Draftkings: Insider Trading (2015)
Controversy: Draftkings is one of the leading daily fantasy sports companies within the daily fantasy sports industry. For those unfamiliar with Draftkings, users bet their money and assemble lineups using real life professional athletes who they think will accumulate the most fantasy points on that given day. In doing so, users are playing against hundreds, sometimes thousands of other people who are also trying to make winning lineups. Depending on the size of the contest and the buy-in amount, payout structures will vary. All users are hoping to take home the grand prize, which has been as high as two million dollars in the past.
The controversy came to life when an employee at Draftkings, Ethan Haskell, accidentally released data via social media before the week three NFL games had begun. The data he released showed which players were being picked the most by people playing in Draftking's most popular NFL contest, the Millionaire Maker. The reason this was so significant is because people who have access to ownership levels on various players gain an immediate edge over the rest of the playing field. The data allows the user to see "where the market is at". What I mean by this is that the user can see which athletes most of the people in the contest they are playing against are gravitating towards. From this, the user can then differentiate themselves from the rest of those competing in the contest. Being able to differentiate yourself and pick undervalued athletes gives you the best chance at taking home the grand prize because not many others competing in the contest will have the athletes you selected. Haskell released a statement saying that he was the only person who had access to the information and that he could not use it to his advantage on Draftkings because Draftkings does not allow its employees to compete on their own site.
If you thought the inadvertent release of the ownership levels was bad enough, the same Draftkings employee went on to win $350,000 on Draftking's rival daily fantasy sports site Fanduel, that same week. This immediately raised questions of insider trading within Draftkings, as well as the daily fantasy sports industry itself. As stated above, Draftkings does not allow its employees to compete on their own site. However, they do not forbid their employees from playing on other daily fantasy sports websites such as Fanduel. People began to question whether the data he obtained through his company allowed him to make a winning lineup on Fanduel. If true, he had an unfair advantage over the rest of the contest participants because he had access to information that they didn't. Insider trading typically occurs in the stock market, when someone trades securities utilizing information that is confidential and non-public. Many outraged daily fantasy sports players claimed that the actions by Ethan Haskell would fall under the realm of insider trading. Both Draftkings and Fanduel released a joint statement, stating that "nothing is more important than the integrity of the games we offer." The statement also said "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
Stakeholders: Stakeholders are defined as those who are affected by the actions of a business. In this case the stakeholders are anyone who has ever played on Draftkings, along with any other daily fantasy sports site as well. In addition, I would also consider the employees of Draftkings and of all other daily fantasy sports companies stakeholders as well. This one controversy within Draftkings has an affect on the entire industry, as people may view this form of sports gambling as rigged and unfair.
Individualism: Individualism, a theory coined by Milton Friedman, states that business actions should maximize profits for the owners of a business, but do so within the law. When looking at this situation from an Individualistic perspective, one could say that this controversy not only hurt Draftkings financially, but the whole industry as well. Many users may have been deterred from playing these sites after the potential insider trading claims arose after Ethan Haskell, the Draftkings employee, won such a large sum of money. The loss of users immediately decreases profits instead of maximizing them. In addition, although no legal action was taken, many can argue that this controversy could fall under the realm of insider trading, which is not within the law. Public opinion of Draftkings before this controversy was mostly positive. The only negative thing some people said about Draftkings was that it should be considered an illegal form of gambling. Other than that, people believed that the playing field was fair. However, after this controversy occurred, many users have since changed their minds. Something Draftkings should have done immediately to help combat the loss of profits was to ban their employees from playing on other sites. However, they waited almost a year to do so.
Utilitarianism: Utilitarianism is an ethical theory that says business actions should aim to maximize the happiness in the long run for all conscious beings that are affected by the business actions. When looking at the controversy from this perspective, a Utilitarian would say that the actions of this employee, and Draftkings itself, were unethical and resulted in the complete opposite of the Utilitarian values. Majority of stakeholders did not receive happiness from these actions, but rather outrage and loss of trust towards Draftkings. The only person who made out in this situation is Ethan Haskell, as he became $350,000 richer. The benefits of him winning does not outweigh the costs that Draftkings now faces after this controversy.
Kantianism: This theory was formed by a man named Immanuel Kant. The ethical rules for Kantianism are to always act in ways that respect and honor individuals and their choices. It is wrong to manipulate, exploit, lie, cheat, or use people to their own advantage. A Kantian can analyze this controversy and say that the ethical rules were broken in this situation. On the outside Draftkings has advertised a fair playing field for all users, but this situation raises questions about the legitimacy of that claim. If employees within Draftkings have access to information that would give them an edge over those who don't, that is pretty much going against all of the things listed above. Users were being taken advantage of without them even knowing about it until this controversy made its way into the public eye. In order for Draftkings to conform to Kant's rules, there needs to be some more regulation and oversight done within the company. Banning employees from playing on rival sites was definitely a step in the right direction.
Virtue Theory: The Virtue theory was originally developed by Aristotle, however as time has gone on many other versions have been created along the way. The Virtue theory states that you are to act in a way that embodies a variety of virtuous or good character traits and to avoid vicious and bad character traits. Some virtuous traits are courage, honesty, temperance, and justice. In order for a company to follow this theory, they must comply with all four components. Two components Draftkings does not comply with are honesty and justice. Ever since Draftkings started up, they have advertised a fair playing field for all users of their site. However, amid insider trading claims, we now know that for a time period Draftking employees had access to information that helped them win money over those who didn't have access. Honesty is thrown out the window, as users did not know this was going on until it became public. Justice is also not met, as the Draftkings employee had an unfair advantage. In order for Draftkings to meet these two components they would need much more oversight, particularly from a third party who can monitor their business actions closely.
Bieler, Des. “Insider-Trading Scandal Rocks Daily Fantasy Sports Industry.” The Washington Post, WP Company, 5 Oct. 2015, www.washingtonpost.com/news/early-lead/wp/2015/10/05/insider-trading-scandal-rocks-daily-fantasy-sports-industry/?utm_term=.038efd4b4c9b.
Brown, Larry. “Ethan Haskell: Draft Kings Employee Won $350,000 on FanDuel.” Larry Brown Sports, 6 Oct. 2015, larrybrownsports.com/fantasy/ethan-haskell-draft-kings-fanduel-profile/276741.
Culhane, John. “Why the Insider Trading Scandals Could Bring Down DraftKings and FanDuel.” Slate Magazine, 13 Oct. 2015, www.slate.com/articles/sports/sports_nut/2015/10/the_insider_trading_scandals_could_bring_down_draftkings_and_fanduel.html.
Drape, Joe, and Jacqueline Williams. “Scandal Erupts in Unregulated World of Fantasy Sports.” The New York Times, The New York Times, 5 Oct. 2015, www.nytimes.com/2015/10/06/sports/fanduel-draftkings-fantasy-employees-bet-rivals.html.
Kim, Susanna. “FanDuel, DraftKings 'Insider Trading' Allegations: An Explainer.” ABC News, ABC News Network, 6 Oct. 2015, abcnews.go.com/Business/fanduel-draftkings-insider-trading-allegations-explainer/story?id=34286629.
Williams, Trey. “DraftKings, FanDuel under Scrutiny Following Insider-Trading Allegations.” MarketWatch, 6 Oct. 2015, www.marketwatch.com/story/draftkings-fanduel-under-scrutiny-following-insider-trading-allegations-2015-10-06.