It’s still not clear if DraftKings and FanDuel will have to exit New York state after a judge delayed ruling on a move by the New York attorney general to ban the two sites.
A two-hour hearing on New York Attorney General Eric Schneiderman’s ruling that daily fantasy sports is illegal under New York law was held last week. But New York Supreme Court Justice Manuel Mendez did not issue a decision at the hearing, saying he will take one to two weeks to rule on the case. He did say his ruling would “come very soon.”
Schneiderman had sent cease and desist letters to the two DFS sites, but needs a court order to actually shut them down. Despite that, FanDuel has suspended taking bets form New York players.
Schneiderman was seeking an injunction to shut down the sites before Mendez, but the hearing is likely just the first in a long legal battle to come.
During the hearing, Schneiderman repeated his claim that the two sites have conducted a “massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country.” He maintains that the sites violate New York law which defines gambling as a game in which the player, “stakes or risks something of value” on an event where the outcome is “not under his control or influence.”
The two DFS sites maintain that daily fantasy sports are a game of skill, since players use knowledge of the sport to pick their players.
According to a report in Fortune magazine, Mendez seemed to side with the state on the point commenting that fantasy sports players are “relying on someone else’s skill.”
However, lawyers for the sites said their own records show that a small group of skilled players consistently win most contests, proving they are skill-based.
David Boies, an attorney for Boston-based DraftKings, also argued that since season-long fantasy sports are permissible under state law, then daily fantasy sports should be as well, according to the Associated Press.
“In fantasy you are betting on what happens in the fantasy world,” Bois said. “You’re competing not against the house, but you’re competing against other fantasy players.”
In a court brief, DraftKings said that daily fantasy sports been legal for years in New York and that it requires more skill and less chance than seasonal fantasy sports. That makes daily fantasy sports a game of skill and does not violate New York’s gambling statutes.
DraftKings also argues that DFS players are paying an entry fee and attempting to win prizes and not putting a bet at risk.
In traditional season-long fantasy sports, players draft teams and compete against each other in a small group. Any betting is between the group members. In daily fantasy sports, players pay an entry fee and play against possibly thousands of other players for prizes.
After the hearing, DraftKings released a press statement.
“Today, we presented compelling evidence that daily fantasy sports competitions are as legal now as they have been for the past seven years that New Yorkers have been playing them. We look forward to Justice Mendez’s ruling.”
Attorney General Schneiderman’s office also released a statement saying “We were glad to have the opportunity to make our case to the court that DraftKings and FanDuel are operating illegal gambling operations in clear violation of the law, and we await the judge’s decision.”
Other Developments
According to the New York Post, DraftKings owes about $400 million in advertising deals with ESPN and Fox, despite the fact that DFS revenues have been falling since an insider information scandal broke in September.
Then it was disclosed that an employee from DraftKings won $350,000 in a contest on FanDuel and that employees of the two sites regularly play their competitors sites. That led to charges the employees could be using inside information to play. The DraftKings employee had “inadvertently” posted information on player ownership before week three NFL games were played.
An investigation by DraftKings found that the employee did not have the information before setting his roster on FanDuel. Both sites, however, banned their employees from playing on competitor’s sites.
In another report in the New York Times, DraftKings has closed a loophole that allowed players in states that have banned daily fantasy sports to play using proxy servers. Times staff tried to access a previously assessable site in Iowa—which has banned fantasy sports—but found the site is now blocked.
DraftKings then announced that it has partnered GeoComply, a company that provides geolocation services to legal gambling operations in the United States.
“Common methods used to circumvent location checks such as proxies are restricted and will invalidate a player’s eligibility,” a DraftKings statement said.
DraftKings also announced that it has retained Exiger, a global regulatory risk and compliance firm, to help develop consumer safety protections for the site.
“Exiger represents the gold standard in corporate compliance and integrity assurance,” said Jason Robins, CEO of DraftKings in a press statement. “We are opening our operations to Exiger for a deep and detailed review to help us ensure we are employing best practices and are conducting our business with the highest compliance standards. Exiger’s expertise and recommendations will help us continue to offer safe, fun and fair games to the millions of people who enjoy playing them.”
Meanwhile, FanDuel has formed a new internal advisory board, chaired by former US Attorney for the Southern District of New York Michael Garcia. The board will continue an ongoing review of its internal standards, practices and controls, the company said in a press statement.
The PGA Tour has also prohibited its players from playing with or endorsing daily fantasy sports providers.
According to a September 24 memo sent to players, “fantasy gaming websites that pay out money in exchange for an entry fee, as well as other wagering websites and apps, are considered illegal in many states. Therefore, the PGA Tour will regard any player participation in these games as conduct unbecoming of a professional.”
Sports Illustrated also reported that two Florida-based DFS customers—Antonio Gomez and John Gerecs—e-filed a class action lawsuit in the U.S. District Court for the Southern District of Florida against approximately 50 companies and individuals that have either invested in DFS companies or facilitated DFS gaming.
Among those named in the suit are the National Basketball Association, Major League Baseball Ventures, National Hockey League Ventures and Major League Soccer plus New England Patriots owner Robert Kraft, Dallas Cowboy owner Jerry Jones, and New York Knicks owner James Dolan.
