It keeps getting worse for daily fantasy sports companies and the people and organizations connected to them.
Last week, amidst news that the New York Attorney General had launched an inquiry into daily fantasy leaders DraftKings and FanDuel, a Florida gaming attorney, Dan Wallach, reported that the U.S. Attorney’s Office in Tampa, Florida had opened an investigation into daily fantasy sports operators and convened a grand jury to do so. The news was largely overlooked among the more sensational bits in an ongoing scandal about the two companies.
Breaking: US Attorney's Office in Tampa investigating #DFS operators for violations of federal law (IGBA) & Florida law (849.14). Grand jury
— Daniel Wallach (@WALLACHLEGAL) October 9, 2015
On Friday evening, that Florida prosecutor subpoenaed the Fantasy Sports Trade Association, confirming that there is an ongoing investigation.
It is just one of many regulatory bodies currently looking into these controversial companies, but this is the first time that the FSTA has been dragged into it. The subpoena, the Wall Street Journal reports, ordered the FSTA to provide copies of its board-meeting minutes.
This entire scandal began last week when a DraftKings employee placed second in FanDuel’s biggest Sunday NFL contest, winning $350,000. (See here for a full timeline of every development in the scandal.) Critics have called it “insider play,” and daily fantasy operators (including Yahoo, which now offers daily fantasy sports) quickly moved to ban their employees from playing on any daily fantasy sites—but it was too late to quell the onslaught of bad press and harsh new legal scrutiny.
The FSTA has been around since long before there was a DraftKings or a FanDuel. It is an industry trade group created in 1997 to advocate on behalf of the growing number of fantasy sports companies. Its slogan? “Catch the fantasy momentum.” (At the moment, considering the major controversy over these companies, it may not seem like the most self-aware motto.) It counts among its members virtually every company that has any kind of footprint in fantasy sports, from big dogs like ESPN, CBS, Fox, and Yahoo—many of which have offered traditional, season-long fantasy sports for more than a decade—to young, new “daily” operators like DraftKings, FanDuel, Draftpot, and others. It also has as members the major sports leagues, including the NFL.
The organization’s founder and president is Paul Charchian, who did not respond to request for comment on this story, but spoke to Fortune at length in September for our profile of DraftKings CEO Jason Robins. Charchian said that the FSTA exists to serve all fantasy sports entities, from big players all the way down to, “the little guys with a dream who want to make a living in the fantasy industry.”
Charchian sees the sudden explosion in daily fantasy as a positive for the entire fantasy sports industry (estimated at $15 billion and growing). “For somebody who’s been in the industry for 20 years, it’s kind of heartening to see fantasy grow from being a misunderstood cottage industry, where people thought we were carrying 20-sided dice and living with our moms, into this,” he said. “The fact that fantasy sports has been scrutinized at so many levels and that major companies like Disney have felt comfortable with it, as well as the major sports leagues, has helped validate the perception of fantasy sports.”
The FSTA estimates there are 57 million people in North America who already play fantasy sports, but that only a few million of those people have tried the faster, pick-up-and-play “daily” version that DraftKings and FanDuel offer. But he sees that as a growth opportunity: “We think it’s highly doable to convert people from season-long to daily, it’s very natural,” he told Fortune. “It’s taking the know-how and fun you’ve already applied to the whole season and doing it for one week. And that’s being proven by the adoption numbers that we’re seeing now, considering daily was virtually nonexistent three years ago.”
Indeed, “daily fantasy” was virtually nonexistent three years ago—FanDuel launched in 2009, DraftKings launched in 2012, but they both truly took off in 2014. Now their success and explosive growth is bringing negative attention from regulators. And now Charchian, and perhaps others associated with the FSTA, will have to testify to a Florida prosecutor on whether these companies are offering a fair product, and on whether their product constitutes gambling. Nevada, just yesterday, ruled that it does. It sent the companies cease-and-desists until they become licensed gambling operators in the state.
In September, Paul Charchian told Fortune, “Daily fantasy is extremely popular, right? So if you are a state that is thinking about criminalizing it, boy, you’d better think twice about how many millions of your citizens you may be criminalizing.”
Nevada thought twice, and decided to effectively shut it down. The Florida U.S. Attorney’s investigation could lead to that state doing the same.
For now, none of this has had any apparent damage to the existing businesses of DraftKings and FanDuel. Even amidst so much bad news, they had their best Sunday ever on October 11 in terms of entry fees from users. That suggests the people who play daily fantasy don’t care about the scandal one bit. But they’ll certainly care if their state bans the apps.
Read an exclusive interview with DraftKings CEO Jason Robins about this ongoing scandal.
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