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Fantasy sports firms respond to cheating concerns

Can daily fantasy football sites score financial touchdown?
Can daily fantasy football sites score financial touchdown?

Two of the biggest companies in the $1.5 billion business of fantasy sports, DraftKings and FanDuel, have banned employees from playing fantasy games for money amid claims that a worker may have used insider information to win a six-figure prize.

The two companies, along with the Fantasy Sports Trade Association, said in a statement that the ban would be in effect until a detailed industry policy on data access is established.

The New York Times reported that a DraftKings employee had admitted to accidentally posting confidential data last week. That posting is what alerted fantasy players to the possibility of insider trading.

A forum on RotoGrinders, a fantasy sports media site, includes a post that appears to be from a DraftKings employee in which he apologizes for posting information in error. He wrote that he only played on rival site FanDuel and denied that he had an advantage. But other posters said that FanDuel showed him as having won $350,000.

Fantasy sports works like this: Fans choose from real players in a draft or an online selection process assemble a fantasy team. The players’ real-game statistics are compiled and compared to see whose fantasy team has done the best.

The data the DraftKings employee supposedly used was the percentage of fans who had chosen certain players. Such inside information could give a fantasy player a leg up.

For example, if you know that Vikings running back Adrian Peterson had been chosen by nearly 100% of fantasy owners in a given league, you could benefit by picking another top running back who had been picked by only 50%.

But the bigger threat to the business is the potential that fans come to believe the games are rigged.

A billion-dollar business with big prizes

The potential for cheating set off alarm bells for the fast-growing business, which has little formal regulation and big money at stake. DraftKings alone expects to pay out close to $2 billion in prizes this year.

The three organizations said the FSTA charter requires member companies to restrict employee access to competitive data for play on other sites, and there is no evidence that any employee or company has violated these rules.

“That said, the inadvertent release of non-public data by a fantasy operator employee has sparked a conversation among fantasy sports players about the extent to which industry employees should be able to participate in fantasy sports contests on competitor sites,” they said in a statement.

DraftKings and FanDuel are the largest players in the fantasy sports industry behind three big names: ESPN, Yahoo and CBS.

FanDuel was started in 2009, and DraftKings in 2012. They have achieved multi-billion dollar valuations from investors.

Each firm recently raised about $300 million in financing, which they’re using to blanket stadiums and airwaves with ads. Some 56 million people play fantasy sports.

Between them, the two companies have sponsorship deals with 28 of the 32 NFL teams, worth an estimated $6 million to $7 million to the teams, according to research firm IEG.

Sports leagues, real team owners and media companies have invested in the growing fantasy sports business.

For example, Major League Baseball and the National Hockey League have equity stakes in DraftKings, and the National Basketball Association has equity in FanDuel. Time Warner, the parent company of CNN, has made an investment in FanDuel.

Although the National Football League itself has not taken a stake in either company, a number of NFL and NBA team owners have invested in FanDuel.

And DraftKings recently signed a deal with the NFL Players Association to use current players in broadcast, print, social media, digital and mobile ads. The NFLPA declined to comment Monday.

Little regulation

Fantasy sports has been criticized by some for getting close to the line of illegal sports gambling. Though federal law permits fantasy sports, some say it should be regulated.

DraftKings and FanDuel say they’re willing to work with competitors on self-policing.

“We also plan to work with the entire fantasy sports industry on this specific issue so that fans everywhere can continue to enjoy and trust the games they love,” the companies said in a statement.

Are you playing fantasy sports? How much are you putting up and what’s your record? Email Ahiza Garcia and your story might be included in a CNNMoney article.

–CNNMoney’s Rob Mclean and CNN’s Dave Alsup and Kevin Dotson contributed to this report.

CNNMoney (New York) October 6, 2015: 11:31 AM ET

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