A joint investigation by the FBI and U.S. Justice Department has been launched to review the legality of business models used by daily fantasy sports companies, according to a report by The Wall Street Journal.
It's the latest government probe into the multibillion-dollar industry after an insider-trading scandal earlier this month rocked its two most visible brands, DraftKings and FanDuel. The companies are already reportedly under investigation by the U.S. Attorney’s Office in Tampa , and the New York attorney general’s office has begun reviewing the companies' internal anti-fraud procedures.
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According to the Journal, inquiries by Boston-based FBI agents are said to focus on whether daily fantasy sports contests violate a federal law enacted by Congress in 2006 to prohibit financial companies from transferring money to online gambling sites. The legislation exempted so-called games of skill, a loophole under which fantasy sports sites have operated for years.
But the rise in popularity of daily fantasy sports sites like FanDuel, founded in 2009, and DraftKings, launched in 2012, came well after the law was in place, and critics of the format used by the sites and others argue the weekly competitions too closely resemble traditional sports gambling.
A report by The New York Times said FBI agents began contacting high-profile users of DraftKings to ask about their experiences with the product shortly after one of the company's employees admitted to inadvertently releasing data before football contests locked for Week 3 in the NFL. The employee, a midlevel content manager named Ethan Haskell, won $350,000 in a contest that weekend on FanDuel, a rival site.
The FBI wants to know whether employees of DraftKings used proprietary information to take advantage of everyday users who play in the same contests, the Times report said.
DraftKings and FanDuel acknowledged their employees, banned from playing on their own sites, regularly cross-participated in each other's contests. But in the wake of the scandal, the companies denied that using inside information creates any advantage, and FanDuel insisted the contest Haskell played in was not compromised.
FanDuel has since permanently barred employees from participating in any daily fantasy sports for money.
