to build a casino," Nomura analyst Kevin Rippey told ExpressHackings in a previous interview.
But the industry's place at the thin line between legal and illegal Internet gambling has invited plenty of scrutiny from regulators and politicians. Accusations like these are sure to increase the demand for more of a regulatory structure.
You can read DraftKings' full statement from Monday night here:
“There has been some confusion regarding a recent piece of data that was inadvertently posted on DraftKings' blog containing information about players and fantasy games. Some reports are mischaracterizing the situation and implying that there was wrongdoing. We want to set the record straight. 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, September 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.”
Update, Tuesday October 6 12 p.m. PST: ESPN's Outside the Lines reported on Tuesday that ESPN has dropped DraftKings and FanDuel sponsored elements from its shows in response to the controversy. The channel will continue to air both companies' ads.
In July, DraftKings struck a deal with ESPN parent company Disney in which DraftKings promised $250 million in ad spending over the course of two years and ESPN gave the company exclusive advertising rights on the channel beginning in 2016.
The agreement came after a bigger deal that would've given Disney a stake in the startup fell through. At the time, Recode reported from anonymous sources that Disney executives had qualms about tying the family-friendly brand to such a controversial business.
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