FanDuel and Draft Kings Under Investigation

07 Oct, 2015

On Tuesday, New York’s Attorney General Eric Schneiderman opened a probe into DraftKings and FanDuel after the companies disclosed that a DraftKings employee recently won $350,000 from a $25 bet in fantasy football contest and had other major winnings on rival website FanDuel.

A FanDuel spokesman has also confirmed that a FanDuel employee has won significant cash prizes on DraftKings.

Both companies have since announced permanent bans on its employees playing on rival sites, and will try to prevent staff at other fantasy sports companies from playing on their sites.

But the week’s events caught Washington’s attention. The top Democrat in the U.S. Senate, Harry Reid, on Tuesday called on Congress to scrutinize the business, saying there was “scandalous conduct” in fantasy sports. Separately, Representative Frank Pallone and Senator Bob Menendez, both New Jersey Democrats, asked the Federal Trade Commission to look into the employee issue. Pallone also said the House of

Representatives could hold hearings this fall about the industry.

DraftKings may also be facing blowback from its own investors. Major League Baseball, a two-time investor in the company, sought an explanation from DraftKings on Tuesday about employees being allowed to participate in games.

FanDuel said on Wednesday it had asked former U.S. Attorney General Michael Mukasey, and his team at law firm Debevoise & Plimpton, to evaluate the company’s internal controls and find weak points in standards and practices. DraftKings said it has hired a team from law firm Greenberg Traurig, led by former U.S. Attorney John Pappalardo, to conduct an investigation into the allegations against its employees.

As for other industry participants, a spokesman for Yahoo! Sports, which has offered fantasy sports with monetary prizes since July, said it is also evaluating the question of whether employees play on other fantasy sports websites. CBS Corp which also runs contests for money did not yet have a comment on the matter.

The listing ambitions of DraftKings and FanDuel could also be on the line if the scrutiny builds. FanDuel CEO Nigel Eccles said last month that the company was waiting until January, when it will review its financial performance following the NFL season and decide if it wants to raise another private funding round or hire banks for an IPO.

DraftKings also has IPO plans or wants to pursue a merger with FanDuel, CEO Jason Robins said last month.

Reuters

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