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Along with reviews by regulators and lawmakers, the Boston-based daily fantasy sports business DraftKings now faces a federal class action lawsuit.
A customer in Kentucky has brought suit against both DraftKings and rival company FanDuel. It claims that customers should have been informed they were sometimes competing against people with inside information who were employees of one of the daily fantasy sports sites.
The two companies no longer allow their workers to take part in games on each other's sites. But some customers are dropping their business amid the shakeup.
Taking in the National League Wild Card game at Sunset Cantina in Brighton, Sean Watland describes how he totally gets into playing daily fantasy sports. That’s where you make up rosters of actual pro sports players to compete for cash.
"The great thing about it and the scary thing about it is how much fun it is," Watland said.
But the 24-year-old has stopped putting money into his account at DraftKings. Watland is not happy with the news that a DraftKings employee posted valuable internal company data online. The next day, that same employee won $350,000 in a contest at FanDuel, a similar website.
"Frankly, I’m not surprised. I don’t know that I would say it’s rigged," he said. "I would say that it’s unfair."
DraftKings’ CEO, 34-year-old Jason Robins, says there’s no evidence his employee gained an edge looking at private company data.
"All I can say to those people is: If we’ve let you down in any way I am sorry. Rest assured that I am all over this," Robins said.
Still, DraftKings has hired a law firm to investigate. FanDuel is also reviewing its practices. Both companies this week banned their employees from playing fantasy sports for money.
"Hindsight’s 20/20, and I’m kind of kicking myself, because, you know, we should have changed this policy earlier and I think it would have avoided all of this," Robins said.
But some observers say these companies have ignored questions about their practices because they were focused on making money.
Ben Brown is with the industry news site, Daily Fantasy Sports Report.
"Now this is the watershed moment that there is some change that definitely needs to happen if we want to continue growing," Brown said.
That change could be forced on the industry, which argues it does not need to be regulated like gambling. But this week, New York’s attorney general launched an inquiry. And Massachusetts’ Attorney General Maura Healey wants to know if DraftKings is protecting customers.
"We’re not looking to shut them down," Healey said. "But I do think it’s right that people are a little bit miffed. You know, they were literally playing against the house, and not surprisingly the house made out pretty well."
This crisis could not not have come at worse time. DraftKings and FanDuel have gained millions of customers with the help of an expensive ad blitz over the past month. Now they have big-time trust issues.
But not all their customers are cutting off their business.
"I have a DraftKings and a FanDuel account, and what happens on the field happens on the field," 33-year-old Seth Worby said at Sunset Cantina.
Worby says he’s going to keep playing. Some people may have inside data, but Worby says it’s still really hard to choose the winning players.
"They have to pick a team just like me," Worby said. "If Tom Brady decides to show up and play, then Tom Brady decides to show up and play, you know. Good luck to them, they’re not catching touchdowns."
But the companies are catching a lot of flak, and now attention from Congress. The House Energy and Commerce Committee says it’s going to look into the industry.
This segment aired on October 9, 2015.
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