DraftKings employee's big win raises doubts about transparency, integrity

DraftKings employee's big win raising questions about online fantasy (1:40)

ESPN sports business analyst Darren Rovell explains why employees from daily fantasy companies are allowed to play on opposing sites and how users are raising doubts about transparency. (1:40)

An early release of lineup information in a DraftKings contest is raising questions about the transparency of the burgeoning daily fantasy industry.

Users in online forums are asking whether a DraftKings employee might have used information about lineups to win $350,000 in a competing contest on the FanDuel site. The information detailed the percentages of entrants who selected certain fantasy players.

The release, which the employee said was inadvertent, comes at a time when the daily fantasy industry is booming and DraftKings and FanDuel are spending tens of millions of dollars on advertising, which touts the ability of contest winners to get rich playing daily fantasy sports.

It also comes at a time when there are still gray areas surrounding the legality of the contests and no independent oversight over how the contests are run and whether everyone who enters is on a level playing field.

There are no allegations -- or evidence -- that the DraftKings employee used information about the percentage of players who drafted certain players in last week's contest to finish in second place in the NFL Sunday Million contest run by FanDuel. The contest, which cost $25 to enter, featured $5 million in cash winnings, including $1 million to the winner.

A DraftKings spokesman acknowledged that employees of both companies have earned sizable prizes playing at other daily fantasy sites. On Tuesday, FanDuel issued a statement saying employees from both DraftKings and its site have temporarily been banned from "participating in online fantasy sports contests for money."

"We are temporarily restricting employees from participating in DFS contests as an interim measure while we work with the fantasy industry to develop and implement a more formal policy," the statement said.

But it is no secret in the daily fantasy industry that the kind of information the employee tweeted out could be used to draft fantasy teams that include players that aren't in widespread use in any given contest. If those players perform well, the odds of the person holding them winning go up dramatically.

DraftKings and FanDuel posted on their sites an unusual joint statement saying they have no evidence anyone misused information for profit. The statement said nothing is more important than the integrity of the games they offer to customers and that employees with access to data are "rigorously monitored by internal fraud control teams."

DraftKings did not respond to questions about what policies and controls it has in place, but a spokeswoman for FanDuel said her company does not believe there was any attempt to manipulate its contest.

"We operate based on the trust of our players," Justine Sacco said. "This is not a new issue for us as a company or an industry, and maintaining the integrity of our contests and games is paramount to sustaining and growing our business."

Questions about the release of the percentages of drafted players were first raised in a posting on the Rotogrinders site and reported more in depth by DFS Report and the Legal Sports Report websites.

Chris Grove, who operates the Legal Sports Report site, said even the outside possibility of a rigged contest raises critical questions about the integrity of the daily fantasy industry.

"There are questions the industry cannot provide a satisfactory answer to," Grove said. "They can't tell you who has access to what data and what controls they have in place to ensure data isn't abused. Even if they did tell you, consumers wouldn't find the answers totally satisfactory. That's a recipe for regulatory intervention."

Daniel Wallach, a sports and gambling lawyer at Becker & Poliakoff in Fort Lauderdale, Florida, echoed Grove's comments but went further by speculating that regulation will be introduced if the industry fails to address its urgent primary weaknesses.

"The single greatest threat to the daily fantasy sports industry is the misuse of insider information," Wallach told the New York Times. "It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place. If the industry is unwilling to undertake these reforms voluntarily, it will be imposed on them involuntarily as part of a regulatory framework."

The broader issue is whether players who put up entry fees to try to win money in the contests can be sure that insiders -- or anyone else -- are not getting an unfair advantage. There is no regulation of online daily fantasy, which has exploded the past two years into an industry where billions of dollars are at stake.

Joe Asher, who heads U.S. operations for the William Hill sports betting chain, said daily fantasy is gambling and should be regulated by the government, just as sportsbooks are regulated in Nevada to ensure everything is on the up-and-up.

"I'm all for daily fantasy betting," Asher said. "I think it should be legal, I think it should be regulated and I think it should be taxed. But nobody is in favor of unregulated Internet gambling, and that is exactly what daily fantasy sports is."

Marc Edelman, a law professor and sports business scholar at Baruch College, City University of New York, said the risk for the sites and their investors -- Major League Baseball is among those with a deal with DraftKings -- is whether insider information could be used to win contests.

"There's a big difference between fixing a game in sports betting and trading on insider information in daily fantasy," Edelman said. "It might be difficult to convince a team or a member of a team to lose on purpose. It's a lot easier to have material information about a player's mentality or physical condition no one else does and pass that along."

Information from The Associated Press was used in this report.