Daily fantasy sports sites have been growing at an astronomical pace over the past few years, giving out millions of dollars in prizes and bringing in billions of dollars in revenue. Now these sites are finding themselves under investigation after their employees were accused of using insider information to win money on rival sites.
The world of daily fantasy sports sites has been largely unregulated since they first appeared. Now, regulators are taking a closer look at the companies and their business practices.
The scandal engulfing the industry was sparked by a report claiming that a DraftKings employee won $350,000 in a competition on FanDuel using insider information that was mistakenly released early by the same employee. The NFL Sunday Million contest entered by the DraftKings employee cost $25 to enter and promised $5 million in cash winnings, including $1 million to the winner. The DraftKings employee finished in second place.
FanDuel and DraftKings are two of the largest players in the daily fantasy sports industry. Those two sites have spent tens of millions of dollars on advertising in the last few months showing how much money players can win in their contests.
While internet gambling is technically illegal, the daily fantasy sports sites are allowed to operate because skill is required to pick the right players to win the contests. However, there is no independent oversight in how the contests are run and there is no mechanism in place to ensure that everyone that enters the contest is on a level playing field.
Both DraftKings and FanDuel say that their employees are banned from entering contests on their employer’s site, but are allowed to enter contests run by other daily fantasy sports sites. Both companies posted a statement on their websites that said they have no evidence that anyone misused information for profit.
Critics of the companies say that daily fantasy sports sites should be regulated by the government just like sports books in Nevada to ensure that everything is fair and above board. If it is found that insider information is being used to win contests, it could be a big risk for the sites and their investors.