Playing fantasy sports has often been likened to playing the stock market, with participants weighing the benefits of diversifying their holdings and the risks of too much exposure to a certain position. Now it appears that the daily fantasy sports (DFS) industry, an emerging behemoth, is undergoing its first insider-trading scandal.

Recently, a DraftKings employee admitted to having tweeted out ownership percentages for the Web site’s most lucrative game, the Millionaire Maker, before the contest “locked” with all the relevant NFL games having begun. That kind of information, which is usually only made public after a contest locks, can be extremely valuable in the context of improving one’s odds at beating thousands of other participants.

The employee, Ethan Haskell, came in second place in a large-scale contest at DraftKings’ rival site, FanDuel, earning himself $350,000. That raised questions about whether he used knowledge of ownership percentages acquired from his site in order to build a successful lineup at the other.

https://twitter.com/DraftKings/status/650701932865146881

Most DFS games involve building a roster — for example, one quarterback, two running backs, three wide receivers, one tight end, one defense and one kicker — of players for a specific day’s games, with the restriction being a salary cap. A common DFS strategy involves avoiding players widely selected by other competitors, thus maximizing one’s chances of building a uniquely successful lineup.

DFS sites, including the industry’s two major companies, DraftKings and FanDuel, assign different salary-cap figures to players, but knowing the ownership percentages at one site could clearly inform lineup choices at another. Although DraftKings and FanDuel prohibit their employees from participating in contests at their own sites, they were allowed to compete at other DFS sites before the two companies temporarily banned that practice on Monday.

Haskell said that he was the only person with this information, and there is no evidence that he had the DraftKings ownership percentages before lineups locked at FanDuel. However, the optics are troubling at the very least, and the incident raises questions about who gets this sort of information, when they get it, to whom it’s disseminated and what they do with it.

From a report by the Associated Press:

“One really has to ask questions over at DraftKings what regulations they have in place and why an employee has access to so much information,” said Marc Edelman, a law professor and sports business scholar at Baruch College, City University of New York. “One thing I find grossly troubling about DraftKings is they spend so much time and money advertising and a lot less time in internal controls and operating in a risk averse manner.”

DraftKings released this statement Monday, with FanDuel issuing a nearly identical statement:

“Nothing is more important to DraftKings and FanDuel than the integrity of the games we offer to our customers. Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs. Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.
“However, we continue to review our internal controls to ensure they are as strong as they can be. We also plan to work with the entire fantasy sports industry on this specific issue so that fans everywhere can continue to enjoy and trust the games they love.”

There has been an existing debate over how much DFS resembles sports gambling, which is not legal, and some lawmakers are considering enacting regulations on the industry. From a report by the New York Times:

“The single greatest threat to the daily fantasy sports industry is the misuse of insider information,” said Daniel Wallach, a sports and gambling lawyer at Becker & Poliakoff in Fort Lauderdale, Fla. “It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place. If the industry is unwilling to undertake these reforms voluntarily, it will be imposed on them involuntarily as part of a regulatory framework.”

Major sports leagues such as the NFL and MLB, while publicly disavowing gambling, have invested heavily in DFS, and advertising for DraftKings and FanDuel is inescapable at many sporting events. According to the New York Times, an industry analyst said that DFS sites will take in $2.6 billion in entry fees this year, reaching as much as $14 billion by 2020.