Is your fantasy football squad illegal? a scandal sparks a new effort to regulate daily fantasy sports.

• Author: Pagels, Jim

IF YOU'VE BEEN NEAR a television anytime in the last few months, it's likely you've seen a commercial for DraftKings or FanDuel. The ads feature ecstatic real-life bros bragging about how much money their triumphant (and totally imaginary) fantasy football teams are raking in.

When the NFL season kicked off in September, buzz about the sites--which let users assemble hypothetical football squads comprised of real players and play them against other teams in day-or week-long lightning rounds--spiked, thanks to more than $200 million in television advertising in the first nine months of 2015. But the hype hit a speed bump in October, when The New York Times reported that DraftKings employee Ethan Haskell had leaked proprietary data from his company. Haskell had allegedly been using it to garner an advantage that helped him win $350,000 on their competitor, FanDuel.

The fact that betting on these lineups is legal in the first place is the result of a weird quirk in federal law. But now that the fledgling industry's first scandal is underway, the regulatory vultures are circling--much to the dismay of millions of fantasy general managers.

Insider Trading?

Many reports have described the DraftKings information leak and subsequent FanDuel payout as "insider trading," but that's not quite right. When Haskell accidentally posted a bunch of proprietary information about the frequency with which various players were being selected in lineup entries on a discussion board, he realized his error and quickly deleted the post, reassuring other readers that "I was the only person with this data and as a DK employee, am not allowed to play on site." But under industry contracts at the time, he was allowed to play on FanDuel (this policy has since been changed by DraftKings in the wake of the scandal), so when he won big later in the week, more than one eyebrow went up.

Officially, insider trading requires the trading of stocks, bonds, or other securities of a company by individuals with nonpublic access to information about that same company. That's not what happened here. What's more, the DraftKings employee received the information only after his FanDuel roster had been locked, which means that he would not have even been able to use this leaked information to tweak his entry.

But such pesky details don't seem to matter to public officials eager to grandstand. In the two weeks after the story broke, daily fantasy companies were hit with a request for a U.S. congressional hearing, nearly a dozen class-action lawsuits in five states demanding $5 billion in compensation, a probe by the New York attorney general, a review from the Massachusetts attorney general, an investigation by the U.S. attorney's office in Tampa, an investigation by the FBI and U.S. Justice Department, and proposals in dozens of states for laws to regulate or license daily fantasy operators. By the time this article is published the list is certain to be longer.

Sports attorney Daniel Wallach, in an appearance on C-SPAN a week after the news broke, declared that daily fantasy sports "will be regulated," predicting new rules would be in place by this time next year. "We're going to see regulation, and the transparency that you're looking for, the...