DraftKings CEO Explains Why Employees Played on Rival FanDuel’s Site

In July, we asked DraftKings’ founders, 'How is this legal?' Their answer helps to understand the current controversy around fantasy sports gaming.

draftkings fanduel

From left, DraftKings founders Matt Kalish, Paul Liberman, and Jason Robins. / PHOTOGRAPH BY KEN RICHARDSON for ‘Power Lunch’

This week, a scandal disrupted the billion-dollar world of daily fantasy sports gaming, in part because of the revelation that employees of rival companies DraftKings and FanDuel are winning large sums by playing on each others’ platforms.

That sounded familiar, so we dug back into the transcripts of the interview we did with DraftKings’ founders in July (a condensed version appeared in our October issue). Back then, the founders told us that they avoided playing public games on their own fantasy sports website for fear of losing customers’ trust—but CEO Jason Robins did admit that they play on competitors’ sites occasionally.

Yesterday, the Boston-based DraftKings banned its employees from all play on rival sites. The move came after it was revealed that a DraftKings content manager won $350,000 on FanDuel the same week he accidentally released playing data on DraftKings’ website too early. The New York Times compared the revelation to “allegations of insider trading.”

Knowing in advance which NFL athletes are being drafted into the most fantasy lineups in a given week could allow a fantasy player to gain an advantage by using a strategy similar to the 2002 Oakland A’s in Moneyballdigging deep into sports stats and drafting undervalued, less popular athletes. Robins denies that’s what happened here; computer logs show that the employee placed his bet at rival site FanDuel before he obtained the prematurely published playing info, he told the Globe yesterday.

But the incident has nonetheless thrown the fantasy-gaming world into the spotlight—at a time when home-state Attorney General Maura Healey has already said her office is “looking into” the legality of the industry.

When Boston spoke with DraftKings founders in July for our “Power Lunch” series, we asked: “How is this legal?” Fantasy sports is a game of skill, not chance, Robins argued. What follows is Robins’ extended response about the difference between daily fantasy and betting on games, as well as how DraftKings’ founders and employees negotiated the desire to play fantasy and customers’ trust.

How often do you play daily fantasy?

Robins: We can’t play in the public anymore, on our platform, of course. I mean, I guess we could, but it would cause our customers to lose trust. They would think we’d have some sort of inside edge. So unfortunately, that’s the only downside to starting DraftKings—that we don’t get to play on DraftKings.

From time to time, we’ll play on competitor products. We also do play in private games against each other because it is important to us to all experience the product the way a customer would. We can’t make it better if we don’t see what they’re experiencing.

So we try every week, and sometimes more often, to play against each other in private games. We have a company-wide league that all the employees participate in against each other.

So you’re using the DraftKings platform, but it’s a separate game?

Robins: The contests are not shown to the public. They’re hidden, so that no public participants can find them. They’re sent across to ourselves, with links we can play in, and others are not able to join them.

Paul Liberman, chief operating officer: That’s actually a general feature of our product. Any person can go and create private contests with their friends. It’s a really cool feature. So if me and my friends want to do a Sunday football league, I can invite them to a private contest, and we just use our product the way everyone else uses it.

Robins: We’re finding that portion of our business is growing really, really quickly.

What’s the difference between betting on a game and on a team of players you’ve assembled?

Robins: When you’re betting on a game in a traditional sports model, you’re playing against the house. Generally, the house is setting a line that’s as close as possible to getting 50-50 people on each side of the line. So even the most talented sports betters in the world are only going to be slightly above 50 percent in terms of win rate.

That’s very much a different thing from our game. You’re playing against other players who have a wide variety of skills, from extremely talented and knowledgeable to novices who don’t really understand the game yet. If you’re a good player, you can exercise a significantly higher level of skill against those types of novice or weaker players. Therefore, you’re able to create a much more significant skill advantage than in traditional sports betting.