In a major blow to the daily fantasy sports industry, New York’s attorney general has ruled that daily fantasy sports sites engage in illegal betting and ordered the sites to stop accepting wagers for New York players.
New York Attorney General Eric Schneiderman made the latest ruling, which contests the industry’s assertion that daily fantasy sports is a game of skill and not gambling. His office has issued a cease and desist order to DFS sites DraftKings and FanDuel.
New York now joins Nevada in ruling that DFS is gambling, but since sports betting is legal in Nevada, gaming regulators there did not ban DFS sites outright. They did require them to receive Nevada gaming licenses to accept bets in Nevada. DFS sites including the major sites DraftKings and FanDuel have since stopped accepting bets from Nevada.
Schneiderman’s ruling states that DFS games are illegal under New York law.
“Our investigation has found that, unlike traditional fantasy sports, daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling and misleading New York consumers,” Schneiderman said in a statement to ESPN. “Daily fantasy sports is neither victimless nor harmless, and it is clear that DraftKings and FanDuel are the leaders of a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country. Today we have sent a clear message: not in New York and not on my watch.”
Schneiderman concluded that in daily fantasy sports, “a person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence.”
Schneiderman also said the DFS industry is creating the same problems with gambling addiction and problem gamblers as other forms of gambling.
In traditional fantasy sports, groups of friends draft players for a season-long contest. Any betting is done between players in the group. In daily fantasy sports, players pay entry fees and compete against a large field of players for a share of a prize pool.
The industry also claims it is exempt from the federal 2006 unlawful internet gambling act under a special carve out for fantasy sports in that law. However, that law was passed before most daily fantasy sports sites began operating.
Several analysts also point to a contention by Schneiderman that despite advertising that anyone can win, most DFS games are dominated by a small group of experienced expert players. That would indicate that skill, not chance, is responsible for most DFS wins, they argue.
DraftKings and FanDuel officials said they intend to fight Schneiderman’s ruling.
“We are very disappointed that New York Attorney General Eric Schneiderman took such hasty action today, particularly since he did not take any time to understand our business or why daily fantasy sports are clearly a game of skill,” DraftKings said in a released statement. “We strongly disagree with the reasoning in his opinion and will examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.”
FanDuel made a similar statement to ESPN.
“Fantasy sports is a game of skill and legal under New York State law.” The company said. “This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, coworkers and players across the country. The game has been played—legally—in New York for years and years, but after the Attorney General realized he could now get himself some press coverage, he decided a game that has been around for a long, long time is suddenly now not legal. We have operated openly and lawfully in New York for several years. The only thing that changed today is the Attorney General’s mind.”
On Friday, both DraftKings and FanDuel filed suit against Schneiderman’s decision.
“He has unleashed an irresponsible, irrational, and illegal campaign to destroy a legitimate industry, intending to deprive hundreds of thousands of New Yorkers of the use and enjoyment of these services,” according to the lawsuit filed by Randy M. Mastro, a former New York City deputy mayor under Rudolph Giuliani.
The two sites separately asked a Manhattan court for an injunction against Schneiderman’s decision, stressing that the games are skill based, not chance.
A spokesman for the attorney general stood by his decision.
“DraftKings and FanDuel are operating illegal sports betting websites under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling,” said Damien LaVera.
Despite the sites’ stance, Legal Sports Report said a major—but unnamed—payment processor for the two sites has instructed the sites not to accept payments from New York players.
And four smaller DFS sites operated by TopLine Game labs LLC said it will shut down its sites, DailyMVP, DraftDay, DraftOps and MondoGoal Trading Ltd.—an international platform focused on soccer—in New York, Bloomberg News reported.
Schneiderman began his investigation into DraftKings and FanDuel after news broke last month of an “insider trading” scandal. It was revealed that employees of the two sites often played and won money on the competing site.
An employee of DraftKings inadvertently posted information on player ownership statistic prior to week three NFL games. That led to charges he had used insider information from DraftKings to win $350,000 in a contest at FanDuel.
DraftKings conducted an internal investigation and found that the employee had set his roster at FanDuel before he received the information, but news of the scandal sparked a spate of federal and state-run investigation into the industry. Both sites have since blocked their employees from playing on competing sites.
New Jersey Hears Testimony
Meanwhile, neighboring New Jersey—which has legalized online gambling—began hearings in its state Assembly on a proposal to regulate DFS sites.
The New Jersey proposal, however, would classify daily fantasy sports as a game of skill.
Representatives of the industry addressing a state Assembly panel said the industry is open to some regulation, but asked the state to impose light restrictions and not casino-style regulations.
“We believe in common-sense regulation,” said Jeremy N. Kudon, an attorney representing the Fantasy Sports Trade Association.
Kudon again pointed to the industry’s stance that fantasy sports are a game of skill and estimated 1.5 million New Jersey residents play at DFS sites.
Assemblyman Ralph R. Caputo (D., Essex), chairman of the Assembly Tourism, Gaming and Arts Committee, said that while he agrees that DFS is a game of skill, the state will still consider closely regulating the industry.
“It’s going to be regulated, one way or the other, and it might not be the way you want,” Caputo said according to Philly.com.
Though a draft bill has been proposed to regulate DFS sites and submit them to the same screening and licensing as casinos and online gambling sites, no bill has been introduced in the state legislature.
Caputo said he has been in discussions with New Jersey Governor Chris Christie’s office and said it has been decided that DFS legislation should wait until a final decision is made on the state’s attempts to allow sports betting in the state.
New Jersey is waiting for a ruling on a federal appeal to allow self-regulated sports betting at its casinos and racetracks.
“We should wait and see what guidance we get from this court first,” Caputo said according to NorthJersey.com
In a related matter, New Jersey Congressman Frank Pallone and New Jersey senator Robert Menendez called for the Federal Trade Commission to regulate fantasy sports. Menendez and Frank Pallone in a letter to FTC Chair Edith Ramirez said her organization was best positioned “to promulgate common sense regulation” on daily fantasy sports websites, according to The Hill newspaper.
“While traditional gambling establishments are highly regulated through both state and federal law, and online gambling and sports betting is severely restricted, daily fantasy sports remains completely uncontrolled,” Menendez and Pallone wrote in the letter.
Pallone and Menendez also said the agency should consider examining the relationships between professional sports leagues and daily fantasy sites, the paper reported.
Pallone was one of the first to call for federal hearings on the DFS industry even before the insider trading scandal. Since the scandal, the two have urged the FTC to investigate the industry.
FTC Chairwoman Edith Ramirez has told the lawmakers in a previous letter that she feels the FTC has the authority to investigate the industry.
Pennsylvania and Other States
A bill before Pennsylvania’s House of Representatives would address the recent legality concerns over daily fantasy sports by restricting DFS operations to the state’s 12 current casino licensees.
The bill sponsored by Rep. George Dunbar is gaining traction after New York Attorney General Eric Schneiderman’s order last week to New York-based FanDuel and Boston-based DraftKings to stop accepting bets in that state, which considers DFS illegal gambling, and Nevada regulators’ order last month that DFS operators must obtain gambling licenses.
“As dominoes continue to fall, my approach may be more palatable to the (daily fantasy sports) industry now,” Dunbar told the Associated Press. “We will have to wait and see how this plays out. My plan, since Pennsylvania is a gaming state, is to ensure consumer protection while allowing the industry to continue to operate.”
Dunbar’s bill is currently pending before the House Gaming Oversight Committee.
In Florida—site of a federal Grand Jury investigation into DFS—two state lawmakers have proposed a bill that would make daily fantasy sports legal in the state.
State Senator Joe Negron along with Rep. Matt Gaetz, proposed a bill that would exempt fantasy sports from the state’s gambling laws. The measure also would require companies to register with the state and would put some restrictions on their operations. It would make it illegal for anyone under 18 to participate.
“I don’t think we want to criminalize that kind of activity,” Negron told the Associated Press.
And in Massachusetts, state Attorney General Maura Healey told the AP that her review of daily fantasy sports sites would not be influenced by New York’s move against DraftKings and FanDuel. Healey had said she felt the games were legal, but urged legislators to enact consumer protections on the industry.
Massachusetts is also considering regulations for the industry. The Massachusetts Lottery last week said that it is considering offering a daily fantasy sports game, where players put together teams of athletes who score based on how they do in actual games. Players pay fees and compete for cash prizes.
Such games are being looked at closely by law enforcement and the Massachusetts Gaming Commission as to their legality.
Lottery Executive Director Michael Sweeney said, “Until such time as it becomes absolutely clear that this is illegal, we have an obligation to really grapple with the potential. It’s about figuring out what’s the next step. How do lotteries engage the technology of the mobile and online world and what should that look like, if anything?”
Several state lotteries are looking at offering a daily fantasy sports game. Only Montana is actually offering one, but it’s version is not completely online. Players fill out physical game cards and take them to physical locations just as they would a lottery ticket.
Sweeney said the Lottery will continue with its fact-finding, which will include a formal “request for information,” which would not obligate any state agency to make any kind of commitment. It will, he hopes, spur industry experts and members of the industry, such as DraftKings, to respond.
“We’re always going to be exploring how to get reasonable and responsible growth. That’s incumbent on any business,” he said.
DraftKings points to a federal law that they interpret as exempting fantasy sports from a national ban on online gaming.
“There are a lot of moving parts,” said the director. “We’ll try to cover as much of the gamut as possible. We’ll ask about products that are completed and ready to go and products in development. We’ll ask about various aspects of consumer protection like location services, securing bank transactions and age verification.”
The legislature would not to pass a bill authorizing the lottery to offer fantasy sports games. State Treasurer Deb Goldberg, who oversees the lottery, supports this, but Governor Charlie Baker has voiced doubts.
Studies indicate that players of fantasy sorts tend to be an older crowd that doesn’t include gamblers in their 20s and 30s.
