Fantasy sports world battles 'insider trading' claims

The lucrative world of online fantasy sports gaming faced an inquiry from New York authorities over allegations of "insider trading" critics say underscored the need to better regulate the multibillion-dollar industry.

The New York Times reported late Tuesday that New York state Attorney General Eric Schneiderman had written to fantasy sports companies DraftKings and FanDuel to request names, job titles and descriptions of staff with access to data that could potentially be used to gain an advantage.

Schneiderman also requested information from internal investigations carried out by the companies.

"It's something we're taking a look at -- fraud is fraud," Schneiderman said in a radio interview before the inquiry was announced.

The inquiry follows revelations that an employee from DraftKings had won $350,000 on rival site, FanDuel.

The employee stands accused of using data not available to the general public -- such as information on which players were the most popular fantasy picks -- to help win big on other sites.

In the past decade, fantasy sports websites in the United States have soared, with the numbers of participants skyrocketing from 12.6 million in 2005 to an estimated 56.8 million in 2015.

- Companies cry foul -

A proliferation of sites offer fans the chance to make money by assembling fantasy American football or baseball lineups, which then score points based on the actual performances of real athletes playing each week.

DraftKings has denied any wrongdoing on the part of the employee embroiled in the case, saying that an internal investigation had shown the worker had only received the data in question after he had entered his fantasy lineup on the FanDuel website.

The employee received the data at 1:40 pm on September 27 -- 40 minutes after the deadline for FanDuel team lineups closed, DraftKings said.

"This clearly demonstrates that this employee could not possibly have used the information in question to make decisions about his FanDuel lineup," DraftKings said in a statement.

"Again, there is no evidence that any information was used to create an unfair advantage, and any insinuations to the contrary are factually incorrect."

Both DraftKings and FanDuel had issued an earlier joint statement assuring that both companies had policies in place to prevent the misuse of information.

Access to data was limited only to employees who needed it to do their jobs. DraftKings and FanDuel have also banned employees from playing.

- 'Clarion call' for regulation -

Yet the company assurances failed to impress advocates of greater regulation.

Chris Grove, of the Legal Sports Report website, said the joint statement from DraftKings and FanDuel should serve as a "clarion call" for swift external regulation.

Grove argued that the controversy left unanswered questions "because there's no central force articulating and enforcing minimum standards, no one entity that can credibly describe the state of the industry on these key issues."

"That is simply an unacceptable status quo when millions of players will risk billions of dollars this year on games they've been told -- but can't be shown -- are fair," Grove stated.

The controversy is also likely to amplify calls from US lawmakers to examine the fantasy sports industry more closely.

Last month, Democratic Congressman Frank Pallone, a senior member of the House Energy and Commerce Committee, called for a hearing to look at fantasy sports and its relationship to gambling.

"Despite how mainstream these sites have become, though, the legal landscape governing these activities remains murky and should be reviewed," Pallone said.