Fantasy sports companies' ambitions tested by scrutiny from lawmakers, regulators

Wed Oct 7, 2015 4:50pm EDT
 
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By Liana B. Baker

(Reuters) - The world of fantasy sports is having to grow up fast.

Everything seemed to be going great for rapidly growing companies whose customers, after paying an entry fee, draft fantasy player lineups from a range of sports for periods as short as a day in the hope of winning big cash prizes. Investors poured money into the top two U.S. companies, DraftKings and FanDuel, ahead of the current National Football League season, the busiest time of the year for fantasy sports.

But in the past few weeks the nascent industry has attracted the attention of lawmakers and government officials, and that will mean probes and hearings that could eventually lead to restrictions on how the companies operate. The companies are scrambling to respond by taking on external advisers and law firms, tightening policies and ordering their own investigations.

The companies may have painted big targets on their backs through aggressive advertising and relaxed internal policies that allowed employees to bet on rival sites and become some of the biggest cash winners. That triggered concerns among supporters and critics of the companies that the employees may have unfair advantages over other players because they may had access to non-public decisions by the best-performers.

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.   Continued...

 
DraftKings CEO Jason Robins speaks during an interview with Reuters in New York, September 9, 2015. REUTERS/Mike Segar