>> 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.
And by the Corporation for
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