If you’ve even glanced at a TV in the last few weeks, you’ve likely seen ads for daily fantasy sports sites Fan Duel or Draft Kings. These websites allow users to enter daily or weekly fantasy sports contests to risk and possibly win real money. Business appears to be booming. But today brought news of a possible scandal in this new industry.

Via the New York Times:

A major scandal is erupting in the multibillion-dollar industry of fantasy sports, the online and unregulated business in which players assemble their fantasy teams with real athletes. On Monday, the two major fantasy companies were forced to release statements defending their businesses’ integrity after what amounted to allegations of insider trading, that employees were placing bets using information not generally available to the public.

Fan Duel’s employees have apparently been entering and winning contests on Draft Kings, and vice versa. Today’s story includes allegations that a Draft Kings employee had access to non-public information about the entries in Draft Kings’ biggest contest and used that information to enter and win money in Fan Duel’s largest contest. Without getting too deep into the strategy involved in these contests, knowing which players and lineups have been selected by other entrants can provide a huge advantage. This information is not released publicly until everyone’s lineups lock and no further changes can be made.

This raises a number of interesting legal issues. But for our purposes, this episode provides lessons to companies who have non-public information that their employees could use for personal gain. It could be argued that the lineup data being used by the employees is a trade secret, at least until all lineups are publicly released. Thus, it could also be argued that the employees are misappropriating the companies’ trade secrets.

Regardless, both Draft Kings and Fan Duel are facing potential liability and regulatory risk as a result of their employees’ alleged conduct. I’d expect lawsuits to be filed within days. And there’s talk of Congressional hearings to determine whether the industry needs further regulation.

Many companies have information that their employees could use for personal benefit at the companies’ expense, just like Fan Duel and Draft Kings. The lesson here is that companies need to think proactively about how to minimize the risk that employees actually use this information improperly. Today, Fan Duel and Draft Kings announced that they are prohibiting their employees from entering daily/weekly fantasy sports contests. This policy probably should have been implemented long ago. Companies need to think about how to protect this information before it is used improperly, not after, once the damage is done.

In most cases, a policy against personal use does not go far enough. Employees with access to company information that could be used for personal benefit should, at a minimum, sign a non-disclosure agreement.

Now is the time to address whether your company is doing all it can to protect information that your employees could use for their personal benefit. If you don’t know where to start, consult with an attorney who can guide you in the right direction.

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