Attorney general has opened an inquiry into FanDuel and DraftKings

Will Fantasy Sports Sites Face Government Regulation?

New York Attorney General Eric T. Schneiderman has opened an investigation into daily fantasy-sports betting websites DraftKings and FanDuel, after reports emerged that employees at both companies had won major payouts betting on each other's platforms, according to The New York Times.

The scandal broke after a user on a fantasy-sports forum noticed last week that DraftKings employee Ethan Haskell admitted to "inadvertently releasing data before the start of the third week of NFL games."

That data could have given Haskell or other users a significant edge in DraftKings contests, which have considerable payouts. Haskell won $350,000 at FanDuel the same week.

Schneiderman wrote a letter to both companies Tuesday, demanding the name, job titles, and descriptions of any employees responsible for compiling the wide range of data used to determine the value of players, The Times reports.

Because bettors select a hypothetical roster of players based on player valuations determined by the sites, Schneiderman believes that knowledge of the data used to determine the valuations of players can be used as an unfair advantage.

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DraftKings/FanDuel fantasy sports investigation
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Attorney general has opened an inquiry into FanDuel and DraftKings
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
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
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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The Times says Schneiderman also demanded that DraftKings and FanDuel turn over details of any current internal investigations into their own employees, including Haskell.

Both companies said they had investigated Haskell and cleared him of wrongdoing.

The reports have raised doubts as to what information employees at sites like DraftKings and FanDuel have access to and if they are using that data to win money at other sites.

ESPN's "Outside the Lines," reporter Darren Rovell found that DraftKings employees had won o.3% of all the money ever awarded by rival site FanDuel, which totals approximately $6 million of the nearly $2 billion paid out by the site.

"It's something we're taking a look at — fraud is fraud," Schneiderman said in a radio interview Tuesday before the inquiry was announced, The Times reports. "And, consumers of any product, whether you want to buy a car, participate in fantasy football, our laws are very strong in New York and other states that you can't commit fraud."

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