The FBI has launched its own investigation into daily fantasy sports, the Wall Street Journal reported Wednesday night, joining numerous state bodies, a federal grand jury, and possibly the Federal Trade Commission and the United States Congress.
The report, citing unnamed sources, contained few details about the probe, but it is seemingly focused on DraftKings and was prompted by the recent controversy involving data security issues.
According to the Wall Street Journal:
The probe is in the preliminary stage, two people said. It is part of an ongoing discussion within the Justice Department about the legality of daily fantasy sites…
The Justice Department is trying to determine whether daily fantasy games are a form of gambling that falls outside the purview of the [Unlawful Internet Gambling Enforcement Act] exemption. No decision on the matter has been reached….
It is unclear in the Wall Street Journal article why an FBI investigation is necessary to determine if daily fantasy games satisfy the UIEGA exemption, which makes a distinction between a bet or wager and a fantasy sports entry fee, as long as certain other criteria are met.
The New York Times picked up the story and provided a few other details.
Agents want to know whether employees of DraftKings passed on proprietary information or preyed on players in contests…
Both the WSJ and NYT reported that the FBI has been conducting interviews with registered DraftKings users to inquire about their experience playing on the site.
Numerous state entities have begun their own investigations into how daily fantasy sports contests fit with their specific statutes, and last week it was reported that a federal grand jury was convening in Florida under the direction of the US Attorney’s Office in Tampa. In question for Florida is the Illegal Gambling Business Act of 1970 and Section 849.14 of Florida Statutes.
The IGBA stipulates that an entity is considered an illegal gambling business if it violates the law of a state in which is it conducted, and in 1991 the Florida Attorney General issued an advisory opinion that the Florida law, which states it is “unlawful to bet on the result of a trial or contest of skill, etc.,” also applied to fantasy sports.
Also of note, the New York Times story brought up the issue of scripting, the industry’s inward-facing scandal of the summer—but not a topic that has been widely discussed in conjunction with the recent troubles.
It’s unclear how the issue of automated lineup entries and edits relates to the topic of proprietary information safeguards, but if/when an analysis of daily fantasy expands, it could have relevance.
“Automation speeds up the process of lineup creation and editing to such an extent that the playing field may not be quite level, and that could be problematic,” David Klein, an attorney with Klein Moynihan Turco in New York City, told DailyFantasyTalk in August. “Whether or not it changes the balance of skill and chance to a significant degree is debatable, but the odds would favor those using scripts as opposed to those who aren’t, assuming the skill level of the two players is otherwise equal.”