FanDuel and DraftKings, the two major daily fantasy sports websites, have been accused of insider trading, raising questions as to whether the increasingly lucrative daily fantasy sports world should face more regulatory scrutiny. This month, a DraftKings employee admitted to accidentally releasing NFL data before the start of the third week of NFL games. That very employee won $350,000 at FanDuel, DraftKings’ chief competitor. After the employee was accused of insider trading on social media, both companies announced temporary restrictions on employees from participating in fantasy sports for money.
FanDuel and DraftKings both offer daily and weekly games in which users pay an entry of 25 cents to $1,000. Users then choose players in fantasy teams from a list of actual NFL athletes and earn points based on how well their players perform in actual games. The prize money can be as high as $2 million.
DraftKings admitted that its employee released data on the company’s blog that showed which players were chosen in NFL lineups by users before the start of the third week of games. This information is generally released after all the lineups are finalized. The DraftKings employee was then accused of what would amount to insider trading on Wall Street after he won $350,000 with that information at competitor FanDuel.
DraftKings insists that its employees do not engage in insider trading: “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,” the company said in a statement. “Some reports are mischaracterizing the situation and implying that there was wrongdoing. We want to set the record straight.”
DraftKings shared information with FanDuel as part of its investigation. DraftKings concluded: “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.”
FanDuel, DraftKings, and the Fantasy Sports Trade Association stated that the companies are now banning employees from playing online fantasy sports for money, temporarily.
A number of legislators wish to regulate fantasy sports like gambling is.
Marc Edelman, a lawyer and associate professor at Zicklin School of Business at Baruch College, explains that for fantasy sports contests to be legal, contests must comply with federal law and state law in every state in which they operate. Often the distinction is whether the game is based on “chance” or “skill.” For example, there are varying restrictions for fantasy sports in Arizona, Iowa, Louisiana, Montana and Washington.
“Under federal law, a fantasy sports contest is deemed per se legal if the contest involves predicting the performance of real world players in multiple games, maintains prize amounts that are fixed before the contest begins and is based upon the relative skill of the contest participants,” Edelman said.
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