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American DFS Site DraftKings Continues Damage Control, E-mails Customer Base

Besieged daily fantasy sports site DraftKings continues its attempts at damage control in the wake of recent days’ revelations that its internal controls over certain contest-entry data may have been insufficient to prevent abuse by company insiders.

draftkingsIn an e-mail sent this morning to DraftKings’ entire real-money customer database, DraftKings’ three co-founders have jointly proclaimed that “fairness and integrity” of the company’s games remains DraftKings’ overriding concern.  The company’s co-founders, Jason Robins, Matt Kalish and Paul Liberman, also asserted in the missive that an internal audit of the company’s procedures had already been underway at the time the recent furor was arose, triggered by a content manager’s $350,000 win on a rival site in the same NFL weekly timeframe as that employee’s accidental leaking of data which might provide an added competitive advantage in certain situations.

One of the three DraftKings co-founders, Jason Robins, already exonerated the employee in question, Ethan Haskell, earlier this week.  However — and despite the fact that the data which Haskell not only accidentally leaked, but probably shouldn’t have had access to at that time in the first place — Robins himself has modified his talking points on several other aspects of the alleged scandal as the week has progressed.

Here’s the text of the e-mail sent to DraftKings’ customer base (which includes this writer) earlier today, under the header “A message from the DraftKings Co-Founders”:

[username],

As the three co-founders of DraftKings, we want to speak to you directly about what has been going on.

We know that you play DraftKings because it’s fun and because it gives you a chance to showcase your skills against millions of other fans, and we know that you cannot do that without a level playing field.

The fairness and integrity of our contests has been at the heart of everything we have built since we started the company three and a half years ago.

Over the past week, questions have arisen around an employee of ours who won a significant prize on a competitor’s site. While our internal investigation has reflected absolutely no wrongdoing on his part, this has still pushed us to reevaluate our processes.

Long before this happened, the wheels were in motion for an external review of our policies and procedures. Given the pace of our growth, we felt that an audit was critical to ensure the security of our platform, so we hired an external law firm experienced with these issues to conduct a full review.

But that is not enough. In addition to this audit, we have put in place a set of core measures that we believe are central to this process:

  • We expanded our existing policy prohibiting DraftKings employees from playing on our site to prohibit participation in any public daily fantasy sports contests for money.
  • We also will prohibit employees from any other Daily Fantasy Sports contest operator from participating in games on DraftKings.
  • We are actively reviewing our organizational structure and will add resources to ensure compliance with all recommendations stemming from internal and external findings.
  • We are working with multiple third parties to strengthen all internal policies and procedures.

The events of the past week have caused us to take a broader look and to ask those both here and externally to widen the scope of their analysis of our business.

We are aware that there is room for growth, regardless of the strength of our current platform. We will work tirelessly to improve all aspects of our customer experience, which is every bit as important to us as the effort we put into our product.

You will no doubt continue to hear from the media about both DraftKings and the industry. It is our prerogative to keep driving that conversation ourselves. We will work to respond to your concerns in complete transparency and to inform you of the steps we are taking to inspire your full trust.

Please know how grateful we are for the passion and loyalty you have shown DraftKings throughout our history and especially over the past week. You remain our greatest priority.

Thank you,

Jason Robins, Matt Kalish & Paul Liberman
Co-Founders, DraftKings

DraftKings and co-market leader FanDuel are at the center of the latest storm, which involves the security and allegations of insider use of player-drafted percentages in ongoing DFS competitions.  However, those specific allegations have shifted into a larger and more troubling issue for the two sites and the fledgling industry at large — a suddenly increased public awareness that the learning curve in the stats-driven DFS is very steep and that the largest sites’ games are dominated by a small minority of the site’s experienced players, who generate a hugely outsized percentage of the sites’ overall business volume.

Those newer and more casual users have little protection from that core of experience DFS users, particular on DraftKings and FanDuel, the two sites most under the latest harsh media glare.  Both companies have embarked on huge media buys after receiving outside investment, likely in the hopes of attracting even more investors and cashing out the company founders’ original stakes.

As a result, the public has been treated to a flood of possibly deceptive advertising by both firms that tries to sell the “fun” aspect of the DFS contests while ignoring the deeper realities of the sites’ offerings.  Both DraftKings and FanDuel’s current revenue streams are absolutely beholden to their small, inner cores of massively multi-entry players, whose long-run winning strategies and tech-aided game tactics bear little resemblance to the activity that the two firms are publicly trying to sell.

The letter from the three DraftKings co-founder doesn’t get into that at all, but as expected instead offers its generic reassurances while stating those positives that exist.  Whether or not DraftKings’ audit, also announced, shows lax internal controls or not isn’t going to be as important in the long term as whether the two DFS leaders can sustain their current business models in the face of all the negative press.  In large part the industry will know that answer by the end of the calendar year and the conclusion of the NFL’s regular season.

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