DraftKings and FanDuel were the main daily fantasy sites pointed to by New York’s attorney general when he ruled that the sites conduct illegal gambling under New York law, but reports have surfaced that Yahoo fantasy sports are also being targeted.
In a court filing last week, New York attorney general Eric T. Schneiderman called DraftKings and FanDuel “nothing more than a rebranding of sports betting” and “plainly illegal.” He is seeking to ban the two sites from operating in the state and accepting bets from New York players.
Schneiderman alleged nine causes of action apiece of wrongdoing, including fraud, against the two companies.
New York law defines gambling as a wager dependent on two things: “a contest of chance” and “a future contingent event not under the bettor’s control or influence,” Schneiderman wrote. If daily fantasy sports meets just one of the two definitions, he said, it would be considered gambling.
Though Schneiderman has ordered the sites to stop operating in New York, he still needs a court order to shut them down. He is seeking a preliminary injunction against DraftKings and FanDuel. A hearing on Schneiderman’s cease and desist order is scheduled for Nov. 25.
In the court papers, Schneiderman accused the companies of having ties to the gambling industry, collecting user fees from contestants in states where the sites are barred, and raising false hopes of winning when nearly 90 percent of players lost money, according to a report in the New York Times.
According to several reports in the New York Times, Reuters and USA Today, Schneiderman also is considering taking action against Yahoo fantasy sports and Yahoo has been subpoenaed in the investigation. Yahoo has long provided a platform for traditional season-long fantasy sports, but also launched daily fantasy contests in July.
According to the report in USA Today citing an unnamed source, Schneiderman’s inquiry did not initially focus on Yahoo as the probe was spurred by a report on an insider trading scandal between DraftKings and FanDuel.
“Yahoo does not comment on legal matters,” a Yahoo spokesperson told the paper. “We are monitoring industry trends and events closely and believe that we offer a lawful product for our daily fantasy sports users.”
The Wall Street Journal also reported that some smaller DFS operators may also be drawing attention in New York.
FanDuel and DraftKings have both vowed to fight Schneiderman’s ruling, but were rebuffed in court last week when they were denied a temporary restraining order by Judge Manuel Mendez to block Schneiderman’s cease and desist order. The November 25 hearing is also before Mendez.
“We will press on and fight to ensure that your right to play fantasy sports is protected, not just in New York, but across the nation,” FanDuel said in a statement.
However, FanDuel has since stopped accepting New York players.
“We believe that this restriction is temporary and we hope to be able to offer our paid contests to New Yorkers again very soon,” FanDuel said.
DraftKings said in an e-mail to customers that it will continue to operate in New York until ordered closed by a court ruling.
“To be clear: Your right to play DFS in New York will remain unchanged unless a New York court decides otherwise,” the DraftKings e-mail stated.
Both DFS companies told Mendez in seeking the restraining order that they have a lot to lose should they be shut out of New York. The state accounts for 5 percent of FanDuel’s customers and more than 7 percent for DraftKings, according to the companies’ court filings. The two companies estimate they would lose $35 million in annual revenue if banned in New York.
Schneiderman, however, outlined several points against the sites in his court filing, including that the sites pitch themselves to investors as gambling sites, encouraged their employees to play on competing sites and that the sites embed gambling “key” words to attract players using internet searches. The complaint also alleges that the sites contribute to problem gambling.
Schneiderman also rejects the site’s assertion that daily fantasy sports is a game of skill.
“Here, chance plays just as much of a role (if not more) than it does in games like poker and blackjack,” he wrote. “A few good players in a poker tournament may rise to the top based on their skill; but the game is still gambling. So is DFS.”
In a related matter, the New York Post ran a report outlining that Schneiderman has received political support and campaign money from several sources involving New York racetracks and casino interests.
The report pointed out that many brick-and-mortar casinos and racetrack officials see DFS as an unlicensed competitor. A spokesman for Schneiderman told the paper that decisions on investigations are based on matters of law and nothing else.
In the same vein, FoxSports, owned by the same Rupert Murdoch-led media group as the Post, is a major investor in DraftKings.
Also in New York, State Sen. Michael Ranzenhofer has introduced a bill to the state legislature that would classify daily fantasy sports as a game of skill, thus undercutting Schneiderman’s ruling.
“We have an activity here in New York which is legal,” Ranzenhofer said in a press statement. “The attorney general last week made a unilateral decision that in his opinion fantasy sports is illegal. I think that’s wrong.’
Other Developments
Developments also continued in a number of state’s reviewing daily fantasy sports operations.
In Massachusetts, state Attorney General Maura Healey released a set of consumer protections she wants to see implemented by DFS sites.
Healey, however, still has not ruled that the games are illegal. Healey had actually said the games were legal in the state before Schneiderman’s action and also before Nevada ruled that daily fantasy sports is sports betting and the site’s require a state gaming license.
She had called for better consumer protections, which she has now outlined.
“These regulations are a first of their kind for the daily fantasy sports industry and they focus on protecting minors, ensuring truthful advertising, bringing more transparency to the industry and leveling the playing field for all consumers,” Healey said in a statement.
Healey has proposed that the sites not accept bets from players under 21. She also proposed a prohibition on anyone connected to professional sports, including athletes and agents, from participating in paid fantasy contests involving their sports.
According to the Wall Street Journal, she also proposes to bar daily fantasy companies from promoting themselves on college campuses and require that the most experienced players are identifiable to novices and can’t participate in games intended for beginners.
The attorney general also proposed preventing players from making deposits of more than $1,000 a month unless they verify they have the financial ability to sustain high losses, according to the Journal.
Healey wants to see the rules put in place in Massachusetts through her office after receiving public comment, rather than through legislation, she said.
DraftKings—which is based in Boston—called the proposed rules, “a thoughtful and comprehensive approach.”
“While we do have some concerns with the draft regulations, we intend to work closely with the attorney general’s office to ensure we are operating in the best interest of our customers,” the company said in a press statement.
The Massachusetts Gaming Commission is also continuing a study of daily fantasy sports. But in a possible sign of how divided opinions are on daily fantasy sports, the state’s Governor Charlie Baker told the Associated Press he does not consider daily fantasy sports to be a form of gambling but the state’s senate president Stanley Rosenberg said DFS is gambling and compared it to betting on horseracing.
In South Dakota, the state Commission on Gaming has begun a review of daily fantasy sports and held a hearing on the industry. Several lobbyists for the DFS industry told the commission that as games of skill, DFS sites do not violate the state’s gambling laws. More than 25,000 state residents are estimated to play daily fantasy sports, according to the lobbyists.
However, Mike Rodman, executive director of the Deadwood Gaming Association, called for regulation of DFS sites in the state, according to the Associated Press.
South Dakota Attorney General Marty Jackley has said he’ll await potential guidance from the commission before deciding whether to take any action, according to the AP, but has also said he believes his office can take action against the sites.
Commission members, however, said that online betting falls outside of their jurisdiction.
Jackley said he also wants the National Association of Attorneys General gambling committee to potentially weigh in on the subject, the AP report said.
In Georgia, state Attorney General Sam Olens said his office is also investigating whether daily fantasy sports violate state law in the wake of the rulings in New York, according to the AP., but said s decision is still pending.
Lawmakers and regulators in Ohio, Rhode Island and Maryland all announced that they are starting reviews of daily fantasy sports, adding to a growing list of state looking at the industry.
In some other matters, Bloomberg News reported that DraftKings appears to be trying to pull back its profile in the midst of the scrutiny. The new service cited unnamed sources as saying DraftKings has asked some of its National Basketball Association partners to defer about 10 percent of its committed payments. The company has also asked that its signs and banners in arenas show up on television less often.
DraftKings did not confirm the report.
“We have good relations and are in good standing with all of our partner teams. We are always in dialogue with them, including now,” DraftKings said in a statement.
The Wall Street Journal also reported that small DFSD operator TradeSports.come has shut down completely in the wake of the growing controversy.
“Recent negative events in the industry have already increased our costs of operating (and will most likely continue to do so); or perhaps even prevent operations all-together,” the company said according to the Journal. “Put simply: We aren’t making enough money, and it’s now going to be much harder to do so in the future.”
Also Vantiv, a Cincinnati-based firm that helps facilitate credit card payments for some daily fantasy sports sites has been identified as the payment service that has advised DFS sites to stop accepting New York players, according to Bloomberg.
