The new lounge is one aspect of the Boston-based company’s marketing strategy focused on the NFL’s opening week, which also included exorbitant spending on TV advertisements. It was this past week, however—the fifth of this football season—that garnered the most success for the fantasy sports website, breaking records for traffic and enrollment.
This breakout prosperity, though, aligned with a recent scandal surrounding the company—once which is believed to have influenced its success. Last Thursday, a class action lawsuit was filed that accused the company and its competitor, FanDuel, of fraud, negligence, and false advertising.
The two companies offer online fantasy sports competitions and games where users can pay to enter and potentially win money and prizes if the players they select online perform well during the week.
“I’ve always been hesitant about joining FanDuel and DraftKings,” Austin Mitchell, MCAS ’16, said. “It takes away from the experience of fantasy football, which I believe often gets roped into the conversation. Fantasy football to me is a form of camaraderie and a way to stay in touch and compete with friends.”
According to DraftKings’ terms of use, players must be 18 years old to open an account with the website, though many of the company’s advertisements seem to be geared toward a young, male audience. The website focuses on millennials as their target demographic, allowing this scandal to hit close to home for many users who are college students and recent graduates.
“In terms of the scandal, I don’t think it really matters or that anyone would be less inclined to play,” said Alex Green, MCAS ’19. Even though he has yet to sign up for his own daily fantasy sports account, Green noted that his father regularly enters competitions on FanDuel and has won monetary prizes as recently as last week.
“People know that there is a loophole, it’s kind of like gambling even though it is called a contest of skill,” Green said. “I definitely would still try it in the future.”
Despite a federal law prohibiting online gambling almost a decade ago, fantasy sports websites such as DraftKings have been able to slide under the radar. According to The Wall Street Journal, the U.S. Justice Department and the Federal Bureau of Investigation have recently begun to question the legality of the daily fantasy-sports operator business model. Defined as games of skill instead of chance, sites like the two in question may operate within the scope of the law for now.
According to a recent study performed by the NCAA Sport Science Institute, over half of all male NCAA student-athletes have reported gambling for money at least once a year—a quarter of which fell under the scope of “games of personal skill”—though NCAA bylaws prohibit such gambling activity.
This foundation of skill, however, is the basis of the recent scandal.
Two weeks ago, a DraftKings employee won over $300,000 through online fantasy sports hosted by FanDuel. Although the websites are competitors, the complaint alleges that the employee at hand had access to DraftKings’ internal information, thus giving him an unfair advantage that led to his success.
In a matter of days after the lawsuit was filed, both DraftKings and FanDuel publically announced bans on employees playing and gambling on the other’s website. Despite this response, representatives from DraftKings, including the company’s founder Matthew Kalish, CGSOM ’09, have been supporting their employee’s integrity and their company’s ethical values.
Actions in this vein would certainly qualify as illegal insider trading under typical business law—however, the regulations for use of private information in this form of legal online gambling are unclear.
While the media has scandalized the allegations this past week, it is not the first time that the local company has been under scrutiny. In September, Massachusetts Attorney General Maura Healey began investigating DraftKings to prevent situations like the one at hand from occurring.
“I was concerned about recent reports about insider activity that would have put average players at a competitive disadvantage,” Healey said in a statement in September. “This is a new industry. It’s something that we’re reviewing, and we’ll learn more about it.”
Featured Image by Francisco Ruela / Heights Graphic
