New York Attorney General Launches Investigation of Daily Fantasy Sports Companies
The New York Attorney General, Eric Schneiderman, on Tuesday sent a letter to FanDuel and DraftKings informing them he was ordering an investigation in the recent controversy involving the daily fantasy sports services. Schneiderman asked for the names, job titles, and job descriptions of the employees who complile and aggresgate statistical data at the websites. The information the AG wanted included pricing algorightms and player ownership percentages from past contests.
Eric Scheiderman also wants the two companies to explain their policies and practices regarding employees who play in contests on rival websites. The current controversy stems from the case of Ethan Haskell, a DraftKings employee, who won $350,000 during an NFL Week 3 contest on FanDuel. Using the username “Haskele”, the employee entered the NFL Sunday Million contest, which guarantees a million-dollar prize to the winner. Haskell finished in 2nd place, which paid $350 thousand in winnings.
Ethan Haskell Controversy
Controversy ensued when Ethan Haskell later tweeted out the player start percentages for his starting lineup. Online fantasy sports services, starting with Rotogrinders, began to speculate whether Haskell had access to DraftKings’ “% Draft” statistics before he made his lineup decisions. The “% Draft” stat shows the percentage of entrants in a contest who added an NFL player to their lineup. By choosing players who are not added very often, this increases the odds of winning a contest by separating from the field of entrants, if a player with a low “% Draft” statistic does well.
Ethan Haskell contends he did not have access to that information. Instead, he claims to be a “grinder” who won because he obsessively studies statistics, using spreadsheets to track player data, and wins based on skill and expertise. DraftKings launched an internal investigation, then later backed up the claims by Haskell that he did not have access to inside information.
Daniel Wallach: “Akin to Insider Trading”
Despite that pronouncement, many in the DFS community consider the Ethan Haskell win a scandal. The New York Times published a quote from Daniel Wallach, a sports betting lawyer from Fort Lauderdale, Florida, who said, “It is absolutely akin to insider trading. It gives that person a distinct edge in a contest.”
When asked to comment, several ESPN experts said they viewed the comparison to insider trading with skepticism. Insider trading involves inside knowledge of where the market is headed, so an investor can earn money trading on a (virtual) sure-thing. A daily fantasy owner with draft percentage stats might know which plays are picked-over, but the person still has to find a combination of less-valued or seemingly overpriced players who are going to post huge point totals–not an easy task.
Anatomy of a Winning DFS Lineup
Ethan Haskell’s players with a low draft percentage who helped him win 2nd place were Andy Dalton and A.J. Green. Dalton and Green are two well-known Cincinnati Bengals players who had big games against the Baltimore Ravens. Dalton was a Top 5 fantasy scorer among quarterbacks in 2013, but had an unproductive 2014 after an offensive coordinator change and a transition to a run-oriented, ball control offense. AJ Green was injured for much of 2014, so his perennial big numbers were deflated for a year.
Both players are enjoying bounceback years in 2015, and Ethan Haskell seems to have spotted this trend earlier than most. In Week 3, the Bengals were playing a Baltimore Ravens Defense which remains respected among fans due to years of fielding stalwarts like Ray Lewis, Ed Reed, and Terrell Suggs. Two of those players are now retired and a third is on Injured Reserve, so the Ravens’ pass defense is one of the worst in the NFL.
Many DFS owners don’t buy that logic. They see an employee of DraftKings using his access to inside information to get an unfair advantage. The New York Attorney General Eric Scheiderman wants to see for himself whether DraftKings’ employees bet on such players more than the average daily fantasy football team owner.
DraftKings and FanDuel Joint Statement
To stem the tide of criticism, DraftKings and FanDuel issued a joint statement saying no wrongdoing had happened. While admitting employees had won contests on other sites before, they also announced a temporary moratorium on employees playing on rival companies’ websites. On Wednesday, FanDuel announced the policy would be in place permanently
Daniel Wallach says the decision couldn’t have come soon enough. Wallace said in his interview, “The single greatest threat to the daily fantasy sports industry is the misuse of insider information. It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place. If the industry is unwilling to undertake these reforms voluntarily, it will be imposed on them involuntarily as part of a regulatory framework.”
Daily Fantasy Sports and US Law
The daily fantasy sports industry is at a crossroads. For months, FanDuel and DraftKings have been in a competition for customers. That competition has played out through television, radio, and online advertisements, which seem ubiquitous to many sports fans. DraftKings has spent 3 times the cash advertising on stations like ESPN. FanDuel also broadcasts commercials, but depends more on corporate deals and a early positioning in the industry.
With the TV ads being broadcast on most sports-related channels, the industry is more visible than ever. That has caused politicians and public officials to question whether DFS gaming is legal, or whether a regulatory framework should be legislated. The Ethan Haskell scandal is no doubt going to encourage more lawmakers and officials to raise the specter of regulation.
