FBI, Department of Justice investigating daily fantasy operators

Customers of DraftKings Inc have been approached by Federal Bureau of Investigation agents from the Boston office, asking them about their experiences with the company, the WSJ said, citing a person familiar with the matter. DraftKings, as well as rival company FanDuel, acknowledged that their employees – many of whom regularly rank among the most consistent big winners – have played and won significant money on each other’s sites.

Meanwhile, new crackdowns from other state or federal lawmakers could be on the way after both companies aired a heavy round of television advertising in recent weeks.

Daily fantasy sports contests generally require entrants to pay for a chance to win cash prizes – a system that recently prompted Massachusetts Attorney General Maura Healey and US Representative Frank Pallone Jr. of New Jersey to question whether they should be considered illegal online gambling. And commissioners for the Football Bowl Subdivision want DraftKings and FanDuel to stop offering college sports fantasy contests on their sites.

The decision comes amid a growing backlash against the sites, including a federal probe into the sites’ activities. Sports gambling is largely illegal or unregulated outside of Nevada, but the 2006 law provided cover for paid fantasy sports under certain conditions, including a requirement that winning outcomes “reflect the relative knowledge and skill of the participants”.

Hundreds of millions of dollars in venture capital and player money are flowing into the booming fantasy-sports industry, which counts sports leagues, Google’s investing arm, and major media companies such as Comcast and 21st Century Fox among its investors.

READ the full report from the Wall Street Journal here.

FanDuel and DraftKings are privately owned and both valued at more than $1 billion. The employee had access to confidential company data, although both sites insist that he did not have the information before making his choices in the FanDuel game and did nothing improper. DraftKings has hired an investigator to look into unspecified allegations against an employee.

“It is entirely predictable that the government would follow up on the misleading reports about our industry”, a spokeswoman said.

Daily fantasy-sports sites might be facing a rather harsh reality. The companies have until Thursday to respond.

New York Attorney General Eric Schneiderman announced a probe of DraftKings and FanDuel last week, and set an October. 15 deadline for the services to turn over a trove of information, including policies about data usage and employees.