News has been fairly bleak for daily fantasy companies over the past two weeks. Having been conducting extensive damage control, DraftKings, FanDuel and the rest of the new brand of fantasy sports have found themselves facing lawsuits and investigations. Nevada has already run daily fantasy out of the state. And in the federal investigation, one name in particular could spell doom.
Preet Bharara, a U.S. attorney for the Southern District of New York, has reportedly joined the investigation into daily fantasy sports, according to the Wall Street Journal. While the Department of Justice was previously known to be looking into DraftKings and FanDuel (along with a plethora of smaller fantasy companies), Bharara’s role is a new discovery.
Known as “The Enforcer of Wall Street,” Bharara has been particularly potent in prosecuting insider trading. That bodes ill for DraftKings especially, given that the nationally-covered scandal involving them (as well as FanDuel) was essentially a case of alleged insider trading. The employee who was accused of the improper practice has since been cleared by a reportedly independent investigation. However it’s clear that investigators will be checking in to see if other cases occurred.
And the most ominous aspect of Bharara is his history involving the online poker industry. Many have already compared the daily fantasy industry’s explosion in popularity (and revenue) to that of the online poker craze. Those who know their history will remember that it was a prosecution led by Bharara that destroyed online poker in the United States in the now-famous “Black Friday” ruling of April 15, 2011.
On that day, a grand jury charged that the founders of poker sites such as Full Tilt and PokerStars (along with more than 10 others) were guilty of bank fraud, money laundering and illegal gambling. It all but annihilated the online poker world in the United States. To this day, only a few states have legalized (and regulated) online poker. An enormous industry (not dissimilar to what daily fantasy is today) was wiped out.
It’s far too early to simply say daily fantasy will go the way of online poker. However, if DraftKings and its fellow fantasy sites were hoping to escape the worst of the Justice Department’s wrath, the involvement of Bharara is bad news.
Update: DraftKings’ statement on the subject:
We strongly believe the games on our site – and daily fantasy sports in general – are legal.
We recognize our responsibility to the millions of fans who are captivated by the excitement and interactive nature of daily fantasy sports to make sure they can continue to play the game they love. Ensuring a level and fair playing field for all players is a fundamental tenet of our company, and we are committed to working with all relevant authorities to ensure that our industry operates in a manner that is completely transparent and fair for all consumers.
We are seeing a number of state regulators and other authorities taking a reasoned and measured approach to the daily fantasy sports business and hope that trend continues along with due consideration for the interests of sports fans across the country who love to play these games.
Image via Public Domain
