NY AG investigating FanDuel and DraftKings over betting

Both companies have been accused of allowing employees to user insider info to bet in leagues

(Updated with comment from the office of the New York State Attorney General)

If you've been paying attention over the last couple of years, you've witnessed the incredible rise of FanDuel and DraftKings, two fantasy sports teams founded on a great premise: allowing users to enter daily leagues, and play for real money, rather than season long commitments.

The idea is pretty genius and both VCs and players ate it up. Each company has raised over $350 million, and each pay out hundreds of millions of dollars each year.

Who exactly is winning that money, though, has now become kind of a big scandal, and New York Attorney General Eric Schneiderman has now opened an investigation after reports that employees at both companies had been allowed to bet on each others platforms, according to a report from The New York Times on Tuesday.

The scandal first broke on Monday, after a DraftKings employee named Ethan Haskell inadvertently let the cat out of the bag by posting insider information on NFL lineups before they had been publicly posted. He won $350,000 on FanDuel.

Following the revelation, the two companies released a joint statement, in which they said that “nothing is more important” than the “integrity of the games we offer.”

However they did not offer any specifics about how either of them keep contests fair and now Schneiderman is asking DraftKings and FanDuel for internal data, as well as details, on how they prevent fraud. He also wants details on any internal investigations that the companies have done into their employees.

“We have just received and reviewed the letter from the NY Attorney General, and the company will fully cooperate with the inquiry," a spokesperson for DraftKings told VatorNews.

This is not the first time that questions have been raised about the fairness of both companies, with a Bloomberg report in September finding that winnings are heavily skewed toward a very few elite players who use algorithms and software to enter hundreds of contests every single day.

Analysis from Rotogrinders found that the top 100 ranked players enter 330 winning lineups per day. Even more alarming, the top 10 players combine to win an average of 873 times daily, or nearly 99% of contests.  The other 20,000 players win just 13 times per day, on average.

FanDuel has over 12,000 leagues open every day, with over $10 million in real cash prizes paid out every week. The company says that it now represents 65% of the daily and weekly fantasy sports market.  In 2014 the company paid out more than $560 million to users and generated $57 million in revenue.

It also boasts partnerships with brands that include Yahoo, ESPN, CBS, NBC and the Orlando Magic.

The company has raised $361 million in venture capital, including a $275 million round in July. Investors include Shamrock Capital, NBC Sports Ventures, KKR, Comcast Ventures, Pentech Ventures, Bullpen Capital, Scottish Enterprise, and Richard Koch.

DraftKings, meanwhile, currently has over one million users, and several hundred thousand monthly active users, and its growth can be seen in how much it has been giving out in prizes: In 2012, there was $5 million given out, a number that jumped to $45 million in 2013. That number jumped to around $300 million in 2014.

The company has raised $375 million in funding, including a $300 million round in July. Investors include Fox Sports, 21st Century Fox, The Raine Group, Redpoint Ventures,Atlas Venture, Major League Baseball Ventures, Major League Soccer and National Hockey League.

FanDuel and DraftKings have until October 15 to respond to Schneiderman.'s letter.

Update:

The office of the New York State Attorney General has given VatorNews the following statement from Attorney General Schneiderman.

“It’s something we’re taking a look at. Fraud is fraud. 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. This is another example of the cleverness and the real, sort of, deviancy that goes into some of these fraud schemes...I don’t have comments on the specifics of that matter at this time. But fraud is fraud and we’ll investigate it wherever we find it.”

(Image source: cardplayer.com)