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From The New York Business Journal

The scandal that’s enveloped the two largest companies in the fantasy sports space — New York City’s FanDuel and Boston’s DraftKings — now has the attention of New York Attorney General Eric Schneiderman.

New York Business Journal received copies of the letters Schneiderman sent to both companies asking for detailed responses on information regarding all employees who compile statistics, set draft prices for fantasy sports players and compile information on fantasy players’ winnings. He gave them until Oct. 15 to respond.

On Oct. 5, the sports world was perturbed over news that DraftKings and FanDuel allowed their employees — many with information not available to customers — to play at each other’s sites and win cash.

“Fraud is fraud,” Schneiderman said Tuesday in an interview on the public radio program The Takeaway. “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.”

What Schneiderman wants to know is whether employees at FanDuel and DraftKing have won lucrative payouts based on inside information not available to the public.

The issue is whether DraftKings and FanDuel allowed their employees — many with information not available to customers — to play at each other’s sites and win cash. On Monday, in response to a story that one DraftKings employee had won a big payout on FanDuel, both companies temporarily prohibited their employees from playing in money games. In a statement today, FanDuel went further and announced that it was permanently barring its employees from playing daily fantasy games on any site, and was prohibiting employees of other companies from playing on its site.

The scrutiny about employee behavior comes amid a call for regulation of the sports fantasy industry, with critics equating it to gambling (a loophole in a 2006 law classified fantasy games as one that requires skill, not chance, subsequently allowing it to exist free of regulation).

DraftKings and FanDuel — both of which are now considered “unicorns” with valuations of greater than $1 billion — are running TV and online ad campaigns that promote the idea of big payouts if players make the right choices. A disclaimer on the ads says the sites are not gambling operations.

Major sponsors have reportedly distanced themselves from lucrative advertising deals. Major League Baseball, which owns a stake in DraftKings and has a sponsorship deal with it, stated that it has a policy that “prohibits its own players and employees from participating in fantasy baseball games” and “did not know that the situation was different at DraftKings.”

Another blow came from ESPN. “Outside the Lines” host Bob Ley said the network will no longer run individual segments sponsored by the sites.
No word yet on how the N.F.L., which recently struck a three-year deal with DraftKings, has reacted to the situation. New York Business Journal will keep you updated as we learn more.