Fantasy Sports Sites Under Fire

DraftKings, FanDuel ban employees from playing either site after controversial $350,000 jackpot

“Insider trading” and “illegal gambling” are not things you want to be asked about when you're building out a multi-billion-dollar fantasy sports jackpot business.

But Boston-based DraftKings and rival site FanDuel were doing major damage Tuesday after reports that a DraftKings employee won $350,000 on FanDuel last week. And Massachusetts State Treasurer Deborah B. Goldberg, who oversees the $5 billion-a-year state Lottery, said it’s clear fantasy sports sites are a growing competitor for wagering dollars and is floating the idea of the Legislature authorizing the Lottery to offer fantasy-sports gambling to protect Lottery profits that are paid out as state aid to city and town governments.

Tuesday’s brouhaha began when The New York Times initially reported that the DraftKings employee who scored the jackpot apparently benefitted from inside information about which NFL stars online contestants were -- and weren't -- putting money on. That could increase his chances of a big jackpot if he could identify out-of-favor players, picked them, and they wound up having a great game during the Sept. 27 week.

DraftKings specifically denies that happened and said the information the employee saw did not become available until 40 minutes after the deadline for picking players that day, so it couldn’t have helped him in any way improve his odds of a big payday.

But, in the wake of the Times story, both sites, which already banned employees from playing on their own sites, also announced publicly they were forbidding employees from playing for money on the competitor site.

Five states currently consider DraftKings and FanDuel illegal gambling, but a 2006 federal Internet gambling law includes a fantasy-sports exemption. Most states have for now taken the stance that since the games involve an element of skill – predicting which quarterbacks, running backs, receivers, and defensive units will have the best performance – as well as luck, they don’t run afoul of gambling bans.

Massachusetts Attorney General Maura Healey has been reviewing the legality of DraftKings under state law, a review the company and Governor Charlie Baker say Draft Kings requested.

Asked about the latest flap, Healey said: “I don’t have any comment on that. I've just been reading along with everybody else.’’ Healey gave no indication of where she is in her review and when, if ever, she might issue an opinion on the sites.

Goldberg, the state treasurer and chairwoman of the Lottery Commission, said of the dollars being put into fantasy sports contests: "It's become increasingly evident that there is a market out there that could impact the Lottery, and anything that could impact the Lottery we need to take a hard look at and see if it makes sense for us to integrate that into the quality of our games. In particular, we're able to better protect the public."

“Some of these other games out there, they're for-profit. They're private businesses. They don't have the mission that we have, and our mission is about making a difference for everyone in every city and town throughout the state,’’ Goldberg said.

Any move to allow the Lottery to offer a fantasy-sports product, or team up with other states on one as it does for Powerball, would be up to state legislators, Goldberg said.

Goldberg said she was not going to criticize or comment on DraftKings or FanDuel but noted of the Lottery: “We are extremely regulated. No Lottery employee is allowed to play the Lottery. So, certainly, there'd be no issues with employees being able to take advantage, if that has happened with any kind of game.’’

The fantasy sports sites have attracted – and spent – huge amounts of money. DraftKings, for example, closed a $300 million round of venture-capital funding in July, half of it put in by Fox Sports, which now owns 11 percent of DraftKings and will benefit from hundreds of millions of dollars in advertising spending DraftKings is committing to Fox. It brought to $426 million the total raised by DraftKings. The Kraft Group, owners of the New England Patriots, are also investors in DraftKings.

FanDuel closed its own $275 million funding round earlier in July. NECN’s parent company, Comcast, and sister company NBC Sports Group are among investors in FanDuel.

The two sites have poured that money into huge advertising campaigns, including a reported $100 million spent on advertising just in the first week of the NFL season.

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