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FanDuel Hires Former U.S. Attorney General for Self-Audit, Bans Employees From Playing Fantasy Sports for Money

FanDuel wants to prove it's employees aren't cheating.

Tony Feder / Getty Images

FanDuel says it has nothing to hide, and now it’s trying to prove it.

The online fantasy sports site has asked former U.S. Attorney General Michael Mukasey to perform an audit in light of recent allegations that its employees have used access to internal data to increase their chances of winning money in pay-to-play fantasy sports contests. It also permanently banned its employees from playing any fantasy games for money on any site.

In a story on the matter earlier this week, the New York Times likened such access to insider trading. New York Attorney General Eric Schneiderman also announced Tuesday that his office is investigating FanDuel and rival DraftKings.

“[Mukasey] will have the freedom and authority to look at any areas he thinks appropriate,” FanDuel wrote in a blog post. “We will ask him and his team at the law firm Debevoise & Plimpton to develop a set of recommendations for us to adopt and to highlight any areas where our controls can be strengthened.”

The daily fantasy sports industry, although almost entirely unregulated, has been slowly surging for the past year. It really gained national attention at the beginning of this year’s NFL season, thanks in large part to the hundreds of millions of dollars both companies are spending on marketing. The fantasy games are attractive to sports fans because they can win money — some of the larger prizes are over $1 million — and to media properties because they can make money, both from the ad spend but also from better ratings thanks to an increased interest in the games.

In short, industry leaders FanDuel and DraftKings appeared to be cruising.

But they both hit a massive speed bump this week, prompting FanDuel’s announcement on Wednesday. It all started 10 days ago when a DraftKings employee tweeted out user information about which NFL players its paying users were choosing for their fantasy teams. The issue is that access to this kind of info, which is not available to the public, can give a player a serious leg up.

How? When thousands of fantasy players enter the same contest, they create their respective lineups from the same pool of eligible NFL players. Differentiating your lineup from the masses is often a key to winning. Knowing which players are most popular can help you do just that.

The kicker in this scenario is that this DraftKings employee, the same one who tweeted the internal data, went on to win $350,000 that same weekend playing in a paid fantasy tournament on rival site FanDuel. (Neither company allowed its employees to play on its own site.)

DraftKings claims this employee did not use the insider info to draft his own team, but it certainly raised eyebrows for those who follow the industry. Both companies claim this kind of data is only available to a small group of employees who need it for their jobs. The question then becomes why did this employee have it and who else could access the same stuff?

The backlash was bad enough that DraftKings and FanDuel, two companies in the midst of a bitter business rivalry, released a joint statement Monday claiming employees don’t abuse company data. ESPN then temporarily pulled DraftKings sponsorships for specific segments of its programming; no more “This segment brought to you by DraftKings” promos, at least temporarily. The thinking is that ESPN wants to avoid any suggestion that DraftKings or paid fantasy sports are influencing its coverage.

It’ll also be interesting to see how company employees respond to FanDuel’s pay-to-play ban. Many fantasy sports employees were fans of the product before they were employees of the company. It’s possible that some might even leave, or that FanDuel could have difficulty recruiting down the road.

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