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In Fantasy Sports, Signs of Insiders’ Edge
A DraftKings lounge at Gillette Stadium, the Patriots’ home. Records show a pattern of overlapping interest at the DraftKings and FanDuel fantasy sites.Credit New England Patriots

Weeks before a leak of inside information led state investigators to question whether daily fantasy football games were a fraud, misleading thousands of players vying for millions of dollars in prize money, Madison Calvert, a regular player, became suspicious.

At a private party for DraftKings, one of the biggest daily fantasy websites, Calvert said, he discussed his baseball contest choices with a host, Jon Aguiar, an executive of the site, who suddenly made a quick check on his phone and, to Calvert’s surprise, informed him that his pick of a pitcher was a poor choice because many other players had selected him.

“I shouldn’t have pulled that up in front of you, ha-ha,” Calvert said Aguiar told him.

That was days after Calvert, 29, had repeatedly been challenged for head-to-head play in another game, on the website FanDuel, by a Rick Sawyer. After checking a search engine, Calvert said, he found that Sawyer was actually a business planning manager at DraftKings.

“I could only think that he had watched my DraftKings account and had me pegged as a suboptimal player,” Calvert said. “I felt like a moron.”

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Calvert said it was “pretty obvious that with insider information and access to top players,” players like him would not have a chance in the long run.

Calvert is not the only one raising doubts about the clubby, cozy connections between the two companies at the head of the booming, unregulated, multibillion-dollar daily fantasy industry, in which players pay a fee on a website, assemble virtual rosters of players and then, in pursuit of jackpots ranging from $22 to $2 million, score points based on the real-world outcomes of professional games.

The New York State attorney general’s office began an inquiry last week into whether employees of DraftKings or FanDuel had used inside information to prey on customers on each other’s sites, and a class-action lawsuit was filed in federal court in New York on Thursday, alleging fraud. Lawmakers and analysts are also calling for some form of regulation for an industry that has had explosive growth in the last few years.

Representative Dina Titus, Democrat of Nevada, wants Congress to re-examine the Unlawful Internet Gambling Enforcement Act of 2006, which deemed the games legal. Titus told the House Committee on Energy and Commerce in a letter that it was critical for Congress to “investigate this growing industry.”

But records and interviews show a long-held pattern of overlapping interests and close relationships among employees at the companies — many of whom regularly rank among the most consistent big winners — and in some cases investors, which include Major League Baseball, the N.B.A. and two N.F.L. owners, as well as media giants like NBC, its parent Comcast and Fox.

Andre Bessette, a manger of analytics at DraftKings, is currently ranked No. 40 and won a $50,000 first prize in a FanDuel contest, the 2015 World Fantasy Hockey Championship.

Matthew Boccio, who sets player prices at FanDuel, is among the highest-ranked of all fantasy players, according to the website RotoGrinders, and was awarded $50,000 in June for winning DraftKings’ King of Boston contest. Soon after, he was the subject of an article on FanDuel titled “Look Inside the Belly of a DFS Whale,” in which he shared tips, including avoiding players like himself.

Employees Barred

Both companies have announced that they have permanently barred their employees from competing in daily fantasy sports and have brought in high-profile former federal prosecutors to conduct an independent investigation. ESPN dropped segments sponsored by daily fantasy sites.

DraftKings, which issued a statement Friday seeking to reassure fans about the integrity of the game, declined to make Aguiar or Sawyer available for comment, as well as other employees who have kept a high profile on the competitive daily fantasy circuit. The company said it would not respond to detailed questions about its employees or policies while its internal investigation was underway.

“Our objective is to be completely transparent with our findings, and we expect that we will be able to report on the results of that review in the next few weeks,” it said in a statement.

Likewise, FanDuel said it would have no further comment on its employees or practices.

Yet both companies have acknowledged that they recruited many of their employees from the pool of devoted daily fantasy sports enthusiasts and allowed them to play the games, in the kind of potential conflict of interest generally avoided in other industries that handle sensitive information.

Last month at a conference at Babson College near Boston, a DraftKings founder, Paul Liberman, said barring employees from playing could make it difficult to retain talent.

“We have some people who make significantly more money off of our competitors’ sites than they do working for DraftKings,” he said.

In Fantasy Sports, Signs of Insiders’ Edge
Employees at the DraftKings Boston offices last month. The daily fantasy sports companies tease players with million-dollar payoffs in their advertising, but average winnings are around $22.Credit Stephan Savoia/Associated Press

In fact, Aguiar, a former professional poker player and an early star in daily fantasy sports, was brought into DraftKings to court top players in an effort to expand the high end of the business.

To lure everyday players and stoke big hopes, the sites depend on these big-winning sharks, as the highly skilled and large-volume players are known. Part-time minnows and other low-volume enthusiasts who do not win much make up most of the rest of the field, similar to the situation at casinos.

Advertisements for both companies feature 20-somethings near tears after winning life-changing bounties, but the fine print on the television ads states that winnings actually average $22.

A recent study in Sports Business Daily found that over the first half of this year’s Major League Baseball season, 91 percent of daily fantasy sports player profits were won by just 1.3 percent of the players. In fact, on average, the top 11 players paid $2 million in entry fees and made profits of $135,000 each while accounting for 17 percent of all entry fees.

Many of those players use automated processes that let them change hundreds, if not thousands, of lineups in seconds, a decided advantage when last-minute changes are made in the real lineups of professional football, basketball or baseball teams.

“It’s a great recreational game, but financially it’s not a wise investment for people,” said Dan Singer, who leads the sports and gambling practice at the consulting giant McKinsey & Company and was an author of the Sports Business Daily study.

Charting Top Players

On RotoGrinders, a site that closely follows the fantasy sports industry, the exploits of the top players — many of them employees of DraftKings or FanDuel — are charted, ranked and followed in fan-boy fashion. Neither company would say how much its employees had won, but Justine Sacco, a spokeswoman for FanDuel, said DraftKings employees had won less than $10 million in her company’s contests.

There have also been complaints that some of the automated programs can exploit weaker players by identifying them and getting into competitions with them ahead of everyone else.

DraftKings declined to discuss its policies on using automated processes, which are called scripting. FanDuel said that it had put some restrictions on the programs — including prohibiting last-minute automated lineup changes — but that it reviewed requests for them individually.

Access to inside information by employees of the two companies has been questioned before in forums, in part because neither DraftKings nor FanDuel has given any details on what safeguards are in place to protect their data.

Leonard Don Diego first worked at FanDuel but is now an engagement manager at DraftKings. A year ago, he was accused of sharing lineups, according to a RotoGrinders thread.

Don Diego denied that he had passed on information.

The recent scandal was ignited after Ethan Haskell, a DraftKings employee, admitted to releasing inside information.

In promotional pictures for the site, he looks like those rapturous winners holding oversize checks in the company’s television commercials. He has a ball cap on backward and a loving-life grin that might appeal to the many young postcollege players who dominate the demographic that is powering daily fantasy sports’ growth.

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More than a week ago, Haskell admitted on a blog post that he had released “player owned percentages” — by mistake, he said — before all the lineups for the third week of N.F.L. games were locked up. The data showed which players — included in more than 400,000 entries — were most commonly selected in lineups submitted to the site’s Millionaire Maker contest.

That week, he won $350,000 on the rival FanDuel site, but DraftKings said he had done so without benefit of inside information. He also won one of 120 seats at FanDuel’s $12 million World Fantasy Football Championship. There he will have the opportunity to win a $3 million first-place check, and he is guaranteed at least $20,000 for showing up, even if he finishes last.

Haskell’s big win followed a hot streak in August, when he finished in the top 10 of 13 Major League Baseball contests, including one contest, with a $25 buy-in, in which he beat nearly 13,000 others to win $50,000, according to the website Larry Brown Sports.

Cory Albertson, one of the most successful players in the short history of daily fantasy sports, said that he had long pushed both companies to develop a way to regulate themselves. He has a master’s degree in business administration from Notre Dame and invests more than $10 million annually in one-day fantasy sports. Even though daily fantasy sports operate under an exemption to the Unlawful Internet Gambling Enforcement Act of 2006, which outlawed online poker and sports betting, Albertson said that fantasy sites were a form of gambling and that he believed they should be regulated.

“When there are no internal controls to keep your employees in check in terms of what they’re doing, it’s understandable that many of them would become preoccupied with trying to also just win money playing fantasy sports,” Albertson said. DraftKings and FanDuel are each valued at more than $1 billion and have begun incessant and costly television advertising campaigns to persuade viewers that anyone with an interest in sports can become a millionaire. The networks and sports leagues so far have been stalwart investors or willing partners in sponsorship agreements.

Neither company, however, has turned a profit.

It is unclear whether the scandal will slow the companies’ momentum. Last week, DraftKings and FanDuel both posted their first profitable Sundays of the season in their guaranteed prize games, giving out $39.8 million in winnings but taking in $43.6 million in entry fees, according to SuperLobby, an independent site tracking the industry’s guaranteed-prize games.

“If you are going to purport you are a billion-dollar business, and advertise on billboards and televisions throughout the country, you need to act like a billion-dollar business,” said Marc Edelman, a law professor at Baruch College and Fordham University and an expert on fantasy sports. “And that includes, among other things, putting in place very sophisticated firewalls and controls to prevent these types of instances from happening in the first place.”

Calling It Quits

Calvert, 29, had never thought of himself as a minnow, as part-time fantasy sports players are known. He was lured into daily fantasy six months ago and played more than 9,000 games in many sports, well enough to earn “V.I.P.” status at DraftKings. He said he had played mainly in tournaments with small buy-ins and once had a $9,000 weekend. Over all, however, Calvert said, he lost more than he won.

On Sunday, for the first time in many weekends, he watched N.F.L. games simply as a spectator.

“I’m done,” said Calvert, who is married and works in sales.

By the measures of Singer’s study, Calvert was a big fish among the 5 percent of players who, on average, lost $1,100 on entry fees of $3,600. The true minnows account for 80 percent of the millions of daily players, and they lost, on average, $25 on entry fees of $49.

“The minnows may lose $10 a month and will happily continue to play forever,” Singer said. “But the entire fantasy economy depends on keeping those few big fish.”

After the insider trading allegations surfaced, Calvert emailed Jason Robins, DraftKings’ chief executive and a co-founder, with his complaints. Two days went by without a response.

On Wednesday, he posted his story on Twenty minutes later, the DraftKings co-founder Matt Kalish called him. On Friday, Robins, Kalish and Liberman — the founders — sent an email intended to mollify their customers, many of whom are concerned.

“Please know how grateful we are for the passion and loyalty you have shown DraftKings throughout our history and especially over the past week,” it said. “You remain our greatest priority.”

Correction: October 11, 2015

An earlier version of this article misspelled the surname of a DraftKings founder. He is Paul Liberman, not Lieberman.

Correction: October 11, 2015

An earlier version of this article misspelled the given name of a successful player in daily fantasy sports. His name is Cory Albertson, not Corey.

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