DraftKings open to regulation as it works to regain trust

While legal in most states, fantasy sports betting is unregulated, unlike casinos and lotteries. That could change in the wake of recent cheating allegations.

Stephan Savoia/AP/File
Len Don Diego, marketing manager for content at DraftKings, works at his station at the company's offices in Boston. New York's attorney general has sent letters to daily fantasy sports websites DraftKings and FanDuel demanding they turn over details of any investigations into their employees.

As daily fantasy sports operators FanDuel and DraftKings hustle to prove they can be trusted by thousands of users each week, cheating allegations have served as a backdrop for lingering questions about an industry that has been unregulated.

Officials for the companies repeated Wednesday that a DraftKings employee who won $350,000 in a FanDuel contest did nothing wrong, and did not have access to internal data before his entry into the contest was complete. But as the companies operate now, it's up to users of the sites to take their word for it.

DraftKings CEO Jason Robins said Wednesday the company is committed to creating an open and transparent environment.

"We have great records of when data is pulled, when communications were sent," he said in an interview on Fox Business. There was no wrongdoing, he said.

As for regulation, "we're open to that," Mr. Robins said on ESPN's Outside the Lines, signaling a change of course for the company.

DraftKings hasn't responded to questions from The Associated Press about the degree of access employees have to internal information and when they can access it.

While legal in most US states, daily fantasy sports is unregulated, unlike casinos and lotteries. Participants put together virtual teams based on real players and compete for points based on the players' statistics. The incident has been likened to insider trading. The internal data, describing how often players are selected by all players in the salary-cap style game, could be used strategically to build a lineup of players with a lot of potential who aren't popular selections among opponents.

If the companies were licensed casinos in Las Vegas, rules would govern who has access to what and when – it's likely a team of badge-wearing law-enforcement investigators would already be looking into the situation. Violating the rules would put valuable licenses to do business – both for high-ranking employees and the companies themselves – at risk.

Depending on the crime, employees could be prosecuted or added to the state's black book, formerly a home to mobsters and unsavory characters and more recently a yearbook for cheats and scammers banned from Nevada casinos for life.

"When companies get licensed, the very fact that these things could occur act as a deterrent to this type of activity," said Nevada Gaming Control Board chief A.G. Burnett.

Regulators approve house rules, negotiate disputes between players and the casinos, and require reserves that can pay off any unpaid wagers and future bets. State agents can show up whenever they want, unannounced, and audits are routine.

"You can certainly debate how much regulation is important for just about anything. But I don't think you can debate the proposition that daily fantasy sports needs to be regulated," said Joe Asher, chief executive of the US operations for sports betting company William Hill. "What you have going on is unregulated Internet gambling."

The operator of another, smaller, daily fantasy site called for outside oversight, too.

Amaya, which operates StarsDraft.com and is a licensed gambling operator for online poker said the recent incidents "demonstrate that the current self-regulatory practices have fallen short and that we need stricter state regulation." It said the company would lobby states to require regulations akin to those the gambling regulators set, including rules it already follows for its daily fantasy site.

Others say self-regulation would ultimately suffice if the industry proves to customers that the sites are fair, including stepping up internal controls.

"They've got a good thing going and they need to build these businesses," said Warren Packard, a venture capitalist and CEO of startup Thuuz Sports, which tracks particularly exciting moments in sports matches to play back highlights. "They need to be squeaky clean."

Both daily fantasy sports companies had hired outside law firms and former prosecutors to investigate the allegations raised and review their internal controls.

New York's attorney general sent letters to DraftKings and FanDuel Tuesday demanding they turn over details of any investigations into their employees.

FanDuel said it is also creating an advisory board led by Michael Garcia, a lawyer who led the investigation into the 2018 and 2022 World Cup bid process then resigned from the FIFA ethics committee in protest over the handling of his findings.

"There absolutely needs to be much stricter regulations from outside governing bodies. Otherwise the players are at the mercy of the sites which is not a good scenario," said David Paredes, a professional poker player who said he lost at least $180,000 to an unregulated poker site several years ago.

In 2007, he and friend Mike Fosco started to see something amiss when playing online poker on sites Absolute Poker and Ultimate Bet. They crunched the numbers and realized that some of the wins that were occurring were an extreme statistical anomaly, eventually helping prove there was a robot program looking at the other players' critical hole cards, the ones kept secret to bet and bluff.

"We should have never had to figure it out in the first place," he said. "It should have been up to the regulators."

The sites reported only to a Canadian tribal gaming commission that had an ownership stake in the sites themselves.

Mr. Peredes, a professional poker player, said he's a fan of the daily fantasy sites, but hasn't played, and less likely to join given the lack of oversight.

But if there's money to be made, "sometimes you have to take that risk as a gambler," he said.

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