DOJ, FBI Begin Investigation Into Daily Fantasy Sports

The Wall Street Journal is reporting that the DOJ and FBI are in the early stages of investigating the explosive Daily Fantasy Sports sector.

FBI agents from the Boston office have been contacting customers of DraftKings Inc. to ask them about their experiences with the Boston-based company, one person familiar with the matter told the Journal.

It’s been a brutal two week period for both DraftKings and FanDuel, the leading DFS firms. 

It began when users in online forums started 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.  Both DraftKings and FanDuel have since implemented policy preventing their employees from playing on competing sites.

But FanDuel has also come under fire for allowing its professional players to utilize tools that scrape up posted plays nearly instantly.

From the Wall Street Journal:

The probe is in the preliminary stage, two people said. It is part of an ongoing discussion within the Justice Department about the legality of daily fantasy sites, in which customers pay entry fees to draft virtual sports teams that compete against each other for prize money based on the real-world performances of athletes. Congress in 2006 prohibited financial companies from transferring money to online gambling sites and several were shut down. But so-called games of skill were exempted. Fantasy-sports sites have since operated under that exemption. So-called daily fantasy sites like DraftKings and FanDuel, Inc. didn’t become popular until after the law was enacted.

The Justice Department is trying to determine whether daily fantasy games are a form of gambling that falls outside the purview of the exemption. No decision on the matter has been reached, these people said.

Oddly enough it was the U.S. Justice Department that helped usher in state-legalization of online poker with its stance that playing poker for real money is not a violation of the Wire Act.  Daily Fantasy Sports, on the other hand, could be viewed as more closely mimicking that of illegal sports wagering, which is forbidden under the Wire Act.

- Tyrone Black, Gambling911.com