We’ve been following the developing DraftKings / FanDuel insider trading controversy over recent days, but so much has already been said that we didn’t have much of value to add to the discussion.
This afternoon, the scandal hit a new low with news that DraftKings has pulled its advertising from ESPN. It’s unclear how long or to what extent, exactly, the fantasy site’s advertising has been affected, but ESPN did confirm that they spoke with the DraftKings people and mutually agreed to cool it a bit on the advertising.
An ESPN spokesman told USA Today that “it is a standard procedure for us to pull these kind of sponsorships and integrations when we are covering breaking news. We look to avoid any suggestion of influence on our coverage.”
When it Rains, it Pours
It has just been one hit after another for daily fantasy sports apps this last week since DraftKings’ inadvertent release of ownership data prior to Week 3’s Millionaire Maker. The release of that information was problematic for two reasons. First, access to full ownership information makes it a simple matter to gain a significant edge over the competition in big GPP contests where the key to winning is drafting “sleepers” who have low ownership percentages but are capable of playing breakout games.
Additionally, the fact that this information is even accessible in the first place is a problem. What’s to stop an employee from using that information to gain an edge? Or what’s to stop that employee from sharing key ownership information with a confidante who doesn’t work for DraftKings?
It would have been bad enough if the story ended there. It only gets worse. DraftKings employees are prohibited from playing at DraftKings, but there’s nothing stopping them from playing elsewhere. We later learned that DraftKings employee Ethan Haskell took second place at FanDuel’s Sunday Million that same week for a $350,000 payday.
So here’s the problem: DraftKings employees may not be able to use insider information to play on their own platforms, but there’s currently nothing stopping them from using that information at other DFS providers. DraftKings ownership data may not perfectly reflect FanDuel ownership data, but it’s probably close enough to give anyone with that information a considerable edge. Presumably, the same could also happen if FanDuel employees use their own internal information to play over at DraftKings.
That’s the quick summary of the story so far.
Over the last couple of days, blog posts, news stories and TV coverage have piled it on with coverage of the controversy. If DraftKings or FanDuel hoped they could issue a quick press release and move on, they’ve been sorely disappointed. The story only seems to gain momentum.
Losing Advertising is a Big Deal
The latest turn of events has ESPN actually pulling back on DraftKings ads. This is huge as DraftKings battles FanDuel for the top spot in daily fantasy. Both sites have spent millions upon millions on advertising (to the point where neither company has even seen a profit yet).
If the advertising and hype train derails, DraftKings could have some serious trouble on its hands. They are pumping everything they have into advertising, attracting new players and hyping up their massive guaranteed prize pool contests. They need new players to keep the engine running. I really hope they practice smart bankroll management as us mere DFS players do.
And lest we forget, there are still many who are either outright opposed to daily fantasy sports or highly skeptical of its claim to be different than traditional sports betting. Recent events will only provide ammo to those who want to see the industry heavily regulated or outright prohibited.
This isn’t to say DraftKings is completely ending all advertising. The only thing we know for now is that ESPN and DraftKings are easing up a bit on the throttle for now. Interesting developments are certainly coming down the pipeline. We’ll be sure to stay more up to date on the story as it develops.
Update and Summary of Events to Date
Daily fantasy sports remain in the headlines for all the wrong reasons right now. FanDuel and DraftKings have both issued statements and political types have begun sniffing around. Here’s an update on the latest fallout since the scandal first broke:
- 9/27/15: DraftKings employee releases data of player ownership percentages ahead of NFL Millionaire Maker contest
- 10/2/15: DFS Report breaks the news of playa data leak
- 10/5/15: FanDuel and DraftKings issue joint statement
- 10/6/15: New York Times covers the story and brings the scandal to the attention of the general public
- 10/6/15: Congressman Frank Pallone, NJ issues statement on the scandal
- 10/6/15: NY AG opens inquiry into DFS
- 10/6/15: Amaya calls for more regulation of DFS in the US
- 10/6/15: Less DraftKings advertising on ESPN
- 10/6/15: MLB issues statement
- 10/8/15: Class Action Lawsuit
- 10/9/15: Yahoo issues statement
Events have moved quickly since a DraftKings employee first inadvertently published the fantasy ownership details of every player in the NFL before DraftKing’s major Sunday event (the Millionaire Maker) lineups were closed.
DFS Report first reported the story after a thread on Rotogrinders pointed out the early release of data. Three days later, DraftKings and FanDuel finally issued a joint statement addressing the issue. Things spiraled outward from there when the New York Times took up the story and published it for the world to see.
October 6th continued the fun with a variety of developments. First, Congressman Frank Pallone speaking on the issue and stating the need for regulation. His goal appears to be less about targeting DFS and more about paving the way for New Jersey to legalize sports betting.
That same day, the New York Attorney General opened an inquiry into FanDuel and DraftKings operations. The AG wants a variety of internal data and details about how the major DFS providers prevent fraud and protect the integrity of their games.
Also on October 6th, Amaya’s Head of Corporate Communications called for further regulation of the DFS industry in the United States. As noted earlier in this post, DraftKings stepped back on its promotion of DraftKings that same day while the MLB issued its own statement on the matter.
On Thursday the 8th, one DraftKings customer initiated a class action lawsuit on the basis that DraftKings claims anyone can win with the right knowledge when in fact DFS industry employees are able to skew the results to their favor with inside information.
On Friday the 10th, Yahoo Daily Fantasy also issued a statement saying that all employees are banned from playing real money fantasy.
That’s the basic summary of events up to date. More is sure to come and we’ll be staying on top of things moving forward.