FBI, DOJ investigating daily fantasy sports legality, legitimacy of UIGEA exemption

fbi-daily-fantasy-sports-investigationThe Federal Bureau of Investigation has launched an investigation into whether daily fantasy sports (DFS) is a form of gambling that violates federal law.

On Wednesday, the Wall Street Journal quoted sources saying FBI agents had been contacting customers of DFS operator DraftKings regarding their interactions with the company. The probe is reportedly part of a larger discussion within the US Department of Justice as to whether DFS falls under the fantasy sports exemption of the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). Hint: even the UIGEA’s architect doesn’t think DFS qualifies.

The New York Times subsequently reported that the investigation was primarily focused on DraftKings and that several “prominent players” were being asked whether anyone at the company had passed on privileged information or used such info to “prey” on other players. The FBI was also curious as to whether the site encouraged or solicited players from regions where DFS is prohibited.

A DraftKings spokesperson offered a somewhat tone deaf statement to the WSJ, saying it was “entirely predictable” that the government would respond to the “misleading reports about our industry.” The spokesperson claimed no knowledge of any federal investigation but “strongly disagree with any notion that our company has engaged in any illegal activities.”

Those ‘misleading reports’ refer to the mainstream media pouncing on news of the mishandling of in-house data by a DraftKings employee and the subsequent revelation that the same employee had won $350k that same weekend playing at rival FanDuel. The ensuring uproar led both operators to (eventually) impose permanent bans on their employees playing for cash at any DFS site, followed by the hiring of of outside law firms to review each company’s in-house policies and practices.

But those announcements came too late to stop a flurry of state and federal authorities taking a closer eye at the DFS industry. New York’s Attorney General Eric Schneiderman has given both DraftKings and FanDuel until Thursday (15) to answer a series of questions regarding their data handling, while a US Attorney in Florida has reportedly convened a federal grand jury to examine DFS for potential violations of the Illegal Gambling Business Act.

Still more trouble may come from authorities in Louisiana, one of five states – along with Arizona, Iowa, Montana and Washington – in which DFS play is considered to be legally dubious. In the latest class action lawsuit filed against DFS operators, a New Orleans resident named Artem Genchanok claims to have deposited and played on both DraftKings and FanDuel from his home, despite both operators insisting that they block Louisiana residents from accessing their sites.

Whatever the merits of Genchanok’s specific claims for redress, both operators are in for a world of hurt if he can prove he accessed their sites from his home. Legislators and lawmen will have a field day trying to determine what exactly constitutes the sites’ ‘know your customer’ protocols.

Meanwhile, federal politicians continue to express dismay over DFS’ lack of regulatory oversight, which has led DFS operators to lobby up. The Hill reported that FanDuel hired Washington lobbying firm Steptoe & Johnson on Sept. 17, three days after New Jersey Rep. Frank Pallone called for hearings into the DFS industry.

Ironically, Steptoe & Johnson are also under contract to promote Sheldon Adelson’s Restoration of America’s Wire Act (RAWA), the federal legislation that would ban most forms of online gambling. And DFS is gambling, despite DFS operators’ well-rehearsed ‘game of skill’ mantra. However, RAWA doesn’t specifically ban DFS, so Steptoe & Johnson can continue to both suck and blow (and cha-ching) for at least a little while longer.