LAS VEGAS — A law firm hired by DraftKings to investigate claims an employee used valuable inside information to win a $350,000 second-place prize on a competing daily fantasy sports site contest confirms that it didn’t and couldn’t have happened.
The Boston-based daily fantasy sports company released a short two-page summary Monday saying it would have been impossible for the employee to use the information to win on FanDuel because he didn’t receive the helpful data until 40 minutes after that site’s contest closed. The companies’ employees aren’t allowed to bet on their own sites but until recently could play on competing sites.
When the allegation jumped from online message boards to front pages, the unregulated daily fantasy sports industry had already begun attracting scrutiny from regulators, lawmakers and observers inundated by advertisements promising to make millionaires out of players competing on the sites. Customers pick player lineups much like season-long fantasy sports games, wagering a couple quarters to thousands of dollars in some cases, and win based on the points earned during a single day.
The company’s announcement came days after Nevada gambling regulators told daily fantasy sites to get out or get a gambling license, federal lawmakers repeated calls to hold a Congressional hearing looking into the industry, several lawsuits hoping to become class-action suits have been filed and leaders in several states have noted they’re looking at the contests’ legality.
In Massachusetts, where DraftKings is based, the state’s attorney general’s office has been reviewing daily fantasy sports. Spokeswoman Cyndi Roy Gonzalez said, “there is little question that this industry will need to be regulated in order to protect consumers, and we intend to make our findings and recommendations public at the end of this review.”
In Nevada, it appeared that DraftKings hadn’t entirely left the state since the cease and desist order Friday. Nevada Gaming Control Board chair A.G. Burnett said his agency was monitoring the situation after it was told the company has to adjust its software platform in order to comply.
Daily fantasy sports sites have insisted they aren’t gambling, clinging to an exemption for fantasy sports in a 2006 federal law and argue what they offer is a game based in skill, not chance.
The investigation was led by the former U.S. Attorney for Massachusetts, now with firm Greenberg Traurig, and confirmed DraftKings’ own earlier internal review.
The claim of possible insider trading raised questions beyond the single incident, including who has access to internal information and when, and what consumer protections were in place.
Major League Baseball, an investor in the site, expressed surprise at the time that employees were known to play on competing sites. Shortly after the story surrounding the employee caught fire, DraftKings and FanDuel both announced they were changing their policies to bar employees from playing on competing sites.
DraftKings, when they announced Greenberg Traurig would investigate the incident, said the firm had already been retained to review the company’s policies and procedures. The results of that review haven’t been made public, yet.
Chris Grove with site LegalSportsReport.com which has been closely tracking daily fantasy sports industry developments, said at the time the employee allegations at DraftKings wasn’t the story.
“The lack of a coherent, transparent system for ensuring fairness, the inability of the industry to provide credible answers, and the sheer amount of money being risked by players within this system is the story,” he said. “This one incident is just the first genuine peek into the attitude sites take toward these critical issues.”
LegalSportsReport.com reported Monday that a lesser-known daily fantasy site, StarsDraft, has taken the step to pull its real-money contests out of all but four states where the legal landscape is more clear: New Jersey, Massachusetts, Kansas and Maryland. The company said in a statement that it has called for state regulation and licensing, “to ensure consumer protection and strict government oversight of operators.”
It is operated by Amaya, the same Canadian company that owns PokerStars.
StarsDraft had already pulled out of Nevada, Florida and Michigan.
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