Business Ethics Case Analyses: draftkings

Showing posts with label draftkings. Show all posts

Saturday, April 7, 2018

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

rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it." Regardless of this statement by Draftkings and Fanduel, many people still stick to their claims of insider trading and call for more oversight and regulation into the business actions of these companies. Many people, like myself, believe it is unethical for employees who have access to non-public information to be able to compete in daily fantasy sports contests. However, according to the statement made, Draftkings was comfortable with saying that no wrong doing was found. It wasn't until late in 2016 that Draftkings banned their employees from playing on rival daily fantasy sports sites.

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.

References:

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.

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.

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.

Friday, April 6, 2018

DraftKings: Falsifying Advertisements (2016)

Controversy:

DraftKings' website home page

DraftKings is a daily fantasy sports company in which players place bets daily on professional sports. People who play these games can bet directly on sporting events or they can choose lineups of athletes from professional sports and compete to see if their team can gain the most points. There are always opportunities to gamble each and every day because games are played on a daily basis. In America, this kind of gambling has become quite popular recently. The question that all players of DraftKings have is how much they can actually win by partaking in these gambling games. In the several weeks leading up to the 2015 National Football League season, DraftKings and its fantasy counterpart FanDuel “spent more on advertising than the entire American beer industry” as they attempted to grow larger (Van Natta Jr.). However, the information that DraftKings’ revealed in their ads was fudged in attempt to appeal to the general public. This information was inaccurate regarding the amount of money a person could actually win playing their games. In fact, “one DraftKings disclaimer cited by the attorney general’s office stated that the ‘average user’s winnings for the last 12 months [was] $1,263.’ But that figure failed to account for fees and losses” (Shen). With that, it was deemed that DraftKings did not properly advertise the significant advantages professional players have as well as the fact that they “fail[ed] to disclose the dangers of gambling addiction” (Lovett). Essentially, DraftKings was only displaying the winning figures, not the money that the average user had to spend in order to play the game nor was the money that they lost exhibited.

The unethical advertisement strategies by DraftKings led to a six million dollar lawsuit ordered by the New York Attorney General Eric Schneiderman in October of 2016. The lawsuit was placed to resolve “false and deceptive advertising practices by the company” (Gouker).

The stakeholders in this case include DraftKings as a company, the New York State Attorney General, the players of DraftKings along with their friends and families and even private bookmakers. All these people are affected by the lawsuit that occurred against DraftKings. In brief, the players are either losing money and becoming frustrated with the company that would result in the company losing some business or they are winning money and are thrilled. On the other hand, bookmakers could start seeing more people seeking them out for advice on what to bet on and how much to bet.

Individualism:

According to Individualism, a business' only concern is to maximize their profits while remaining within the realms of the law of society and human rights. It is deemed as a direct violation against stockholders if a business is not maximizing profits because a business has the duty of maximizing profit for those that hold stock in their company. In the case of DraftKings, their actions were unethical according to the theory of Individualism. With their false advertisements, they intended to maximize profits by marketing appealing prize money that a person could win. However, due to the fact that they “misled novice players about the substantial advantages that high-volume professional players had,” their advertisements were ethically impermissible under Individualism. Additionally, DraftKings “misled players about the likelihood that they would earn a positive return” (Drape). Although DraftKings attempted to maximize profits with their advertisements, the fact that they went against the law by falsely advertising their games makes these actions unethical according to Freidman’s Individualism.

Utilitarianism:

Drew Brees, one of the NFL's top quarterbacks.

Utilitarianism has its main value focused on overall happiness. It says that actions taken by a business should aim at maximizing the happiness of all those who are affected and who are capable of feeling pleasure and happiness. In order to accurately analyze DraftKings’ actions based on Utilitarianism, all the stakeholders involved must be considered. Under Utilitarianism, the advertisements displayed by DraftKings are ethically impermissible. The players who are losing money to DraftKings are upset because they were lied to and expected to win at least something in return. Also, there is no happiness amongst the friends and family of the players of DraftKings because their loved ones are losing money. The lawsuit against DraftKings implies that DraftKings as a corporation is not happy both because they have a bad reputation now and it could affect the amount of people that play their games. In fact, DraftKings “briefly stopped operating in New York” after the lawsuit (Lovett). As a result, DraftKings lost some of their revenue on top of the six million dollar lawsuit they faced. The attorney general of New York is aggravated and annoyed by the actions of DraftKings because he does not want to see the people living in New York being lied to and cheated. The only other stakeholder that could benefit from this is a private bookmakers because they will make money off of those who seek their help for advice on what to bet on. This could also make the players of DraftKings even angrier because now they would have to spend even more money to be able to gamble more intelligently. Although there are some people that benefit and are happy with the actions of DraftKings, more stakeholders are upset and bothered because they are losing money and being lied to. Because the overall feeling is dissatisfaction, the advertisements put out by DraftKings are ethically impermissible according to the beliefs of Utilitarianism.

Kantianism:

Kantianism is an ethical theory that states that a business should act in ways that respect all individuals and the choices they make. Actions made by a business are considered ethical if they do the right thing for the right reason. In order for an action to be deemed permissible, companies must use informed and rational consent from all those who are involved. Under Kant’s Formula of Humanity, it is morally wrong to use people as a mere means to get what you want. Business entities should not exploit, deceive or harm any of their customers for their own benefit. The actions by DraftKings are considered morally wrong and ethically impermissible under Kantianism. The attorney general was quoted as saying “no company has a right to deceive New Yorkers for its own profit.” The fact that DraftKings lied to and deceived their customers directly violates Kant’s aforementioned Formula of Humanity. DraftKings intended to exploit their customers to gain revenue for their company by wrongfully advertising their fantasy sports games. Another important aspect to look at when discussing Kantianism is the fact that gambling is a severely addicting hobby. Making it more appealing to play, DraftKings removed the ability of those addicted to gambling to be rational because they believe that they can win a large quantity of money because that’s what was advertised to them.

Virtue Theory:

Aaron Judge (left) and Jose Altuve (right) are two
of the best players in the MLB. Players that
are often bet on by those playing DraftKings.

The Virtue Theory is based on four major virtue characteristics which are courage, honesty, temperance and justice. Courage relates to risk-taking and the willingness of a business to stand for the right actions. Honesty means that a business should be honest with all agreements that they make. Temperance ensures that a business maintains reasonable expectations and justice correlates to a business being fair in all their practices. For DraftKings, their unethical advertisements were intended to help them flourish by getting more people to play, thus more revenue for the corporation. However, under Virtue Theory, DraftKings’ advertisements are considered unethical and morally wrong. DraftKings may have flourished temporarily after they released their advertisements, but looking at it in the long run, their lawsuit and decrease in people who played their games reveal that the company did not flourish. By being unethical with their advertisements, DraftKings risked the company’s identity because now people who used to play might not want to play anymore because of the bad connotation that DraftKings has. It is also evident that DraftKings did not live up to their agreements because they advertised that people had an excellent chance of winning money, which was proved to be false. For these reasons, DraftKings was unethical according to Virtue Theory.

Bibliography

Shen, Lucinda. “DraftKings and FanDuel Settle New York Lawsuit for $12 Million.” Fortune, 26 Oct. 2016,

fortune.com/2016/10/26/draftkings-fanduel-settlement/.

Van Natta, Don. “The inside Story of the Quick Rise and Quicker Fall of DraftKings and FanDuel.” ESPN,

ESPN Internet Ventures, 24 Aug. 2016, www.espn.com/espn/feature/story/_/id/17374929/otl-investigates-implosion-daily-fantasy-sports-leaders-draftkings-fanduel.

Gouker, Dustin. “DraftKings, FanDuel Pay $6 Million Each To Settle New York Case.” Legal Sports Report,

25 Oct. 2016, www.legalsportsreport.com/11901/draftkings-fanduel-pay-6-million-in-new-york-case/.

Lovett, Kenneth. “FanDuel, DraftKings to Pay $6M Each in Fines for Deceptive Ads.” NY Daily News,

NEW YORK DAILY NEWS, 25 Oct. 2016, www.nydailynews.com/news/politics/fanduel-draftkings-pay-6m-fines-deceptive-ads-article-1.2844846.

Korman, Chris. “DraftKings and FanDuel Are Fun, Addictive, and Completely Unfair for Most Fans.” USA

Today, Gannett Satellite Information Network, 18 Sept. 2015, ftw.usatoday.com/2015/09/daily-fantasy-sports-football-drafkings-fanduel-commercials.

Drape, Joe. “DraftKings and FanDuel to Pay $6 Million Each to Settle New York Claims.” The New York

Times, The New York Times, 25 Oct. 2016, www.nytimes.com/2016/10/26/sports/draftkings-and-fanduel-to-pay-6-million-each-to-settle-new-york-claims.html.

“DraftKings | Daily Fantasy Sports For Cash.” DraftKings - Daily Fantasy Sports for Cash,

www.draftkings.com/.

Salazar, Heather. Western New England University. Spring Semester 2018 Class Notes.

Salazar, Heather. “The Business Ethics Case Manual: The Authoritative Step-by-Step Guide to

Understanding and Improving the Ethics of Any Business.”

Saturday, April 7, 2018

Draftkings: Insider Trading (2015)

Draftkings: Insider Trading (2015)

Friday, April 6, 2018

DraftKings: Falsifying Advertisements (2016)

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