A lawsuit was recently filed against two large fantasy sport companies over their employees’ possible use of insider information. FanDuel and DraftKings are companies that allow fans to formulate their own “fantasy teams” from the athletes playing in the professional sporting leagues. Some players are worth more than others and how those players perform determine whether the fan wins and how much. Each week, the fans play in “pools” against other fans and select players using metrics set by the fantasy sporting companies.

Some pools cost as low as $20 to play, while others cost several thousand dollars. The larger the pool, the larger the payout. The lawsuit alleges that employees of the fantasy sport companies had early access to certain metrics and betting trends that the average fan and player did not have. The lawsuit alleges that this material information was not disclosed and should have been. The fantasy sport companies have confirmed that their employees have won approximately $6 million, out of a total of more than $2 billion that has been paid out to date.

This lawsuit is the latest fallout from a controversy that erupted when it was discovered that a DraftKings employee had inadvertently released information about which athletes were most likely to end up on the rosters. The week before, the employee, Ethan Haskell, had won $350,000 playing in contests on FanDuel, raising questions about whether he had used proprietary information to gain an edge on the competition.

The lawsuit questions the companies’ decision to let their employees play on other sites. Until recently, workers at FanDuel and DraftKings didn’t seem to see anything wrong with playing fantasy sports while running fantasy sports companies. Both companies had banned players from playing on their own sites, but didn’t restrict any other action. At DraftKings, employees were actively encouraged to play on FanDuel, according to a former employee. Thomas Starr, who worked for both DraftKings and Draftstreet, another daily fantasy sports company, said one of the draws of working at a fantasy company was spending the day talking about playing the games.
“It’s an ongoing conversation all day, like an open forum, who’s betting on what, who’s the sleeper today,” he said. DraftKings and FanDuel have now banned their workers from playing fantasy sports for money, a restriction that parallels the practices of some casino companies that prohibit employees from placing bets at competing casinos.

Although the class action lawsuit was filed on behalf of fans who played in DraftKings and FanDuel pools, these companies are also under investigation by the New York Attorney General and are facing calls for congressional hearings. The powerful and influential Nevada Gaming Control Board has issued a “cease and desist” order barring both companies from operating in Nevada unless they apply for and are granted gaming licenses. The companies may well face scrutiny by the U.S. Federal Trade Commission over possible violations of consumer-protection laws. We will continue to monitor this matter and will do an update in the December issue.

Source: Insurance Journal

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