FBI Investigating Business Model Of DraftKings, FanDuel

draftkingsDaily fantasy sports sites like DraftKings and FanDuel operate under a “games of skill” exemption to a federal law that prohibits banks from transferring money to most online gambling operations. But the Department of Justice is reportedly taking a closer look at how these companies actually work to see if their business models cross a legal line.

This is according to the Wall Street Journal and its ever-helpful “people familiar with the matter,” who say FBI investigators have been contacting DraftKings users to get some insight into how the site operates.

These sites and their defenders say these are legitimate games of skill — competitors pay an entry fee and then use their knowledge of professional sports and pro athletes to cobble together a team they believe will best the rest of the field. Detractors argue that at their core they aren’t very different from sports book operations found in Las Vegas casinos — the entry fees are little more than bets and, for all the knowledge one might have about pro athletes, a fantasy team’s fate is still in the hands of capricious elements like luck, injury, illness, and officiating.

The Journal’s sources say the DOJ has not yet reached any conclusions about the legality of daily fantasy sites, which have been on a huge marketing push this NFL season thanks to substantial venture capital investments and partnerships with pro sports leagues and major broadcast networks.

It hasn’t helped the burgeoning, unregulated industry that its employees have been making money competing on other sites.

The most prominent case involves a mid-level DraftKings staffer who won $350,000 in one competition on FanDuel — the same weekend he accidentally Tweeted out a list containing player information for a DraftKings tournament that should have been kept secret until after that competition had been locked down for the week.

Subsequent reports indicate that several other employees at both sites were benefiting from betting on competing sites.

The New York state attorney general’s office has sent letters to both sites demanding information on its employees’ daily fantasy activities.

In response to the Journal’s report of an FBI investigation, DraftKings says that, “It is entirely predictable that the government would follow up on the misleading reports about our industry,” but that it has no knowledge of the investigation. The site says it strongly disagrees with “any notion that our company has engaged in any illegal activities.”