Justice Department, FBI Reportedly Launch Probe into Daily Fantasy Sports

Matt Fitzgerald@@MattFitz_geraldCorrespondent IIIOctober 15, 2015

In this Wednesday, Sept. 9, 2015, photo, an employee in the software development department of DraftKings, a daily fantasy sports company, walks past screens displaying the company's online system stats in Boston. The daily fantasy sports industry is eyeing a breakout season as NFL games begin. And its two dominant companies, DraftKings and FanDuel, are touting lucrative opening week prizes to try to draw more customers as more competitors pop up. (AP Photo/Stephan Savoia)
Stephan Savoia/Associated Press

The legality of daily fantasy sports is reportedly being investigated by the federal government.

According to a Wednesday report by the Wall Street Journal's Brad Reagan and Devlin Barrett, the FBI and U.S. Justice Department have launched a probe to determine whether daily fantasy sports business models violate federal law.

Boston customers who participate in daily fantasy contests with DraftKings Inc. have been interviewed by FBI agents. A DraftKings spokeswoman released a statement in response to the federal probe, which was contained in the WSJ report.

"It is entirely predictable that the government would follow up on the misleading reports about our industry," said the statement. "We have no knowledge of the specifics of any federal investigation but strongly disagree with any notion that our company has engaged in any illegal activities."

This investigation comes in response to a DraftKings employee winning $350,000 on rival daily fantasy site FanDuel after he accidentally released information about the most frequently used players in DraftKings' Millionaire Maker contests.

In light of that development, Forbes' Darren Heitner wondered why venture capitalists hadn't pushed DraftKings for "more control of the message": Β  Β  Β 

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Since daily fantasy sports are considered games of skill rather than luck, they aren't considered to be outlets for gambling.

The Justice Department has yet to decide whether the games are far enough removed from gambling to be considered exempt under federal law. The legislation in question is from 2006 and barred "financial companies from transferring money to online gambling sites," per Reagan and Barrett.

Millions of dollars in prizes are being rewarded every week for contests on DraftKings and FanDuel. Also, their advertisements are running rampant, and their business practices aren't regulated.

According to Reagan and Barrett, the Massachusetts Attorney General's office is discussing with the companies the implementation of consumer protections. Furthermore, the New York Attorney General's office is requesting a list of policies among other private data from both companies.