New York Attorney general Eric Schneiderman has intensified his fight with daily fantasy sites DraftKings and FanDuel, and is now seeking restitution of funds the sites made off New York players, as well as punitive fines.
Schneiderman amended his lawsuit against the two companies before New Year’s Day. The suit now wants the sites to give back the money it made in the state and pay a fine of up to $5,000 per case. That could result in a huge penalty against the sites as they took in an estimated $200 million in entry fees in 2015 from at least 600,000 customers in the state, according to ESPN.
The complaint also seeks an “accounting of monies collected from consumers in New York.”
David Boies, lawyer for DraftKings said in a statement that Schneiderman’s new filing “reveals that the Attorney General’s office still does not understand fantasy sports.”
“Like the NYAG original complaint, it is based on the fundamental misunderstanding of fantasy sports competitions,” Boies said. “Originally, the NYAG claimed that daily fantasy sports were illegal gambling because they were games of chance. That was disproven. Now, the NYAG complains that DFS contests are so much contests of skill that some advertising is misleading because, the NYAG says, certain ads imply that DFS contests are games of chance. This claim, too, is baseless.”
FanDuel also issued a statement saying it would continue to fight the lawsuit.
“As we have previously iterated, FanDuel remains committed to offering our fantasy contests to the Yankees, Mets, Jets, Giants, Bills, Knicks, Nets, Rangers, Islanders and Sabres fans that comprise the great state of New York and love fantasy sports—be it season-long or daily,” the statement said. “As one of New York’s fastest growing startup companies, we are thoroughly disappointed in the Attorney General’s ongoing actions and will fight this meritless, amended suit until fantasy sports are safeguarded for all sports fans.”
Schneiderman sued to shut down the two sites last month and was granted a temporary injunction that would have closed the sites. DraftKings and FanDuel, however, appealed the injunction and received their own temporary injunction that has allowed them to keep operating in the state.
DraftKings also asked the court in a filing—the case is being heard in New York’s Supreme Court—to “preserve the status quo” while their appeal plays out and charged that Schneiderman “rushed to judgment” in declaring daily fantasy sports illegal.
Schneiderman initially ruled that daily fantasy sports violate the state’s gambling laws and their operations in the state constituted and illegal gambling operation. The amended complaint focused on alleged the deceptive advertising practices of the companies including deposit bonuses that he calls a “convoluted scheme,” ESPN reported.
For example, the complaint points to a DraftKings promotion that promised a $600 deposit bonus that, Schneiderman said, would yield the customer only $24 back. The full $600 would unlock only after the customer had spent at least $15,000 on the site. FanDuel had a $200 bonus that Schneiderman claims would initially yield only $8 and would fully unlock only when the customer spent at least $5,000, according to ESPN’s review of the complaint.
Schneiderman also said that both sites displayed gross winning totals, which didn’t reflect the reality of customers’ net losses. The new complaint cites that only 11.7 percent of DraftKings customers had a net positive return in 2013 and 2014, ESPN said.
The sites argue that their players engage in contests against each other and do not make direct bets. Most DFS sites accept entry fees into a larger tournament type game. They also argue that DFS is a game of skill and not gambling.
Other Developments
Mark Cuban, owner of the Dallas Mavericks, has become an investor in Fantasy Labs, a daily fantasy sports analytics platform, according to a report in Forbes magazine.
Terms of the investment were not disclosed, but Fantasy Labs co-founder Jonathan Bales told the magazine it is a “significant enough amount of money to bring on a bunch of talented people so we can really scale our product development to create new tools and expand to new verticals, as well as ramp up marketing efforts.”
Cuban apparently sees a future in daily fantasy sports despite the industry’s legality being challenged in a number of states, including Illinois, Nevada and Florida, among others.
“The explosive growth of fantasy sports, and its involvement with new categories of competition like eSports, increase the need for high-end resources like the platform offered by Fantasy Labs,” Cuban said in a statement. “I’m excited to be involved with a company that is working to advance an industry that is poised for huge growth.”
Cuban has noted that daily fantasy sports has the potential for international growth outside the U.S. in previous interviews.
Fantasy Labs provides a platform of proprietary daily fantasy sports data, tools and analytics, allowing users to leverage its database of stats and information for a competitive advantage. It provides a “Lineup Optimizer” that automatically generates optimal lineups based on player projection models and a “Trends” feature, allowing users to determine what factors are priced into player salaries on DraftKings and FanDuel, Forbes reported.
And in California, a bill to regulate daily fantasy sports sites was approved by a state Assembly committee. The bill would authorize California companies to offer Internet fantasy sports after obtaining licenses from the California Department of Justice. It passed the Assembly Governmental Organization Committee on a 17-1 vote, according to the Sacramento Bee.
Racetrack Revealed
In New Jersey, Monmouth Park Racetrack has partnered with fledgling daily fantasy sports in a DFS site.
The site bears the Monmouth Park name, but is operated Star Fantasy Leagues based out of Rochester, N.Y.
“This has been many months in the making,” Bill Knauf, the vice president of business operations for Monmouth, said in a press statement. “We are pleased to partner with Star Fantasy Leagues as we continue our goal of an increased gaming and entertainment presence in New Jersey.”
The racetrack has been aggressively trying to expand its gambling opportunities and has been at the forefront of the state’s efforts to legalize sports betting. The track’s operators Darby Development—a company established the New Jersey Thoroughbred Horsemen’s Association—also has partnered with Betfair to launch an exchange-wagering platform that allows customers to offer their own bets on horse races. The platform could go live later this year.
New Jersey is one of many states currently reviewing the status of daily fantasy sports in the state, but has yet to introduce legislation to regulate the industry. There has not been a move to ban DFS sites in the state, however.
Illinois Questions
Meanwhile, in a letter to Illinois House Speaker Michael Madigan, state Rep. Scott Drury recently requested a special committee be established to investigate daily fantasy sports betting, following state Attorney General Lisa Madigan’s ruling last month that the games are illegal.
Drury wrote the committee is needed to help lawmakers make informed decisions about any state legislation regarding fantasy sports betting. He added the committee should have the power to subpoena documents and take testimony under oath.
Both Boston-based DraftKings and New York-based FanDuel filed separate lawsuits against Madigan. Nevada and New York also recently declared fantasy sports contests are illegal.
Ohio Studies Legality of DFS
Ohio is continuing to study the issue of whether Daily Fantasy Sports (DFS) are legal in the Buckeye State.
In a statement released by the State House’s Permanent Joint Committee on Gaming and Wagering it said, “Time has not permitted this committee to extensively review the details of daily fantasy sports play in 2015. In light of recent events, however, it would be wise to explore the issue further, either through the efforts of this committee or possibly through legislation in the Ohio House and Senate.”
Ohio is one of several states studying whether to ban or simply regulate DFS. Eight have determined that it violates federal law.
Last week Senator Bill Coley, chairman of the joint committee, told reporters,
“If it is gambling, then it’s illegal under Ohio law,” Coley told local media. “If it’s a game of skill, then it doesn’t seem to cleanly fit into the skill-game definition under the Ohio Revised Code. There’s a lot of ambiguity.”
Legislators plan to discuss the issue at a retreat that will be held this month.
