Blumenthal Calls On DOJ, FTC to Investigate Deception and Fraud in Daily Fantasy Sports Betting

FanDuel and DraftKing Employees Allegedly Used Insider Information to Win Millions on Each Other’s Sites

(Washington, DC) – Following allegations that FanDuel and DraftKing employees used insider information to win millions on each other’s sites, U.S. Senator Richard Blumenthal (D-Conn.) issued a letter today urging Federal Trade Commission Chairwoman Edith Ramirez and Attorney General Loretta Lynch to investigate deceptive and possibly fraudulent practices in the “daily fantasy sports” (DFS) online betting market.

With full knowledge that their employees had access to insider information that could be used to unfairly compete on one another’s sites, these companies engaged in a multi-million advertising campaign to deceive consumers into paying entry fees to play and lose money against these insiders.

Consumers expected these sites to function in a fair, transparent and impartial manner. Consumers had no foreseeable knowledge that these companies were facilitating employees’ use of proprietary data to provide themselves with an advantage when playing users on their rival site. I urge you to investigate whether this constitutes an unfair or deceptive practice as defined by Section 5 of the Federal Trade Commission Act. I also ask that you investigate whether these companies’ advertising practices run afoul of the FTC’s Endorsements and Testimonials Guidelines. Lastly, I urge the Department of Justice to investigate these practices and determine whether any executives or employees engaged in fraudulent activities or made false statements in selling, advertising or providing access to these online “tournaments”. As you know, if employees are using insider information to unfairly advantage themselves over others, this may constitute fraud regardless of any other federal or state gambling statutes,” Blumenthal states in the letter.

The full text of the letter is below.

Dear Chairwoman Ramirez and Attorney General Lynch: 

I write to bring your attention to deceptive and possibly fraudulent practices in the “daily fantasy sports” (DFS) online betting market. Recent reports have emerged that employees of these online betting websites used nonpublic data, acquired through their employee status, to place bets on each other’s sites and win millions of dollars. Despite having prior knowledge of employees using insider information to compete on one another’s sites, these companies engaged in a multi-million dollar advertising campaign to deceive consumers into paying entry fees in order to compete against their insiders. These actions raise serious questions about deceptive practices and fraudulent activity.

FanDuel and DraftKings both operate websites that invite individuals to compete against one another in online fantasy sports tournaments based on real-life statistics of professional sports players. Users pay an entry fee to compete for prize pools. The prize pools are funded through these entry fees, but DraftKings and FanDuel often guarantee prize pools of a certain amount and will pay out the difference. The difference, known as the “overlay”, provides an incentive for these companies to attract as many users as possible to avoid paying from their own reserves.

Both companies spent tens of millions of dollars advertising to football fans, becoming the single largest advertisers on television in the first weeks of September.  FanDuel advertises, “Play with your friends or try a public league for big bucks. Smarter than the average fan, try a 50/50 league and win some cash. Someone will get $1 million on FanDuel this Sunday. Let’s see how you stack up.” Similarly, DraftKings advertises, “The giant check is no myth, no mirage, no fools’ gold. It is our trophy and many hoist it playing our one week game.” Despite this advertising message however, according to an analysis by the Sports Business Journal, 91 percent of player profits were won by just 1.3 percent of players.

DFS users play against other users. Therefore one of the primary goals is to choose a different lineup of professional athletes than the average user, so one can gain points in areas that others do not. Both FanDuel and DraftKings use proprietary algorithms to determine the “value” of particular professional athletes. Data about which professional athletes other users are choosing the most, or exclusive data about the relative “value” of players, would allow someone a significant advantage over other users.

Employees of both companies have access to these data, but other contestants do not. The New York Times reported that DraftKings employee Ethan Haskell admitted he inadvertently released data like this publicly, and that he won $350,000 on FanDuel that week. In all, DraftKings employees have reportedly won nearly $6 million playing on their rival site FanDuel. Executives of both companies were aware its employees played on their rivals’ site regularly, and even viewed allowing this behavior as a crucial strategy to, “retaining top talent.”

Consumers expected these sites to function in a fair, transparent and impartial manner. Consumers had no foreseeable knowledge that these companies were facilitating employees’ use of proprietary data to provide themselves with an advantage when playing users on their rival site. I urge you to investigate whether this constitutes an unfair or deceptive practice as defined by Section 5 of the Federal Trade Commission Act. I also ask that you investigate whether these companies’ advertising practices run afoul of the FTC’s Endorsements and Testimonials Guidelines. Lastly, I urge the Department of Justice to investigate these practices and determine whether any executives or employees engaged in fraudulent activities or made false statements in selling, advertising or providing access to these online “tournaments”. As you know, if employees are using insider information to unfairly advantage themselves over others, this may constitute fraud regardless of any other federal or state gambling statutes.

Thank you for your prompt attention to this matter and you work protecting consumers and the public from criminal activity. I look forward to your response.

Sincerely, 

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