DraftKings, FanDuel Scandal Likened To Insider Trading, Prompts New ‘Employees Can’t Play’ Rule

Eric Schneiderman, the New York attorney general, announced that he has launched an investigation into the activities of employees of DraftKings and FanDuel who played fantasy sports games on their competitor’s site and won money, reports ESPN.

DraftKings CEO Jason Robins and FanDuel CEO Nigel Eccles have been asked to provide the following information to the attorney general’s office: for the last 12-month period, employees’ names and positions who “compile player data, set roster values, deal with ownership percentages for pending and historical contests and aggregate the success of players who play on” the FanDuel and DraftKings sites.

Ethan Haskell, a DraftKings employee, published information that indicated what players were included on the greatest number of rosters on September 27, with regard to week three of the NFL. The following day, Haskell won $350,000 in a FanDuel contest. This led to chatter in sports forums that somehow Haskell had gleaned an unfair advantage because, as an employee, he had access to information similar to what Wall Street insiders have access to.

DraftKings, FanDuel employees can't play.
Employees of DraftKings and FanDuel are no longer allowed to play each others' games.

Knowing the distribution of players on the DraftKings site can provide a fantasy player an advantage in games on FanDuel. While the rosters would not match perfectly, the distributions of each would likely be similar. An employee knowing what players are on the fewest number of rosters, and playing those players, provides an unfair advantage. Payouts are split between winners and if an unpopular player had a good game, fantasy league players who included them on their roster would win an amount disproportionate to if a more popular player won.

The data available to employees doesn’t provide information as to what players are going to perform better, as that involves predicting the future, but it does provide information about what players may yield the highest payout — information that is not available to fantasy players who don’t have access to the back-end of the DraftKings or FanDuel systems.

DraftKings has reportedly investigated its employee’s win and stated that he locked in the roster he won with at FanDuel 40 minutes before he received the data showing the distribution of players selected by DraftKings participants.

“This employee could not have used the information in question to make decisions about his FanDuel lineup,” DraftKings was quoted.

Employees of both DraftKings and FanDuel were permitted to play on the competitors’ sites until Tuesday, when Schneiderman’s probe appears to have prompted the companies to put an end to it; at least temporarily.

Major League Baseball is reported to hold a major equity stake in DraftKings and carries strict rules about players, managers, and coaches betting on sports. MLB was reportedly “surprised” to learn that employees of either fantasy site operator were permitted to play on the others’ site.

“Major League Baseball has a policy that prohibits players and employees from participating in fantasy baseball games in which prize money or other things of value are available to participants,” MLB was reported to state. “We were surprised to learn that DraftKings allowed its employees to participate in daily fantasy games. We have reached out and discussed this matter with them.”

Justine Sacco with FanDuel has been reported stating that DraftKings employees have won 0.3 percent of the $2 billion the company has paid out since its inception. That amounts to near $6 million won by employees, and has been likened to insiders trading on confidential information. A more accurate reflection of the fairness of the games would include a total amount spent versus total amount won for employees and other site users.

DraftKings and FanDuel made an “unusual” joint statement, reportedly published to each of their sites, reporting that upholding the “integrity” of the games offered to customers is of the utmost importance. The management of each website also stated that employees with access to sensitive information are “rigorously monitored by internal fraud control teams.”

[NFL Photo by Maddie Meyer / Getty Images — DraftKings Screenshot Courtesy Draftkings.com — MLB Photo by Brian Blanco / Getty Images]