Unregulated Fantasy Sports Industry Rocked By Insider Trading Scandal
ROBERT SIEGEL, HOST:
Is fantasy sports a harmless distraction that preoccupies avid sports fans or an unchecked multibillion-dollar industry or both? Two companies that run fantasy contests for cash prizes - DraftKings and FanDuel - have spent more than $500 million on TV ads so far this year. And we're not even halfway through the NFL season. And now there are suggestions of possible unethical behavior by someone who worked for one of these companies. John Ourand has been following this, and he's in our studio. He's with Sports Business Daily. Welcome to the program.
JOHN OURAND: Thank you.
SIEGEL: Let's get to the basics of this. Sports gambling is against the law in nearly all states, but fantasy is legal. How's that?
OURAND: Fantasy is legal much like the NCAA brackets are legal, and it's something fun that creates interest in the games. So there's really no need to regulate it 'cause you're just playing against friends.
SIEGEL: Actually, it's turned into a huge business.
OURAND: Well, that - and that's what - where daily fantasy comes in. You have these two companies - FanDuel and DraftKings. What they're doing now is they're allowing you to play fantasy every single day.
SIEGEL: OK. Let's talk about what happened this week that has been described as something resembling insider trading. What's the story?
OURAND: So the story is that there's a mid-level employee from DraftKings who went to FanDuel and competed and won about $350,000, so...
SIEGEL: Excuse me. He won about $350,000.
OURAND: Apparently. It was much more than his yearly salary at DraftKings. And so one of the problems is that the appearance that that creates of insider trading. Like, he has certain knowledge that other people like you and me, if we just log on, don't have.
SIEGEL: These companies insist that this isn't gambling, that this is a - it's both a fun activity but it also reflects skill. I guess that's what distinguishes it. That would imply that there are things you could know that would put you at a great advantage in placing these bets. What's something that somebody inside one of these companies might know that you and I don't know?
OURAND: That was the other problem that arose is that this employee put out on the Internet a list of who bet on which players, which, in daily fantasy, matters a lot 'cause if you know if, let's say, 75 percent of the people want Aaron Rodgers as their fantasy quarterback that day, it would behoove you to take Peyton Manning or Tom Brady or somebody else because...
SIEGEL: The pot - the payoff - for Rodgers is going to be divided by all those people.
SIEGEL: But the major league sports are - they don't seem to be opposed to any of this. They seem to be encouraging it.
OURAND: They love it because it keeps - the more people that play fantasy the more people that watch the games until the very end. If you have a receiver going in a blowout game, you just want him to catch that ball or catch that touchdown at the end of the game. And in fact...
SIEGEL: That's the same effect as the point spread in sports gambling.
OURAND: It's much akin to gambling, but it's a game of skill.
SIEGEL: Yeah, right, right, right, right, right, right, right.
OURAND: And if you look at the investors - FanDuel has, as its investors, the NBA. You have Time Warner, NBC and Comcast. Investors in DraftKing are MLB, NHL, MLS - Major League Soccer that is - Fox Sports. So you have these big leagues and big media companies that are taking ownership interest in these companies that are investing a lot of money in them. So they have a vested interest in wanting to see these companies succeed.
SIEGEL: John Ourand of Sports Business Daily, thanks for talking with us.
OURAND: Thanks for having me. Transcript provided by NPR, Copyright NPR.