Monday, October 19, 2015

DraftKings Investigation Answers Just One Of The Questions Facing Daily Fantasy Sports Sites


An independent investigation into the scandal that engulfed the fast-growing daily fantasy sports industry determined that a DraftKings employee did not improperly use confidential roster information to win $350,000 in a contest on a rival site, the company said Monday.


DraftKings has maintained that employee Ethan Haskell didn't use the data to help form a lineup that finished second in a $5 million contest on the daily fantasy site FanDuel. It hired New York law firm Greenberg Traurig to conduct an investigation led by former U.S. Attorney John Pappalardo.


The probe “confirmed the Company’s conclusion,” according to the investigation, released Monday. The employee did not access the information until 40 minutes after the deadline to modify his lineup, it said.


DraftKings hailed the finding in a statement accompanying the report.


“We are very pleased that the independent investigation by Greenberg Traurig has confirmed the findings of our internal review of this matter and our conclusion that there was no improper use of information by our employee,” DraftKings CEO Jason Robins said in the statement. “In fact, as the investigation also concluded, it was not even possible for non-public information to have been used improperly.”


The finding may be important to daily fantasy operators that have spent the last three weeks trying to restore the trust of customers. But it won’t put an end to the intense scrutiny facing the industry since the data breach, which raised questions about consumer protections, internal controls within the companies, and the legality of daily fantasy sports.


“This was never just about Ethan Haskell,” said Daniel Wallach, a sports and gaming attorney who follows the industry closely.


DraftKings and FanDuel both banned employees from participating in daily fantasy contests in the wake of the scandal, but concerns about employees’ access to data that could affect the outcomes of daily fantasy contests still exist, even if it wasn’t used improperly in this instance, said Chris Grove, editor of legalsportsreport.com.


"It raised serious concerns about how effectively the companies are monitoring and handling serious issues like fraud and cheating," Grove said. "This was a one of the few windows we had into these companies, and the glimpse we got wasn't a good one."


DraftKings may address some of those issues in a more comprehensive internal review that continues, according to ESPN. But the questions may resurface in class-action lawsuits that users have filed against the sites.


The scandal also has sparked calls to regulate daily fantasy sports. Rep. Frank Pallone (D-N.J.), who requested congressional hearings into the industry before the leak, said Monday that the investigation’s findings were not enough to eliminate the need for congressional examination.


“DraftKings’ internal investigation falls laughably short of what is needed to protect the consumers of the daily fantasy sports industry," Pallone said via email. "The truth is, we don’t know exactly what may have gone wrong with the alleged ‘insider trading’ because the industry is functioning in a void within the legal structure, without any oversight or the necessary transparency. This ambiguity ... is exactly why we need a Congressional hearing.”


Though Pallone said he believes daily fantasy sports should be legal and supports his state’s efforts to legalize and regulate traditional forms of sports gambling as well, the industries are currently “operating in the shadows," he said.


The most important questions facing the industry focus on its legal status, and have only intensified since the data leak. A 2006 federal law prohibits online gambling, but the companies have argued that their contests are legal under a carve-out that protects fantasy sports.


The Department of Justice and FBI have launched a joint investigation into daily fantasy sports operators, focused on whether they violate federal gambling law, The Wall Street Journal reported last week.


States, meanwhile, have begun to move. Nevada’s gaming commission ruled last week that daily fantasy sports operators are subject to state gambling laws and require licenses in the state. A Florida grand jury began its own investigation into whether daily fantasy companies violated state gambling laws shortly after the scandal erupted.


Officials in Delaware, Georgia, and other states also are examining the legality of the industry under state laws. Scrutiny on that question -- and others facing the industry -- will only continue.


“This is just the beginning of the fact-finding mission,” Wallach said of the DraftKings investigation. “They’re being scrutinized at every point of entry.”


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