Business model of daily fantasy sports under federal probe: WSJ

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FBI Investigating Fantasy Sports Sites


The U.S. Justice Department and the Federal Bureau of Investigation are looking into the business model of daily fantasy sports operators and trying to determine whether they violate federal laws, the Wall Street Journal reported, citing people familiar with the matter.

Customers of DraftKings Inc have been approached by FBI agents from the Boston office, asking them about their experiences with the company, the WSJ said, citing a person familiar with the matter.

The probe is at a preliminary stage and no decision has been reached. The Justice Department is trying to ascertain if daily fantasy games are a form of gambling that are outside the purview of the exemption, the newspaper reported.

A spokeswoman for DraftKings told the WSJ that they have no knowledge of the specifics of any federal investigation but added that they strongly disagree with any notion that the company has engaged in any illegal activities.

The fantasy sports industry has faced a firestorm of criticism since news broke that an employee at DraftKings won $350,000 from a $25 entry in an American football contest on the rival FanDuel site using what reports said appeared to be inside information.

Representatives at the Justice Department, FBI, DraftKings, and FanDuel were not immediately available for comment outside regular U.S business hours.

See photos of the fantasy sports companies and their operations:

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Business model of daily fantasy sports under federal probe: WSJ
FILE - In this Nov. 13, 2015, file photo, fantasy sports fans demonstrate outside the Financial District offices of New York state Attorney General Eric Schneiderman, in New York. Schneiderman ordered fantasy sports industry giants DraftKings and FanDuel to stop accepting play from New Yorkers, saying their business amounts to illegal gambling. Schneiderman maintains that New York law bans taking bets as a business, with exceptions for horse racing, casinos, state lotteries and certain other settings, but not daily fantasy sports sites. (AP Photo/Richard Drew, File)
Geoff Bough, right, leads fantasy sports fans as they demonstrate outside the Financial District offices of New York state Attorney General Eric Schneiderman, in New York, Friday, Nov. 13, 2015. Schneiderman's decision that daily fantasy sports betting sites FanDuel and DraftKings are illegal gambling operations in his state is a blow to the companies, but the multibillion-dollar industry could have more legal headaches yet to come. (AP Photo/Richard Drew)
Fantasy sports fans demonstrate outside the Financial District offices of New York state Attorney General Eric Schneiderman, in New York, Friday, Nov. 13, 2015. Schneiderman's decision that daily fantasy sports betting sites FanDuel and DraftKings are illegal gambling operations in his state is a blow to the companies, but the multibillion-dollar industry could have more legal headaches yet to come. (AP Photo/Richard Drew)
Fantasy sports fans demonstrate outside the Financial District offices of New York state Attorney General Eric Schneiderman, in New York, Friday, Nov. 13, 2015. Schneiderman's decision that daily fantasy sports betting sites FanDuel and DraftKings are illegal gambling operations in his state is a blow to the companies, but the multibillion-dollar industry could have more legal headaches yet to come. (AP Photo/Richard Drew)
Fantasy sports fans demonstrate outside the Financial District offices of New York state Attorney General Eric Schneiderman, in New York, Friday, Nov. 13, 2015. Schneiderman's decision that daily fantasy sports betting sites FanDuel and DraftKings are illegal gambling operations in his state is a blow to the companies, but the multibillion-dollar industry could have more legal headaches yet to come. (AP Photo/Richard Drew)
The DraftKings Inc. app is arranged for a photograph on an Apple Inc. iPhone in Washington, D.C., U.S., on Sunday, Oct. 4, 2015. Fantasy sports companies DraftKings Inc. and FanDuel Inc. raised a total of $575 million in July from investors including KKR & Co., 21st Century Fox Inc. and Major League Baseball to attract players to games that pay out millions of dollars in cash prizes in daily contests. Photographer: Andrew Harrer/Bloomberg via Getty Images
In this Wednesday, Sept. 9, 2015, photo, Bear Duker, a marketing manager for strategic partnerships at DraftKings, a daily fantasy sports company, works at his computer in Boston. The daily fantasy sports industry is eyeing a breakout season as NFL games begin. And its two dominant companies, DraftKings and FanDuel, are touting lucrative opening week prizes to try to draw more customers as more competitors pop up. (AP Photo/Stephan Savoia)
In this Wednesday, Sept. 9, 2015, photo, an employee in the software development department of DraftKings, a daily fantasy sports company, walks past screens displaying the company's online system stats in Boston. The daily fantasy sports industry is eyeing a breakout season as NFL games begin. And its two dominant companies, DraftKings and FanDuel, are touting lucrative opening week prizes to try to draw more customers as more competitors pop up. (AP Photo/Stephan Savoia)
The DraftKings Inc. website is arranged for a photograph on an Apple Inc. iPad in Washington, D.C., U.S., on Sunday, Oct. 4, 2015. Fantasy sports companies DraftKings Inc. and FanDuel Inc. raised a total of $575 million in July from investors including KKR & Co., 21st Century Fox Inc. and Major League Baseball to attract players to games that pay out millions of dollars in cash prizes in daily contests. Photographer: Zia Morales/Bloomberg via Getty Images
The FanDuel Inc. app and DraftKings Inc. website are arranged for a photograph in Washington, D.C., U.S., on Monday, Oct. 5, 2015. Fantasy sports companies DraftKings Inc. and FanDuel Inc. raised a total of $575 million in July from investors including KKR & Co., 21st Century Fox Inc. and Major League Baseball to attract players to games that pay out millions of dollars in cash prizes in daily contests. Photographer: Andrew Harrer/Bloomberg via Getty Images
In this Sept. 29, 2015, photo, Jason Robins, center, CEO of DraftKings website, speaks on a panel at the Global Gaming Expo in Las Vegas. His companyâs rising visibility is spawning debate among the casino industry and regulators about the definition of gambling and whether all sports betting should be legalized and regulated. (AP Photo/John Locher)
In this Wednesday, Sept. 9, 2015, photo, Devlin D'Zmura, a tending news manager at DraftKings, a daily fantasy sports company, works on his laptop at the company's offices in Boston. The daily fantasy sports industry is eyeing a breakout season as NFL games begin. And its two dominant companies, DraftKings and FanDuel, are touting lucrative opening week prizes to try to draw more customers as more competitors pop up. (AP Photo/Stephan Savoia)
In this Wednesday, Sept. 9, 2015, photo, customer service representative at DraftKings, a daily fantasy sports company, work at their stations at the company's offices in Boston. The daily fantasy sports industry is eyeing a breakout season as NFL games begin. And its two dominant companies, DraftKings and FanDuel, are touting lucrative opening week prizes to try to draw more customers as more competitors pop up. (AP Photo/Stephan Savoia)
In this Wednesday, Sept. 9, 2015, photo, Len Don Diego, marketing manager for content at DraftKings, a daily fantasy sports company, works at his station at the company's offices in Boston. The daily fantasy sports industry is eyeing a breakout season as NFL games begin. And its two dominant companies, DraftKings and FanDuel, are touting lucrative opening week prizes to try to draw more customers as more competitors pop up. (AP Photo/Stephan Savoia)
The DraftKings Inc. logo is arranged for a photograph on an Apple Inc. iPhone in Washington, D.C., U.S., on Sunday, Oct. 4, 2015. Fantasy sports companies DraftKings Inc. and FanDuel Inc. raised a total of $575 million in July from investors including KKR & Co., 21st Century Fox Inc. and Major League Baseball to attract players to games that pay out millions of dollars in cash prizes in daily contests. Photographer: Andrew Harrer/Bloomberg via Getty Images
The FanDuel Inc. and DraftKings Inc. apps are displayed on an Apple Inc. iPhone in Washington, D.C., U.S., on Sunday, Oct. 4, 2015. Fantasy sports companies DraftKings Inc. and FanDuel Inc. raised a total of $575 million in July from investors including KKR & Co., 21st Century Fox Inc. and Major League Baseball to attract players to games that pay out millions of dollars in cash prizes in daily contests. Photographer: Andrew Harrer/Bloomberg via Getty Images
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Fantasy sports companies FanDuel Inc and DraftKings said last week that they had banned their employees from all daily fantasy games and also barred staff from rival companies from their sites.

Daily fantasy sports, which have developed in recent years, allow participants to draft teams in games played in just one day. It has allowed fans to bet with a frequency that some critics argue is akin to sports betting or gambling.

FanDuel and DraftKings are privately owned and both valued at more than $1 billion.

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