The Fantasy Sports Gamble : FRONTLINE

>> NARRATOR: Tonight on

Frontline: the law…

>> Sports betting, by and large,

is illegal in this country.

>> NARRATOR: The loophole…

>> The United States Congress

carved out a piece of

legislation that says fantasy

sports is not gambling.

I didn’t make that decision;

they did.

>> NARRATOR: The underground

world of online sports betting

and the multibillion dollar

business of daily fantasy

sports.

>> I’ve made hundreds of

thousands of dollars doing this

over the past two years now.

>> The core of what we do

is about making sports

more exciting.

>> NARRATOR: Frontline and

New York Times reporter

Walt Bogdanich investigate the

meteoric rise and new

challenges facing daily fantasy

sports.

>> It’s clear to us that

what they’re doing is gambling.

There are investigations

going on all over the country.

You can’t have unregulated

gambling without running

into problems.

>> BOGDANICH: How much do you

estimate you lost?

>> Between $60,000 and $65,000.

>> NARRATOR: Tonight on

Frontline, “The Fantasy Sports

Gamble.”

>> BOGDANICH: So you don’t view

what you do here as gambling.

>> No.

(baseball commentary playing)

>> I found out about FanDuel

when I was in high school.

I had played fantasy football

for years and whatnot.

I never played daily fantasy.

Now I play probably 450, 500

different games a day.

A typical morning, it’s pretty

much just me hanging out,

poring over baseball stats.

I’ll spend between four and five

hours a day on it.

So after that, I’m just hanging

out doing whatever, just living

life as a normal college

student as best I can.

>> NARRATOR: We met Bryce Mauro

on the last day of his junior

year at Indiana’s DePauw

University.

He’s one of the nation’s best

players on FanDuel, a popular

daily fantasy sports site.

There are many ways to play, but

basically, you create your own

fantasy team made of real

professional players, and earn

points based on how they do in

real-life games that day.

Fantasy sports has been around

for decades, but not like this.

>> I wagered about $12,000

this morning.

>> WALT BOGDANICH: That’s a lot

of money.

>> Yeah, it is.

>> BOGDANICH: You confident?

>> I’m very confident.

I wouldn’t be wagering money

on this scale if I wasn’t very

confident in my abilities.

I mean, I lost about $18,000

last night, so it offsets it.

It fluctuates.

I’ve made hundreds of thousands

of dollars doing this over the

past almost two years now.

You can see all the games

and whatnot.

I’ve played 249 games.

>> NARRATOR: On this day, Bryce

won $11,000 on the afternoon

baseball games.

>> The guy has bases loaded,

I got the guy that plays as

a leadoff hitter…

>> NARRATOR: That night,

he lost $6,000. Over the

past year, with reporters

from The New York Times,

we’ve been investigating what

was behind the explosion in

daily fantasy sports and the

wider world of online sports

betting, which is illegal in

most of the country.

Daily fantasy sports doesn’t

consider itself gambling,

and had been booming.

>> Fantasy sports was

traditionally a season-long

contest that was something

common among coworkers, friends,

and family.

>> NARRATOR: For years, players

would gather at the beginning of

the season, assemble their teams

and compete against each other.

>> In the season-long contests,

sometime you have to wait three

months, four months.

You’re devoting hours upon

hours a week, and you have to

wait until the end of the

season to find out who won.

>> NARRATOR: Then the Internet

came along.

Today, you can play thousands

of opponents at once. And rather

than months, you get results

right away.

>> The gratification doesn’t get

any more instant than in daily

fantasy sports.

You have an outcome every single

day.

And if you don’t like your

lineup today and you lost,

you get to start over again

tomorrow.

>> BOGDANICH: Fantasy sports

used to be seasonal.

Now it’s being offered

on a daily basis.

Who came up with that idea?

>> I never want to claim credit

for anything that, you know,

I’m sure many people will claim

credit for.

Clearly, we were one of the

first out there.

Fantasy was a market that

was stagnant.

>> BOGDANICH: And FanDuel played

a big role in changing that.

>> Exactly.

>> BOGDANICH: And how did that

happen?

>> Despite fantasy being a large

market, the younger sports fans

weren’t engaging with fantasy.

And so the insight was, what if

we take these mechanics around

research and picking players

and competing with your friends

and put it in a format that’s

geared towards a very hard-

to-reach but very important

demographic of kind of

millennial 18- to 35-year-olds.

Let’s make it mobile first,

let’s make it faster,

and see how that goes.

>> NARRATOR: With that,

a new industry was born.

♪ ♪

Soon, dozens of companies began

offering daily fantasy games,

most making their money by

taking a cut of the players’

bets.

FanDuel and its main rival,

DraftKings, are the biggest

names in the business, with

about 90% of the market.

Both are now valued at

over a billion dollars.

>> We have several million paid

players, and that’s growing

every day.

So right now, we’re signing up,

you know, 20,000 to 30,000

players every day.

>> BOGDANICH: 20,000 to 30,000

every day?

>> Yep.

>> BOGDANICH: What percentage of

your daily fantasy players would

you say are under the age of 30?

>> Probably about 50% to 60%

are under the age of 30.

>> NARRATOR: It’s a demographic

that appealed to venture

capitalists and private equity

firms.

They’ve pumped hundreds of

millions of dollars into the

industry.

TV networks wanted that audience

as well.

>> Full disclosure, 21st Century

Fox, our parent company, owns

roughly an 11% stake

in DraftKings.

>> We should note NBC Sports

Group and NBC’s parent company

Comcast are among the investors

in FanDuel.

>> ESPN has an exclusive

two-year marketing agreement

with DraftKings worth a reported

$250 million.

>> NARRATOR: Maybe the most

surprising support came from

professional sports leagues and

teams.

They’ve long opposed sports gam,

which is illegal in most of they

saying it fosters corruption.

>> The sports leagues have

always been of the view that

sports gambling will lead to

match fixing.

And even if it doesn’t lead to

match fixing, it will create a

negative perception in the minds

of fans that the games are not

on the level.

>> NARRATOR: But that didn’t

discourage them from embracing

daily fantasy sports.

The NBA developed a partnership

with FanDuel.

Major League Baseball and the

NHL struck deals with

DraftKings.

New England Patriots owner

Robert Kraft and Dallas Cowboys

owner Jerry Jones both own

stakes in DraftKings, and 28

professional football teams

have made deals with one site

or the other.

>> The sports teams and the

leagues want to make sure that

sports is as relevant for

today’s millennial generation as

it was for the generation that

is now in their 40s or 50s.

And what they see in FanDuel is

an opportunity to engage

a younger generation of fans,

get people to watch more sports,

and then also get them to play

more on FanDuel.

>> FanDuel’s one-week fantasy

football leagues are paying

$75 million a week…

>> NARRATOR: All that investment

money fueled an advertising

blitz worth hundreds of millions

of dollars in the run-up to this

year’s football season.

>> Turning a game you love

into a lifetime of cash.

>> Use promo code “Kick” to play

and get free entry into the

millionaire grand final.

>> NARRATOR: On some weeks,

FanDuel or DraftKings was the

number one advertiser on

television.

>> This isn’t fantasy as usual.

This is DraftKings.

>> They were everywhere.

I’m not sure that we’ve ever

seen that level of spend

for any kind of gaming product,

or frankly, any product.

It’s very rare that a marketing

campaign achieves a spot in the

cultural consciousness, that it

becomes a meme, that it becomes

the subject of jokes for late

night television hosts.

>> These days, it feels like you

can’t turn on the TV without

seeing one of three things:

a zombie, a Kardashian,

or a fantasy football ad.

>> I can’t think of another

marketing campaign at least in

my lifetime that achieved that

kind of cultural status through

sheer force of repetition.

>> Over and over and over again.

>> It’s not making you want

to play?

>> No.

>> NARRATOR: All that

advertising also brought some

unwanted attention.

>> As the daily fantasy sports

industry became more ubiquitous,

the questions were inevitable.

Is this something that is legal?

Is this something that should be

regulated?

How is this not gambling?

>> Let’s be clear, we’re talking

about millions of people

spending billions of dollars to

bet on things they can’t

control.

>> The big question is, is it

even legal, and should it be?

>> This comes dangerously close

to online gambling.

>> Do they have to pay anything

to play, and do they win

something?

>> They do.

>> That’s gambling.

>> What that advertising spend

at the beginning of the NFL

season really did was create not

only a lack of sympathy, but a

vulnerability that didn’t exist

a year ago.

>> (bleep) you, it’s gambling!

>> BOGDANICH: Is what you do

gambling?

>> No, it’s not gambling at all.

I mean, it’s…

I consider it more of investing.

You know, I have a portfolio.

I’m trying to diversify the

portfolio by picking players

every day.

I’m trying to maximize returns.

I’m trying to optimize

my lineup each day.

I mean, it’s like you’re given

$1,000 to bet on the stock

market in a day.

It’s no different than that.

>> BOGDANICH: You told me that

FanDuel doesn’t like the word

“gambling” associated with its

brand, and you told the story of

they contacted you and asked you

not to use that word.

Tell me what happened.

>> I prefer not to answer that.

>> BOGDANICH: Okay, okay.

Because you don’t want to get

them angry, or…?

>> Because I don’t want to do

anything to upset the industry.

I mean, that’s my job at stake,

pretty much.

>> There’s a lot of commercials

out there, it’s not just

during the games, it’s

everything.

You see these daily fantasy

commercials.

>> The core of our game is not

about the money.

When you ask people why they

play, they play because it makes

the games more exciting.

When you ask us what we as a

company are about, we’re about

making sports more exciting.

>> BOGDANICH: So you don’t view

what you do here at FanDuel

as gambling.

>> No.

>> BOGDANICH: That’s a word that

isn’t used very much around

here, I take it.

>> Nope, because we are…

Every time that you talk to our

users, what comes through loud

and clear is the fact that we’re

an entertainment product.

>> BOGDANICH: So you see no

reason, then, for fantasy sports

to be regulated by some

government agency?

>> Our product is all about

entertainment value.

>> The word “gambling,” or

the association with gambling,

will have immediate negative

repercussions for the industry.

They want their product to be

as deregulated,

as non-interfered with

as possible by state

and federal government,

and the moment the gambling

door opens, all that ends.

>> NARRATOR: The fight over

the legality of fantasy sports

traces back a decade ago

to Washington, D.C.

Ironically, the daily fantasy

sports industry owes its

existence to an anti-gambling

law: The Unlawful Internet

Gambling Enforcement Act of

2006.

It was supposed to stop credit

card companies and other payment

processors from facilitating

bets online.

>> Mr. Speaker, I yield three

minutes to the gentleman from

Iowa, Mr. Leach.

>> NARRATOR: The bill’s sponsor,

Iowa Republican Jim Leach,

saw online gambling as a threat

to young people and gambling

addicts.

>> Never has it been so easy

to lose so much so quickly

at such a young age.

Internet gambling serves

no social purpose.

Internet gambling is crack

cocaine for gamblers.

You can gamble in the bedroom,

in the living room,

on a treadmill.

You can get over your head

quite quickly.

I yield back the balance

of my time.

>> The gentleman yields back

the balance of his time.

>> I was one of the leading

lobbyists for the opponents

of the legislation.

>> BOGDANICH: You were

against it– why?

>> Well, the companies

I represented felt that the

appropriate path for the U.S.

was to license and regulate

Internet gaming, not to prohibit

it, and preserve the freedom of

adults to entertain themselves

as they choose.

>> BOGDANICH: How important was

the National Football League in

securing passage of this bill?

>> Instrumental.

I think it’s universally

recognized that their advocates

were the main strategists

for getting it done.

>> NARRATOR: The bill they

helped pass targeted online

gambling, including websites

that had moved offshore.

But it exempted fantasy sports

as long as they involved more

skill than chance.

And ultimately, it left the

fight over the legality of

fantasy sports up to individual

states.

>> This is a 15-minute vote.

>> BOGDANICH: If the point

of the 2006 law was to stop

Internet gaming involving

offshore websites, what role did

fantasy sports play in this?

>> There was a big grassroots

uprising.

Fantasy sports players don’t

consider themselves gamblers,

and I think the sponsors decided

it would be easier to enact the

law if they did not prohibit

fantasy sports.

(gavel pounds)

>> The yeas are 409,

the nays are two.

>> The daily idea of fantasy

sports was not conceived of

when the bill was passed,

partly under the assumption

fantasy sports are kind of a

fun activity that were a very

modest proportion in size.

But I certainly didn’t foresee

this sort of activity.

>> NARRATOR: The 2006 law

had paved the way for daily

fantasy sports to flourish.

As for the law’s primary target,

the multibillion-dollar online

sports gambling industry, our

reporting showed it flourished

too, but underground.

It’s a shadowy world that,

for many years, Curtis Coburn

called home.

>> BOGDANICH: Were you

a successful bettor?

>> They probably beat me

on football.

Baseball, I did pretty good on

baseball.

>> NARRATOR: By the time the law

passed, he had been playing with

a gambling ring in Plano, Texas,

for about five years.

>> They had a large amount

of bettors all over the United

States.

They had bookies in Vegas,

New York, you name it.

>> And it looks like Gregg

is gonna bump it up,

makes it $600 to go.

>> NARRATOR: Coburn’s bookie,

the guy who handled all his

money, was Gregg Merkow, a

big-time poker player with over

a million and a half dollars in

winnings.

>> After a while, after talking

to him, he asked me if I was

a cop, and I told him no, and he

said, “Well, I’ll hook you up,”

and I was betting that night.

>> NARRATOR: But in fact,

Coburn was a cop, an undercover

detective for the Plano PD.

>> Where are you at now?

>> Our target just showed up.

>> NARRATOR: He was wired with

a hidden camera that recorded

hours of betting transactions.

>> How you doing?

>> Good, how are you?

>> I had a fake name.

I went by Carl Cannon.

I had a checking account,

credit cards, different address.

I had a completely different

cover.

>> Thank you, sir.

I may just give it back to you

next week just like it is right

here.

>> It was a lot of chasing

the money, following the money.

>> NARRATOR: Although the money

was handled in person, much of

the actual betting took place

online. On an array of two dozen

websites based not in Texas, but

offshore, on the tiny Caribbean

island of Curacao, which the

bookies used to process bets

around the clock.

>> They were taking in

about a billion dollars’ worth

of wagers a year.

>> BOGDANICH: A billion dollars

a year.

>> Federal agents and the Plano

Police Department have shut

down what they say was a five-

billion-dollar illegal sport

gambling ring.

>> NARRATOR: When they finally

broke up the ring, they

confiscated over $10 million.

Though the Plano ring had been

stopped, reporters at the Times

were seeing gambling rings

proliferating.

We began digging deeper into how

these online gambling operations

work.

James Glanz is an investigative

reporter with a PhD in physics.

Augie Armendariz works in the

computer-assisted reporting

unit.

Though many gambling websites

refuse to take bets from

American customers, we managed

to set up an account with

a Panamanian website called

BetOnline.

Its motto is “Because you can,”

and that turns out to be

absolutely true.

>> That’s my credit card

information right there.

You can see my available balance

up here, it’s $139.

Got a pending wager, ten bucks

on Chelsea.

>> All right, let’s bet

on the All-Star game.

I’m an American League guy.

Let’s put ten bucks on the

American League.

>> Sure.

Do a straight bet.

>> Okay.

>> Then I can place my bet,

confirm it.

And watch out for the Tweet

button.

>> So we just sat in the middle

of Manhattan and made an online

bet with a company in Panama.

>> Panama.

After I set up the account,

I couldn’t quite figure out

how to deposit money when I got

a phone call on my cellphone,

and a guy walked me right

through how to put money on the

book using my credit card.

>> You didn’t ask for help.

>> No, just got the call.

>> You just got a call.

>> Yeah, and he just assured me

that there wouldn’t be anything

on my credit card statement that

said “BetOnline.”

And sure enough, this is the

company that eventually showed

up on my credit card statement.

>> A company that sells safety

goggles and gloves and hard

hats?

>> That’s the one.

>> NARRATOR: So we tried

to order some work boots.

>> BOGDANICH: Is this Moser

Safety?

>> NARRATOR: But the woman

who answered there said it was

actually “a third-party payment

support service for gaming and

betting sites.”

>> BOGDANICH: Is your company

helping an online gambling ring

evade U.S. law?

>> NARRATOR: She said she wasn’t

sure.

>> BOGDANICH: Because it would

appear that that’s the case.

So, if I wanted to buy

workwear and clothing and

safety boot and shoes,

I’m not gonna get that, am I?

>> NARRATOR: The answer was no.

>> BOGDANICH: Okay, well,

thank you very much.

>> NARRATOR: When we checked

recently, mosersafety.com

was no longer online.

Fraudulent billing is just one

way sports betting rings try

to get around the law.

>> Many arrested this morning

in a nation-wide bust.

>> …happened in homes in

California, New York, Nevada…

>> The alleged gambling ring…

>> NARRATOR: Probably no office

has worked harder to stop them

than the district attorney

in Queens, New York.

Using the state’s anti-gambling

laws, prosecutors indicted 17

people from an international

sports gambling ring just a few

months ago.

>> You’re serving 250-20

notice, demand notice for

alibi, 240-30 notice.

>> There’s value in going after

criminal enterprises which, you

know, really prey on people.

>> That would be $50,000

cash or bond.

>> Organized crime has found

gambling enterprises to be

extremely profitable.

One of the most lucrative

rackets, if you will, is

syndicated sports betting,

second only to narcotics

trafficking as a source

of revenue for the mob.

>> BOGDANICH: And all of this is

made possible because of the

Internet.

>> Because of the Internet,

absolutely.

>> NARRATOR: But collecting bets

and paying winners still has to

be done the old-fashioned way.

>> They can’t use electronic

wire transfers, they can’t use

credit cards because that’s

prohibited by federal law,

so they have to have boots

on the ground, so to speak.

They have to settle up

in person.

>> NARRATOR: It’s a system that

operates right out in the open,

as Brave’s investigators saw

a few years ago, in the middle

of the day on Fifth Avenue

in Manhattan.

>> Fella walks up, meets some

person, “Here’s your money.”

Our detectives were in a

position to observe it and

take pictures of it.

And this is the way business is

done in these kind of criminal

enterprises.

>> NARRATOR: The courier,

whose codename was “Mr. Gold,”

handed over a bag stuffed with

$350,000.

But the recipient of the money

was a surprise: Joy Tomchin,

a New York real estate developer

and philanthropist.

She told investigators that she

was merely holding the money for

her brother Stanley, the top

oddsmaker for Pinnacle Sports,

one of the biggest and best

known offshore gambling

websites.

Pinnacle has been based on the

island of Curacao since the

1990s.

At its peak, it was handling

as much as $12 billion a year

and was a household name–

in certain households, anyway.

>> What price they give you

on Alvarez?

>> $350.

>> Who you place your action

with?

>> Pinnacle.

>> Online?

>> NARRATOR: After the 2006 law,

Pinnacle said it stopped taking

bets from the United States.

Within two years, its business

dropped in half.

>> BOGDANICH: Did they come

back?

>> Well, our investigation

revealed that they did, and they

were very extensively involved

in accepting wagers that

originated from the United

States.

>> NARRATOR: In that particular

case, authorities recovered

about $10 million and arrested

25 people in five states,

including Stanley Tomchin, who

pled guilty to a misdemeanor.

We wanted to speak to Pinnacle

Sports directly, so we went to

Curacao, about 40 miles off the

coast of Venezuela.

>> I think that one of the

attractions of these zones here

is that they have great tax

rates.

>> BOGDANICH: And also the

tolerant government.

>> NARRATOR: The billion-dollar

company’s offices were here,

in a beachside budget hotel.

We’d requested an interview

and were waiting to hear back

when there was commotion

at the hotel.

>> BOGDANICH: I was sitting

in the lobby this morning and I

noticed a whole horde of workers

descending with a lot of

equipment coming out of the

Pinnacle office, and now they’re

pulling out in the truck.

I guess one of the questions

that occurs is, did our arrival

have anything to do with their

departure?

Coincidence?

Who knows.

>> NARRATOR: We followed them

across town, where they were

moving into a new office,

a building that also houses

Curacao’s economic development

ministry.

>> BOGDANICH: Hey, he’s talking

our picture.

How you doing?

Good.

What’s your name?

>> Amali.

>> BOGDANICH: Hi, and you’re

with Pinnacle?

>> Yes.

>> BOGDANICH: What’s going on

here?

>> We’re moving.

>> BOGDANICH: You’re moving?

>> Yes.

>> BOGDANICH: You didn’t like

the Holiday Beach Hotel?

>> No, they didn’t treat us

well.

>> BOGDANICH: They didn’t treat

you right?

The question is, am I gonna ever

have an opportunity to talk

to somebody on camera?

>> NARRATOR: So we went back to

the Holiday Beach Hotel to make

one last attempt at talking to

someone at Pinnacle.

>> BOGDANICH: Can we do an

interview with anyone from

Pinnacle to ask about their

operation and why you guys moved

this morning?

>> No.

Excuse me, don’t take my

picture.

You guys are trespassing

as far as I’m concerned.

>> BOGDANICH: So we should

leave?

>> You should leave.

>> NARRATOR: We asked to speak

to other gambling companies,

but they wouldn’t talk either.

Nor would officials in Curacao

who oversee the gambling

industry: the governor’s office,

which issues gaming licenses,

and the justice ministry.

We finally received a statement

from Pinnacle’s new neighbor,

the economic development

ministry.

>> BOGDANICH: “I graciously

thank you for your interest in

this industry, but considering

the U.S. position towards online

gaming, there is no benefit

to further deepen this topic

for the benefit of the U.S.

TV viewer.

I can only refer you to Mr.

Campbell from the Gaming Control

Board.”

>> NARRATOR: So we called Mr.

Campbell, who said that while

the Gaming Control Board was

expected to gain authority over

online gambling in the future,

for now, it only regulates

casinos.

He wouldn’t agree to an

interview, but said he’d provide

a statement if we came to his

office.

It took less than 15 minutes,

but when we arrived,

he wasn’t there anymore.

Before we came down here,

an industry consultant said that

getting someone to talk about

online gambling in Curacao

would be like chasing a ghost.

He was right.

>> BOGDANICH: This is a legal,

allegedly regulated industry

in Curacao.

Why doesn’t anyone want to talk

to us about it?

>> That’s a difficult question

for me to answer.

Curacao believes very much

on self-regulation in order

to protect their companies.

>> BOGDANICH: Are they doing

a good job of self-regulating?

>> Some are, and some are not.

>> BOGDANICH: American

prosecutors say they are unable

really to dismantle these rings

because the offshore online

betting sites are beyond their

jurisdiction, and they can’t

reach them.

Is that really the case?

>> Certainly, it is very

difficult for them to catch

them.

Today, these systems are in the

cloud, so nobody knows exactly

where the actual servers

physically are located.

But certainly, there is

an operation somewhere, and that

is what you have to discover

in order to try to stop it.

>> NARRATOR: To try to find

these sites, we turned to a

company in Manchester, New

Hampshire, called Dyn, which

helps online businesses move

their data around the Internet

as fast as possible.

They explained that most

websites actually aren’t just

based out of one location,

like Curacao.

Instead, they use a network

of data centers and servers

spread around the world,

allowing them to communicate

quickly with potential

customers.

>> We sort of had the implicit

understanding that they were

where they said they were, but

you’re saying it actually is

coming from servers sitting in

different places geographically.

>> If you’re a provider or

content provider of any means,

whether it’s gambling or

otherwise, you want that to

perform well.

So you’ll tend to see these

providers go to get closer

to where their actual…

>> Closer to the consumer?

>> To the consumer.

>> If you’re accessing a

website, part of it may exist in

a data center in New York, part

of it may exist in somebody’s

corporate data center,

in an office in Columbus

or St. Louis.

>> If you know where to look,

you can start…

>> BOGDANICH: You know where

to look?

>> We know where to look,

and we know how to look.

>> NARRATOR: They can track

websites’ different locations

using Internet data and a

technique called trace routing.

We asked Dyn’s top analyst, Doug

Madory, to try to find out if

the Pinnacle Sports website was

coming from anywhere other than

Curacao, which is where it is

registered.

>> Well, the registration for a

domain can be anything.

It could be the moon, for all we

care.

That address doesn’t relate

to how it is actually hosted

or routed.

This is a tool that we use

for researching where has this

site been seen, and then look up

where has the site resolved to.

Here, we typed in

pinnaclesports.com.

So if we zoom in, this is gonna

tell us where is this

website hosted.

>> I see some dots in the United

States.

>> Yeah, they’re in the United

States.

It looks like New York;

Chicago, Illinois;

San Jose; and Los Angeles.

>> And it was considered outside

of the reach of law enforcement

because it’s registered

overseas.

>> Right.

>> But when someone in the

United States types in that

domain name…

>> A user in New York City

would be directed to the

data center in New York City

within a couple miles of

where they reside.

>> BOGDANICH: Regarding

Pinnacle, we’ve tracked one of

their servers to a data center

in New York City.

Is that of concern to you?

>> Absolutely.

>> BOGDANICH: Why?

>> Well, for them to knowingly

collect data in New York for the

purpose of furthering a

bookmaking enterprise, if that’s

what they’re doing, that would

be a significant exercise of

brazenness on their part.

That would be very interesting

to us, and we would certainly be

looking into that.

>> NARRATOR: We wanted to speak

to Pinnacle about what we

discovered.

In a statement, the company said

it only uses data centers in the

U.S. to help accelerate its

Internet traffic, and is fully

in compliance with U.S. laws.

Their website says they don’t

take bets from the U.S., but

U.S. and European investigators

have in the past disputed this.

And New York Times reporters

were able to bet with the help

of a Pinnacle agent.

Shortly after the company’s

statement, Doug Madory, the

expert from Dyn, said Pinnacle’s

content had stopped coming from

those U.S. data centers and

servers we had seen and moved

to Europe.

Pinnacle was just one of many

sports betting sites offshore

that caught our attention.

We’d heard of a website called

Beteagle.com that federal

prosecutors had tied to the

Genovese organized crime family.

The site was registered in Costa

Rica, and we wanted to know

how it worked.

>> When I went ahead and tried

to figure out, if I want to go

to Beteagle.com, what address on

the Internet do I have to get to

to find the machine that’s

broadcasting the Bet Eagle

content, this is what came back.

>> BOGDANICH: 108.61.159.125.

>> 108.61.159.125.

So we know what the address is,

and so the next question is

where the actual servers are at,

or the machines that people

connect to to get the content

from.

>> BOGDANICH: And the reason we

wanted to know where the servers

were was because…?

>> Well, we want to know if

these things are really

offshore, if they’re offshore

in name only or if they actually

have infrastructure in the

United States that supports

the wire rooms.

>> NARRATOR: The Costa Rican

website traced back to an

unexpected location.

>> You can see it goes

into New Jersey.

We figured out that that’s

a building number of a data

center in New Jersey,

in Piscataway, New Jersey.

>> NARRATOR: That data center

housed servers operated by a New

Jersey company called Choopa,

so we looked to see what other

sites were on those servers.

>> It’s not just Beteagle.com.

There’s evidently 165 others

at that machine.

>> BOGDANICH: Okay.

>> Race books, mobile wagering.

These are all on that same

address on the internet.

>> BOGDANICH: Bet on tennis, bet

on baseball, all in one spot.

>> That’s correct.

>> BOGDANICH: And these sites

are not licensed by the state

of New Jersey.

>> None.

>> BOGDANICH: So they’re

operating illegally.

>> Right.

>> NARRATOR: The New Jersey

Department of Gaming Enforcement

declined to be interviewed, but

said they were not aware of the

gambling sites we had found.

And a Choopa spokesman denied

any knowledge of the gambling

sites.

But a few days later, we noticed

something in the Internet

traffic.

>> After you made the call, we

started seeing the sites move

one by one to different places.

We’re seeing things migrate

to new servers, different

networks, different servers.

>> BOGDANICH: They moved off

of the Choopa network.

>> They moved off the Choopa

network, and we verified that.

>> BOGDANICH: We found more than

a hundred gambling sites that

apparently federal agents didn’t

know about.

>> NARRATOR: Choopa, Pinnacle,

and other companies declined

to be interviewed.

But an American investor

in the online gambling business

was willing.

Jeffrey Salvati owns a stake

in two offshore gambling sites:

UBet and VitalBet.

One of his investors is

the world champion boxer

Manny Pacquiao.

>> BOGDANICH: And where are they

based offshore again?

>> Actually, both are licensed

out of the country of Curacao,

which is completely legal,

and both are actually run

out of Bulgaria.

>> BOGDANICH: A truly

international operation.

>> Absolutely.

>> BOGDANICH: Why did you go

to Curacao to get licensed?

>> Just because it’s most

liberal.

It’s not most cost-effective,

but it’s highly… it is

recognized.

>> NARRATOR: He said he is not

worried about legalities because

his sites don’t take bets from

the U.S.

But he and his partners are

looking beyond the world

of offshore gambling.

They’re now trying to get into

the business of daily fantasy

sports.

They’re investing in a company

called Impact Fantasy Sports.

>> Impact Fantasy Sports has the

ability to do games that aren’t

quite popular in the U.S. yet.

Cricket, rugby, darts…

>> BOGDANICH: You’d like to take

fantasy sports and take it on

a trial run in other countries,

is that right?

>> Yes.

While football is probably 50%

of DraftKings and FanDuel’s

activity, in the country of

India, if you’re not in cricket,

you can just pack up and go

home.

Impact Fantasy Sports allows us

to execute those obscure sports.

>> NARRATOR: Already in the

U.S., fantasy sports has

expanded beyond games like

football and baseball.

Now you can bet on daily fantasy

golf, fantasy NASCAR, fantasy

mixed martial arts, fantasy

video games.

And new companies have stretched

the definition of fantasy

sports.

This one assembles your teams

for you.

You just pick a side.

Daily fantasy has become

ten-minute fantasy,

reduced to a yes or no question,

removing virtually all of the

skill that’s supposed to

separate fantasy sports from

gambling.

>> BOGDANICH: Do you think

fantasy sports is gambling?

Honest answer.

>> No, I don’t believe it is.

When you have to draft a roster

of eight guys, all from varying

teams, and you’re not placing

a wager on a single guy

or a single team, there is skill

involved in fantasy.

>> BOGDANICH: As there is

in poker?

>> As there is in poker.

>> BOGDANICH: One is considered

gambling but one is not.

>> I don’t make those decisions.

In 2006, the United States

Congress carved out a piece of

legislation that says fantasy

sports is not gambling.

I didn’t make that decision,

they did.

We’re playing by the rules,

they make them.

>> NARRATOR: But as the daily

fantasy business grew, with an

estimated $2.6 billion being bet

last year, it did so with very

few rules at all.

The New York Times began

publishing stories on what we’d

found out about the realities

of unregulated sports betting,

and how the daily fantasy

industry avoided government

oversight.

>> BOGDANICH: Why should casinos

and sportsbooks be subjected to

oversight and regulation by the

government, and fantasy sports

somehow escapes all that?

>> Fantasy sports has always

been recognized to play a

different role.

When you talk to people about

fantasy sports, it’s a social

activity, it’s about competing

with their friends.

But we are clearly very focused

on making sure that everybody

in the industry operates with

the highest degree of integrity.

>> BOGDANICH: So we’re talking

about self-regulation here.

>> Mm-hmm.

>> BOGDANICH: And you’re content

that that’s working well.

>> It is.

>> This morning, two of the

biggest names in fantasy sports

are scrambling to clean up

their image.

>> NARRATOR: But a few days

after that interview, scandal

hit the industry.

>> DraftKings and rival site

FanDuel have acknowledged that

their employees have played

and won significant money

on each other’s sites.

>> An employee of DraftKings

allegedly used inside

information to win $350,000

on a rival site.

>> NARRATOR: DraftKings hired an

outside investigator, who

cleared them of any wrongdoing,

but the damage to the industry’s

credibility had already been

done.

>> People suddenly realized

hundreds of thousands, if not

millions of people were playing

for real money, billions of

dollars were involved,

but as it turned out, we don’t

actually know what’s going on

inside the black box that is

daily fantasy sports.

>> New developments in the

explosive scandal rocking the

unregulated world of fantasy

sports.

>> NARRATOR: The controversy

prompted New York attorney

general Eric Schneiderman

to investigate.

>> Up until now, FanDuel and

DraftKings have not been subject

to any regulation, so all we’re

doing is taking them at their

word that they’re doing the

right thing.

The standard in New York is not

whether or not there’s some

skill involved.

In fact, our laws make it

explicitly clear that if there’s

a material element of chance,

even if skill is involved,

it’s still gambling.

>> Massachusetts attorney

general has…

>> NARRATOR: Other states

followed quickly with their own

inquiries.

>> In New Jersey, you have

a senator and you also have

a congressman who want

investigations done.

>> Arizona, Louisiana,

Montana…

>> The moment we began to think

that there was something amiss,

that something wasn’t quite on

the level…

>> We’re not gonna allow it if

there’s any chance whatsoever.

>> …it accelerated things to

a degree where it seems as if

half the states in the country

are teeing up some form of

regulation or legislation.

>> It could be the beginning

of the end.

>> It has gone big, it has gone

national.

>> NARRATOR: And in

mid-October…

>> If you live in the state of

Nevada, you can no longer play

DraftKings or FanDuel.

>> NARRATOR: …Nevada gaming

officials ordered daily fantasy

companies to shut down

operations in the state.

>> The state says they can’t

operate there without a gambling

license.

>> Obviously, Nevada doesn’t

prohibit all forms of gambling,

but you have to submit yourself

to a very rigorous regulatory

process to run a gambling

operation in Nevada.

>> All bets are off, at least

in New York State at this time,

after the attorney general…

>> NARRATOR: Soon after, New

York cracked down, saying daily

fantasy was illegal, their ads

misleading, and the games

unfair.

>> BOGDANICH: A FanDuel

executive told me that daily

fantasy sports is really all

about entertainment.

Why, then, would the government,

and you in particular, decide to

get involved in a product

that’s just about entertainment?

>> Well, gambling is

entertainment.

People go to casinos to be

entertained.

The issue here is not whether

or not it’s entertaining, it’s

whether or not it is gambling,

and you can’t have unregulated

gambling without running into

problems.

>> NARRATOR: At the headquarters

of the pro sports leagues in New

York City, the New York attorney

general’s actions caused

concern.

The leagues’ big investments

and lucrative deals in fantasy

sports were at stake.

Major League Baseball may now

end its deal with DraftKings,

if they don’t comply with New Y.

And NFL commissioner

Roger Goodell has also raised

questions about daily fantasy

sports.

>> We see a big distinction

between season-long fantasy

and daily fantasy.

I want to make sure there’s

proper consumer protections.

That’s important for us,

and I think that’s something

that’s missing from the current

structure.

>> BOGDANICH: There’s the

saying, “No harm, no foul.”

Is that the case here?

I mean, who’s being harmed?

>> Well, the fact is we just

don’t know what’s been going on

in there, so our investigation

is ongoing.

It’s clear to us that what

they’re doing is gambling,

and there are people who have

gambling addiction problems.

And for them to contend it’s

not gambling, you can almost

lure people who know they have

gambling addiction problems into

getting back involved in

betting.

And gambling addiction experts

have come forward to say

this is a particularly

pernicious form of gambling.

>> NARRATOR: In pursuing the

industry, attorney general

Schneiderman has cited the work

of Dr. Jeffrey Derevensky, one

of the world’s leading experts

on youth gambling problems.

>> Nobody becomes a problem

gambler after the first time

you gamble.

The problems come about

when you can’t stop.

>> NARRATOR: What concerns him

is that the young,

millennial-aged males who make

up daily fantasy’s target

demographic are most at risk

for gambling addiction.

>> We know that young people

are greater risk takers.

We know that males tend

to gamble more than females

in general.

We also know that males tend

to have more gambling related

problems than females,

and boys are much greater

risk-takers than girls.

>> NARRATOR: But FanDuel’s

Matt King insisted it was not

a problem.

>> BOGDANICH: Are you aware

of any young people who have

developed gambling problems

by playing fantasy sports?

>> No.

>> BOGDANICH: None?

>> No.

>> NARRATOR: To find out whether

addiction was becoming an issue,

we talked to counselors who work

with problem gamblers across the

country and wound up in Auburn,

Alabama, to meet a gambling

addict named Josh Adams.

>> Gambling for some people is

fun, and some people can do it

normally.

I’m not one of those people.

If you have a mind like

an addict has, it’s dangerous.

>> NARRATOR: He’s been

a gambling addict for much

of his life.

He says he’s lost hundreds

of thousands of dollars betting

on sports.

He thought he’d recovered, but

then discovered daily fantasy

sports, playing for years on

a number of different sites.

>> It’d be akin to an alcoholic

finding out about a whole new

street of bars that he or she

never knew about.

>> BOGDANICH: How much time

a day did you spend on picking

players?

>> 80% of my day was spent

either researching or analyzing.

I would listen to Fantasy Sports

Radio all day.

I’d have one ear bud in my ear.

>> BOGDANICH: How much money

did you lose?

>> Close to $20,000.

>> NARRATOR: The New York Times

article on Josh’s account of his

addiction struck a nerve with

some readers.

>> It had a profound impact on

me, to the point where I almost

cried as I was reading it

because I could relate to Josh’s

story, and kind of what I was

going through at the time.

>> NARRATOR: Paul is a gambling

addict in his 20s.

We agreed to conceal his

identity and voice because he’sf

ruining his career prospects.

Like Josh, he says an addiction

he thought was under control

was reignited when he found

daily fantasy sports.

>> BOGDANICH: You knew you had

a gambling problem.

Why did you play that first game

on fantasy sports?

>> I didn’t think it was

gambling.

One of my friends was playing

online fantasy, and he sent me

a link, and the deal was he gets

a free entry, and I get a free

entry.

That was my first time

on the website.

>> NARRATOR: Paul showed us

his betting records.

>> There’s one day where

I deposited $5,300, lost,

then deposited again a few

hours later.

>> BOGDANICH: And?

>> $10,000 again.

If that’s not an indication

of problem gambling, I don’t

know what is.

>> BOGDANICH: How much do you

estimate you lost?

>> I think it’s a little bit

over 60.

It’s between $60,000 and

$65,000.

>> BOGDANICH: Did you have it

to lose?

>> No.

It’s mostly credit card debt

that I had to take on.

>> BOGDANICH: Now that you’ve

stopped playing daily fantasy

sports, are there triggers

that you worry about?

>> Anytime I see one of those

commercials for FanDuel or

DraftKings, I think about it.

>> After I played FanDuel

the first time, I was hooked.

>> I start pacing back and

forth.

>> It’s like the best adrenaline

rush ever.

>> NARRATOR: Josh Adams says

he feels the same.

>> The only urges I still have

are when I see the daily fantasy

sports advertising.

They don’t say that there are

going to be more losers

than there are winners.

>> $75 million a week with

immediate cash payouts and no

commitment.

>> You heard me: real cash

money!

>> The Achilles’ heel for

the industry is clearly

problem gambling.

Nothing will get the attention

of state lawmakers, state

legislators.

That’s the dark side of

gambling, the real-life adverse

consequences that befall people

who are unsuccessful at it

or do it way too much.

>> People have been hurt

that could’ve been protected,

and I think the industry

has lost several years.

You know, they’ve taken some

blows that could’ve been avoided

so easily.

>> NARRATOR: Keith Whyte of the

National Council on Problem

Gambling says he’s been trying

to convince the companies

to develop serious consumer

protections.

>> BOGDANICH: How long have you

been engaging the daily fantasy

sports companies in

conversations about what they

should be doing that they’re

not?

>> Almost three years.

>> BOGDANICH: Three years.

Based on what you’re telling me

today, it doesn’t sound like

you’ve made a whole lot of

progress.

>> Unfortunately no, we haven’t.

>> NARRATOR: Whyte says he’s

recommended truth in advertising

standards, effective age

verification, and listing his

gambling addiction helpline on

their websites.

>> BOGDANICH: Why hasn’t the

fantasy sports industry adopted

these consumer protection

safeguards?

>> I can’t speak for the fantasy

sports industry.

I only can say that when we’ve

engaged with them, they have

recognized that there are

customers of theirs with

problems, we have offered our

help, and to date, they have

not embraced it fully.

>> NARRATOR: DraftKings recently

added a link to the National

Center for Responsible Gaming,

which is not a gambling

addiction hotline, but a

research group funded partly by

the casino industry.

Both DraftKings and FanDuel nowy

they are working with state law,

though they have

sued to prevent the New York

attorney general from shutting

them down.

They insist fantasy sports is

not addictive, and that they

have adequate controls in place.

>> BOGDANICH: Are daily fantasy

games fair, as far as you know?

>> That is something that we’re

looking into in our

investigation.

It’s an ongoing investigation.

There certainly have been

allegations that they’re not

fair.

What the daily fantasy sports

sites do to make this worse,

is they run ads that are clearly

geared to attracting the

minnows, attracting the small

players, suggesting that it’s

easy to win, everybody can win.

>> You don’t have to be an

expert, you can just be an

average guy and you’ve got a

chance of doing well.

>> On FanDuel, I’ve won

over $62,000.

>> In fact, it’s very difficult

to win for an average player.

89% of the players lose money.

If that’s true, or if it’s even

worse, then that raises the

question of who’s winning

all the money.

>> NARRATOR: The industry says

that proves their point that

fantasy sports is a game

of skill.

>> Just like football or

basketball, the more you

practice, the better that you

get.

Many of the forms of regulated

gambling are actively

constructed so they are games

of chance, and that is a very,

very different experience

than a game of skill, which is

what fantasy clearly is.

>> NARRATOR: But in recent days

a major payment processor

said it won’t handle

fantasy sports transactions,

and Citigroup began

blocking credit and debit

card payments In New York

to FanDuel and Draft Kings.

Missisppi’s attorney general sa.

>> Violates Texas gambling laws.

>> Considered illegal gambling

in Hawaii.

>> NARRATOR: Even With the indus

future now uncertain, millions e

to chase the dream of winning bg

at daily fantasy sports.

>> You play for real money

with immediate cash payouts!

>> NARRATOR: Though few will be

as successful as Bryce Mauro.

>> The game lobby on FanDuel

is kind of like an ecosystem,

almost.

You can get games against just

people who just haven’t had the

experience of playing on

FanDuel before and don’t have

as much experience playing

on the site.

So they’re more known as fish.

You get more fish action

at the beginning of the seasons

as opposed to the end of the

seasons.

I mean, pretty much everyone

who has come into this industry

and I play against– the

sharks, per se– are all poker

players, former poker players,

because poker, when online poker

became illegal, a lot of people

shifted to this industry.

That’s kind of what caused,

in part, the boom of it.

>> BOGDANICH: With so much money

at stake, is it fun?

>> Honestly, it’s not as fun

as it used to be, you know?

Moving up in stakes, you know,

I just have a lot invested

every day, so it’s turned into

more of a job than a hobby.

I mean, I can take my economics

degree and I can go into

investment banking.

I’m not entirely sure that’s

what I want to do.

I don’t want to work 70-hour

weeks.

Something like this is perfect

for me.

I don’t have to sit in a cubicle

all day.

I can just continuously try

to grow this into something

that I can do after

college.

I mean, I like sports

for different reasons now.

I like it because it makes me

money.

>> Frontline is made possible

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Thank you.

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Captioned by

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access.wgbh.org

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