Why the Government Is Investigating Fantasy Sports

Daily fantasy sports, where users fork over an entry fee and compete for a cash prize based on the performance of players in real pro games, has grown into a $3.7 billion industry almost overnight. Now the FBI and multiple state attorneys general are probing DraftKings and FanDuel, the leading companies in this lightly regulated world. Here’s what’s driving the controversy.

INSIDER-TRADING ALLEGATIONS

A DraftKings employee with access to sensitive data later won $350,000 playing on FanDuel. Both DraftKings and FanDuel now bar employees from playing on any sites; DraftKings says an investigation cleared the employee of any wrongdoing. Still, consumers have filed at least eight class-action lawsuits against the companies.

SHADES OF GAMBLING

Sports gambling is illegal nearly everywhere except Nevada. But a 2006 federal act barring unlawful online gambling exempts fantasy sports, designating it a game of skill. On Oct. 15, however, Nevada officials ruled that daily fantasy was indeed a form of wagering and prevented sites from operating there without gaming licenses. Members of Congress have also called for hearings on the legality of daily fantasy.

POWERFUL INVESTORS

The NBA, NHL and MLB own equity in either DraftKings or FanDuel, and Robert Kraft, owner of the NFL’s New England Patriots, is a DraftKings investor. So pro sports leagues stand to profit from daily fantasy’s growth, while all but the NBA publicly oppose sports gambling.

–SEAN GREGORY