The U.S. Justice Department and the Federal Bureau of Investigation are probing whether the business model of daily fantasy-sports operators violates federal law, according to people familiar with the matter.
FBI agents from the Boston office have been contacting customers of DraftKings to ask them about their experiences with the Boston-based company, one person familiar with the matter said.
The probe is in the preliminary stage, two people said. It is part of an ongoing discussion within the Justice Department about the legality of daily fantasy sites, in which customers pay entry fees to draft virtual sports teams that compete against each other for prize money based on the real-world performances of athletes. Congress in 2006 prohibited financial companies from transferring money to online gambling sites and several were shut down. But so-called games of skill were exempted. Fantasy-sports sites have since operated under that exemption. So-called daily fantasy sites like DraftKings and FanDuel didn’t become popular until after the law was enacted.
The Justice Department is trying to determine whether daily fantasy games are a form of gambling that falls outside the purview of the exemption. No decision on the matter has been reached, these people said.
Hundreds of millions of dollars in venture capital and player money are flowing into the booming fantasy-sports industry, which counts sports leagues, Alphabet Inc.’s investing arm, and major media companies such as Comcast and 21st Century Fox, the parent company of Fox News, among its investors. Wall Street Journal-owner News Corp and 21st Century Fox were part of the same company until 2013. The Walt Disney Company earlier this year scuttled a planned investment in DraftKings, though the companies maintain a marketing relationship.