Success Leads to Scrutiny for Daily Fantasy Sports Sites

The fortunes of daily fantasy sports sites have shifted in recent months. Just last fall, ads for DraftKings and FanDuel, the two biggest daily fantasy sites, were ubiquitous. But since October, the sites have come under increased scrutiny from law enforcement and government regulators, posing new challenges for the future of the industry.

The change in fortune is detailed in a New York Times report out Friday — published as part of an investigation with FRONTLINE into the daily fantasy sports industry. Citing two unnamed sources familiar with the matter, the Times reported that Major League Baseball, which has an exclusive marketing agreement with DraftKings, has notified the Boston-based site that it might terminate the deal if the company failed to comply with New York State law. In November, the state’s attorney general issued DraftKings and FanDuel a cease and desist order, saying their contests violate N.Y. gambling laws. The two sides are currently locked in a legal battle over the order.

The development comes just days after a major payment processor for the fantasy sites said it was withdrawing from the industry. And in “a new turn,” the report notes, “the I.R.S. division of criminal investigation and the F.B.I. are examining how fantasy games affect problem gamblers.” As the Times reports:

The situation is deteriorating to the point that some experts wonder about the survival of the industry as it exists — whether it can outlast the very lack of regulation that allowed its untrammeled growth. “We are shocked at how quickly this has cascaded with the ongoing viability of this industry now in question,” Eilers Research, an independent firm that studies online gambling, wrote in November.

DraftKings and FanDuel maintain that the contests they offer on their sites require skill and knowledge, and should therefore not be considered a form gambling. While initially resisting regulation of the industry, both sites say they now support some “consumer protection” measures.

For more on the debate around daily fantasy sports, tune into FRONTLINE for The Fantasy Sports Gamble this coming Tuesday, Feb. 9 starting at 10 p.m. EST. The film, produced in partnership with The New York Times, traces the growth of these booming businesses and goes inside their operations at home and abroad. Watch a trailer below: