Last week, DraftKings writer Ethan Haskell inadvertently leaked ownership and lineup data pertaining to his employer’s biggest contest—the Millionaire Maker—before the start of all the weekend’s games. Doing so made him at the least appear to be committing, if not straight fraud, something that looks a lot like it.
Winning a contest like Millionaire Maker, which has hundreds of thousands of participants, is less about buying up the best players than about finding market inefficiencies and selecting players who will help the fewest amount of your competitors while running cheap relative to their production. (This is basic tournament strategy; it’s the same reason you’re discouraged from picking all chalk in a large March Madness pool.) Thus, when you select a lineup, you have to try, blindly, to determine both the bargain value and how under-the-radar your lineup will fly.
Of course, if you have this data ahead of time—as certain DraftKings employees evidently do, or did—you have a massive advantage over your competitors. There’s no guesswork, only algorithmic scheming. You can remove the behavioral uncertainty from the equation and play knowing all opposition strategies.
Haskell, apparently possessing this information, went and played a similar mass entry (GPP, or Guaranteed Prize Pool) contest at FanDuel—the other of the two monopolistic daily fantasy sites—and took second place and $350,000 from a $25 bet. DraftKings employees are prohibited from playing their own daily fantasy games, but are allowed to freely play on other sites.
This wouldn’t be an issue if different DFS sites had significantly different lineup data and game structure, but salaries are analogous between the sites, and the structure is the same. According to a forum post by RotoGrinders co-founder Cal Spears that was corroborated by a DK executive, Haskell did not have access to the data before he set his winning lineup—a point that casts some doubt on butch headlines like The New York Times’s “Fantasy Sports Employees Bet at Rival Sites Using Inside Information”—but the availability of the information is still causing legitimate eyebrow-raising.
Because DFS is legally classified as skills-based rather than gambling, it doesn’t draw the regulatory scrutiny of, say, online poker, which has had its own share of employee scandals involving insider data. Thus, we have people who work for the biggest two DFS companies having access to information that is ostensibly useless since it only pertains to their own site (which they can’t play). But the information is not innocuous, and it gives those with inside information a decided edge. An anonymous industry employee told Legal Sports Report that “a significant number of the whales at the top DFS sites are employees – often executives – of other sites.” They logically wouldn’t put money in their competitor’s pockets unless it was significantly beneficial to them.
Given the amount of money that stands to be made and the ease of moving across sites, this is a climate ripe for insider trading. We see trading like this across industries. It would be naive to think DFS is immune.
The two sites released a joint statement responding to the leaks which said:
Nothing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers. Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs. Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.
However, we continue to review our internal controls to ensure they are as strong as they can be. We also plan to work with the entire fantasy sports industry on this specific issue so that fans everywhere can continue to enjoy and trust the games they love.
About those internal controls: the Fantasy Sports Trade Association (FSTA) regulates fantasy sports from within. Two of its board members are the CEOs of our friends FanDuel and DraftKings. So even if you believe that the FSTA has the clout and influence to keep these massive, rapidly expanding companies in check, you’d also have to trust that the two men who stand to make the most from them would have it in their hearts to play along and ensure fairness at every step. In the absence of any sort of official regulatory oversight, we have no way to know how to substantiate the claim that there is no insider trading or collusion.
Daily fantasy’s classification as a skill-based game is what allows it to exist as a $2.5 billion industry and not an underground, shadowy system like out-and-out sports betting. DraftKings and FanDuel spent a combined $32 million in advertising during Week One alone (some of it even made its way here to Deadspin!). As they grow and grow, which seems likely given their attempted takeover of any and all advertising spaces where the viewer might have a passing interest in sports as well as their creeping advancement into editorial content, they will undoubtedly draw the attention of the government.
So the Haskell leak and subsequent profit may or may not be the product of insider trading (there’s no incentive or legal requirement that for DraftKings to announce that Haskel committed fraud if he had), but it is absolutely a canary squawking in the DFS coal mine that a predatory faux-gambling industry has built up to take advantage of short attention spans. That mine is very large, and very much in need of regulation. DraftKings and FanDuel may be broadly trying to take over the world, but the legal window permitting their attempts is very narrow.