DraftKings and FanDuel Look to Change Internal Regulations Following Scandal

This past week, reports surfaced that an employee of DraftKings, a fantasy sports betting company, used internal information to win $350,000 on the competitor website, FanDuel.  According to statements made by both companies on Wednesday October 5, 2015, the billion-dollar startups will now aim to better their internal regulations.

The fantasy sports betting industry has surged over the last year, with DraftKings and FanDuel leading the way.  Industry consultant Eilers Research projected that such companies will generate around $3.72 billion in entry fees and $370 million in revenue by the end of 2015, and $17.7 billion and $1.77 billion, respectively, by 2020.

With same-day fantasy sports betting, you want to differentiate your fantasy lineup—that’s the name of the game.  For example, when a NFL player performs well in his real-life game, a user with that athlete on his roster will win money.  The user’s winnings, however, are limited by the athlete’s popularity; the potential winnings generated by a player’s good performance is reduced as the number of user rosters he is added to increases.  This is the game of odds, known to sports betting of all types, fantasy or not.

The fantasy betting companies maintain data on the athletes’ popularity leading up to the game days.  Only a few employees in each company have access to this data because, if known, the information would provide a great advantage to the paying website user.  A user who knows which players are popular can select less popular athletes, thus differentiating his lineup and increasing his potential earnings if successful.

Reportedly, the DraftKings employee used the company’s player popularity data to win the $350,000 on FanDuel’s site, sparking the controversy.  Both companies have implemented new policies since the incident, which prohibit their employees from gambling on any one-day fantasy site.  In addition, following New York Attorney General Eric Schneiderman’s request for insight into the internal operations of DraftKings and FanDuel, the websites have retained legal counsel to review the companies’ internal policies and to recommend new rules and regulations.

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