Fantasy sports sites facing civil suits amid cheating claims

FBI Opens Investigation Into DraftKings' Business Model


NEW YORK (AP) — Customers of the two biggest daily fantasy sports websites have filed at least four lawsuits against the sites in recent days, following cheating allegations and a probe into the largely-unregulated multi-billion dollar industry.

In court papers, the customers accused the DraftKings and FanDuel sites of cheating, and argued they never would have played had they known employees with insider knowledge were playing on rival sites. The four lawsuits, which seek class-action status, were filed in federal courts in New York, Illinois and Louisiana since last week, after it was revealed that a midlevel DraftKings employee won $350,000 playing NFL fantasy football on rival FanDuel, beating nearly 230,000 other players after game data not accessible to the public was inadvertently posted online.

The companies have since barred their employees from playing on other websites and have said they'll be conducting internal investigations. DraftKings said last week it has retained John Pappalardo, a former U.S. attorney in Massachusetts, to conduct its internal probe. And FanDuel has asked Michael Mukasey, the former attorney general, to review its internal controls. In a joint statement, the companies said evidence so far shows no employee violated industry rules.

See photos of the websites being investigated:

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DraftKings/FanDuel fantasy sports investigation
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Fantasy sports sites facing civil suits amid cheating claims
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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But New York Attorney General Eric Schneiderman recently asked both FanDuel and DraftKings to turn over information about those investigations into employees who "may have gained an unfair, financial advantage in a contest known as Daily Fantasy Football." And on Thursday, Nevada regulators ordered the sites shut down in that state.

A FanDuel spokeswoman declined to comment on the lawsuits. A DraftKings spokesman pointed to the company's earlier statements on the cheating allegations.

Daily fantasy sports have become increasingly popular, with DraftKings and FanDuel blanketing the Internet and TV ahead of the 2015 NFL season with ads promising casual fans the opportunity to win big money playing in tournaments against other sports buffs who meticulously track player statistics.

The companies say their business isn't gambling because it requires skill to assemble a potentially lucrative fantasy team. But former U.S. Rep. Jim Leach, who authored 2006 anti-Internet gambling legislation, told The Associated Press this week "there is no credible way fantasy sports betting can be described as not gambling."

That's a position Aissa Khirani takes in a lawsuit filed in New York on Thursday, arguing FanDuel's operations create gambling-like casino odds and violate state law. The lawsuit seeks unspecified restitution.

In another case filed Oct. 8, attorneys for daily fantasy sports players in Kentucky, California, North Carolina, New Hampshire and Florida argue their clients — who paid between $25 and $100 to enter in fantasy sports tournaments — couldn't possibly compete solely on skill given the access employees have to special information.

"The biggest edges any player can have come from having data and information," the lawsuit claims. "DraftKings and FanDuel employees have access to both things, neither of which is public."

Last year, 1.5 million Americans paid more than $1 billion in entry fees, according to the Sports Business Journal, which found 1.3 percent of players won about 90 percent of profits during the first half of the 2015 Major League Baseball season.

Thomas Guarino, of East Alton, Illinois, claims in his similarly worded class action lawsuit against DraftKings and FanDuel that the companies were deceptive by claiming the contests were based on skill, not chance, saying he lost money he would never otherwise have spent.

DraftKings and FanDuel were negligent by failing to tell consumers their employees had access to important information others couldn't have access to in order to "obtain an enormous increased chance to win, thereby greatly decreasing (Guarino's) and the classes' ability to use skill to win," the lawsuit claims.

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