In July, I commented on DraftKings: their nearly billion dollar valuation and the business’s legality under federal law. Since then, DraftKings, and it’s rival twin FanDuel, have continued to be greatly successful. With the start of the 2015 NFL season, sports fans are increasingly using their sites and profits are likely high.

In the past month, these fantasy sports betting sites have had some bad press. For instance, regulators and investigators, including New York’s attorney general took notice when it was revealed that employees play on competing sites. During Week 3 of the NFL season DraftKings employee Ethan Haskell won $350,000 while using FanDuel. Skill? Coincidence? Or perhaps use of inside information? Regardless, both sites responded by banning their employees from using other fantasy sports betting sites.

In the midst of this backlash, yesterday, 10/15/15, the Nevada Gaming Control Board ordered DraftKings and FanDuel to cease operations in their state until they obtain a Nevada gambling license. The Board’s order and accompanying memo composed by the Office of the Nevada Attorney General did not address the businesses’ legality under Federal law. It solely answered whether “daily fantasy sports constitute gambling games, sports pools, and/or lotteries under the Nevada Gaming Control Act and Gaming Commission Regulations” and therefore needed to be licensed. The short answer was in the affirmative as to it constituting “gambling games” and “sports pools”, and it may constitute “lotteries.”

I also found it interesting that the first footnote of the memo reads:

This conclusion—-that daily fantasy sports are gambling—-is consistent with how operators of certain daily fantasy sports describe themselves. For example, Jason Robins (the owner, co-founder, and CEO of DraftKings) stated that the concept for DraftKings.com was ‘‘almost identical to a casino.’’

Will other states that have banned or regulated gambling follow suit? How long will these sites remain legal under federal law?

 

Joshua Sureck

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One Response to Trouble Brewing for DraftKings and FanDuel

  1. Mallik Yamusah says:

    Having grown up in New Jersey, it has been interesting to watch as the state continues to fight to legalize gambling on sporting events within the state. About two weeks ago, the Third Circuit agreed to convene en banc to reconsider its earlier panel decision prohibiting sports gambling. While professional sports leagues have fought the state arguing that allowing sports betting would harm the integrity of competition, it is interesting to note that the leagues have also invested in fantasy sports. The New York Times stated that “the N.B.A. has a stake in FanDuel, and Major League Baseball and the N.F.L. team owners Robert K. Kraft of the New England Patriots and Jerry Jones of the Dallas Cowboys have stakes in DraftKings.” If other states like Nevada continue to conclude that daily sports leagues are gambling as you mention in your post, it will be interesting to see how the leagues will proceed before before the Third Circuit, with interests seemingly on both sides of the issue.