Congress Is Waking Up To The Unregulated World Of Draft Kings And FanDuel

WASHINGTON -- Senate Minority Leader Harry Reid (D-Nev.) and other lawmakers called for increased federal examination of daily fantasy sports Tuesday, just days after a new scandal engulfed the fast-growing industry . 

Over the weekend, an employee of DraftKings, one of the two largest daily fantasy web sites, admitted to releasing confidential information about the prevalence of NFL players in users’ fantasy lineups, a seemingly inadvertent data breach, which drew more attention when the same employee won $350,000 in a competition at FanDuel, DraftKings’ largest competitor. Employees of both companies were allowed to participate in contests on competitor sites until Tuesday, when both DraftKings and FanDuel changed their policies.

DraftKings has maintained that there is no evidence that its employee used the information to gain an improper advantage in the FanDuel contest. But the information’s release raises concerns about employees’ access to such data and the protection of daily fantasy users, experts said, and Congressional scrutiny is likely coming to the industry. 

“We learned yesterday ... that there’s absolutely scandalous conduct taking place with those programs -- fantasy sports,” Reid said Tuesday in response to a question about whether Congress should examine their legality. “So the answer is yes, and I think it should also be a warning shot to everybody that online gaming is a real scary thing and we’d better look at all of it.”

Reid, a former chairman of the Nevada Gaming Commission, had previously likened daily fantasy to traditional gambling.

Rep. Frank Pallone (D-N.J.), who in September requested that Congress hold hearings into the legality of the industry, also said that the data leak is a “prime example” of the need for further Congressional examination.

“Daily fantasy sports is functioning in a Wild West void within the legal structure,” Pallone said in a statement on Tuesday. “With little legal oversight and deep investments into these sites by the same professional sports leagues that oppose traditional sports wagering, these issues are ripe for Congressional review.”

House Energy and Commerce Chairman Fred Upton (R-Mich.) has not scheduled a hearing, though he indicated an openness to the idea after Pallone’s initial request. The latest scandal could make a hearing more likely.

“Recent reports raise additional questions about the safety, fairness and integrity of these new platforms for fan engagement,” an Energy and Commerce aide said. “We have a responsibility to protect consumers and ensure that those participating are not being taken advantage of. Our staff is looking into these issues.”

Pallone expects the committee to hold a hearing in the "next month or two," he said in an MSNBC interview Tuesday afternoon. 

Other committees also may take a closer look at the industry. In a statement, Rep. Hakeem Jeffries (D-N.Y.) called on the House Judiciary Committee to hold its own hearing "to determine whether permitting a multi-billion dollar industry to police itself serves the best interests of the American people."

Pallone and Sen. Robert Menendez (D-N.J.) also wrote a letter to Federal Trade Commission Chairwoman Edith Ramirez asking her to review the practices of DraftKings and FanDuel.

"These reports raise serious questions about the integrity of these online fantasy sports web sites, and it raises the question of whether there are sufficient consumer and competition safeguards to protect the integrity of these online games," the letter said.

The New York Times reported Tuesday evening , meanwhile, that New York Attorney General Eric Schneiderman had opened an investigation into the business practices of DraftKings and FanDuel.

DraftKings and FanDuel have traditionally kept the idea of outside regulation at arm’s length, particularly amid growing concerns from federal and state legislators, gaming commissions and attorneys general about the murky legal landscape around daily fantasy, which the industry says is protected by an exemption in a 2006 federal gambling law.

The companies issued a joint statement Monday that said both have “strong policies in place to ensure that employees do not misuse any information,” and “employees with access to this data are rigorously monitored by internal fraud control teams.”

Though the scandal doesn’t rise to the legal level of “insider trading,” it raises “real questions about consumer protections” and internal security controls at the company, according to Marc Edelman, a law professor and sports business expert at the City College of New York.

That, along with the rapid growth of daily fantasy, may mean the industry needs the increased attention, said legalsportsreport.com editor Chris Grove, who was among the first to report the scandal.

Even if the employee did not use the data improperly in this instance, the revelations indicate that daily fantasy is “an industry growing faster than its ability to self-police,” Grove said.

The data leak “suggests that if we’re not seeing abuse now, we can expect that abuse will at least be attempted in the future,” Grove said. “The idea those inclined to fraud have left this world alone doesn’t pass the smell test.”

There is no central body that monitors the industry the way gaming commissions regulate traditional gambling, but away from Congress organizations involved in sports gambling and integrity said the scandal made the case for governmental regulation of daily fantasy.

It “has underlined the clear and urgent need for government intervention in what is currently an opaque and under-regulated industry,” Chris Eaton, the executive director of the International Centre for Sport Security, a nonprofit that combats betting fraud and match fixing, said in an emailed statement. “Self-regulation in the exploding market will not work.”

“It is clear,” Eaton added, “that the U.S. government must act.”

This article has been updated to include comment from Rep. Hakeem Jeffries and to note that the New York attorney general has opened an investigation.