• Schneiderman asks DraftKings, FanDuel for employee records
  • Companies given 10 days to respond to AG's questions

Two of the biggest daily fantasy sports sites are the target of an inquiry by New York State Attorney General Eric Schneiderman, who requested data from the firms after allegations surfaced that employees placed bets using internal data.

DraftKings Inc. and FanDuel Inc., which lead the multi-billion-dollar industry, were contacted Tuesday by the attorney general, who is looking at specific allegations that employees of both firms may have made money using company data not available to the public.

Schneiderman is the latest public official to take aim at daily fantasy sports sites. To play, competitors assemble a roster of real-life players; prizes are awarded based on how well that combination of real-life players perform on the field. Broadly, the daily and weekly games require an entry fee -- usually anywhere from 25 cents to $1,000 – and prizes can reach millions.

Whether this constitutes sports betting, which is illegal in all but four states, has been a hotly contested issue. The 2006 legislation that prohibited online gambling made an exception for fantasy sports, which legislators said requires more skill than luck. That was before the advent – and massive growth – of daily fantasy sports.

‘Traditional Wagering’

“With little legal oversight and deep investments into these sites by the same professional sports leagues that oppose traditional sports wagering, these issues are ripe for Congressional review,” New Jersey Congressman Frank Pallone, Jr., said in a statement.

Schneiderman’s inquiry follows a New York Times story Tuesday that alleged a DraftKings employee may have used proprietary information to win money -- most recently, $350,000 on a $25 entry fee -- at rival FanDuel. The revelation unsettled other fantasy sports players, as well as investors in both companies, which are privately held and valued at more than $1 billion each.

DraftKings said in a statement that it had investigated the incident with FanDuel and denied that its employee engaged in wrongdoing. FanDuel said that “at this time, there is no evidence that any employee or company has violated” rules governing sensitive data.

Still, the companies said they have decided to prohibit employees from participating in online fantasy sports contests for money while the industry develops a more detailed policy.

“We were surprised to learn that DraftKings allows its employees to participate in daily fantasy games,” Major League Baseball, which has invested in DraftKings, said. League officials have discussed the matter with DraftKings, an MLB spokesman said, pointing out that baseball players and employees are prohibited from participating in fantasy baseball games where prize money or other items of value are awarded.

Fantasy Investors

Major League Soccer, 21st Century Fox Inc., and Madison Square Garden have also invested in DraftKings, which raised $300 million in its most recent round of financing in July. FanDuel, founded in 2009, has brought in $363 million from investors including KKR & Co. LP and Comcast Corp.

The National Hockey League and NFL team owners Jerry Jones of the Dallas Cowboys and Robert Kraft of the New England Patriots have also made investments in daily fantasy sports. The union that represents NFL players about a week ago signed a deal with DraftKings that allows its members to appear in the company’s ads.

The Fantasy Sports Trade Association also said the industry is working to develop a more detailed policy with regard to whether industry employees should be able to participate in fantasy sports contests on competitor sites.

According to the Times, DraftKings acknowledges that its employee, identified as a mid-level manager, also released data showing which players were most used in lineups submitted to the company’s Millionaire Maker competition. Having early access to such information could be a big advantage in making strategic decisions, allowing the person to take advantage of market inefficiencies such as a lower-cost player that isn’t be utilized by many competitors.

Schneiderman gave the firms 10 days to respond to the inquiries. Although the letters do not cite specific statutes or indicate that the firms’ conduct was illegal, they state that the reports of the employee betting activity “raise legal questions relating to the fairness, transparency and security” of the firms and “the reliability of representations your company has made to customers.”

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