States, Feds and Fans Turn Up the Heat on DraftKings and FanDuel

by James Eng /

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The $350,000 that DraftKings employee Ethan Haskell recently won playing on rival site FanDuel may have been a financial godsend for him, but it’s creating mounting legal headaches for the multibillion-dollar fantasy sports industry.

DraftKings announced earlier this week that an attorney it hired to investigate the incident found no evidence of insider trading or wrongdoing on the part of Haskell. That may sound like good news, but the attention his stroke of fortune has attracted has cast a pall over what until now has been a largely unregulated industry.

The companies say their games are based more on skill, not luck, and therefore is not gambling and not illegal. (Comcast Corp., which owns NBCUniversal and NBC News, has invested in FanDuel.)

Just this week:

  • The Wall Street Journal reported citing sources on Wednesday that U.S. Attorney Preet Bharara’s office in the Southern District of New York is investigating whether the business model behind daily fantasy-sports firms like DraftKings and FanDuel violates federal law. Bharara's office declined comment to NBC News on the report. The FBI said it can neither confirm nor deny the existence of an investigation.
  • The Massachusetts Gaming Commission announced it would look into whether fantasy sports should be regulated in that state. (DraftKings is based in Boston). Last week, the Nevada Gaming Control declared that daily fantasy sports is gambling — meaning sites like DraftKings and FanDuel will have to be licensed if they want to continue operating in the heavy sports-betting state.
  • The NCAA is distancing itself from the industry. An NCAA executive sent a letter Tuesday to DraftKings and FanDuel saying it would be "inappropriate" to conduct meetings now with investigations at the federal and state level reportedly underway. "We believe that your product should not be offered in the college space for a variety of reasons, and we do not believe a further meeting with your organizations will change that view," the letter said. It also said the NCAA would not accept ads from the sites during NCAA championships.
  • An attorney in Ohio has filed a federal lawsuit on behalf of two men who said they lost money playing on fantasy sports sites. The lawsuit, which seeks class-action status, claims FanDuel and DraftKings are operating what amounts to an illegal sports-betting business in the state. It was the latest in a series of lawsuits filed against the companies this month amid disclosures that employees of each company have made hefty profits playing in the other's games.

DraftKings told NBC News on Wednesday it doesn’t comment on “any possible investigative matters.” In a statement, a DraftKings spokesperson added the company "strongly believes" the games on its site — and daily fantasy sports in general — are legal. The spokesperson added that the company is “committed to working with all relevant authorities to ensure that our industry operates in a manner that is completely transparent and fair for all consumers.”

FanDuel declined comment on the investigations.

101: Daily Fantasy

Oct. 6, 201501:06

Marc Edelman, a law professor at Baruch College and a sports business expert, suggested the increased scrunity could change the landscape of daily fantasy sports.

"Because the legality of daily fantasy sports varies by game format and states of operation, contest providers need to carefully revisit their game mix and states in which they operate to ensure they are implementing sufficiently risk-adverse approaches," he told NBC News by email. "It may be a good idea for all daily fantasy sports operators to pull their games from states such as Nevada, Arkansas and Tennessee. Furthermore, contests such as one-tournament fantasy golf and one-race fantasy NASCAR should cease immediately."

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